´This proposed acquisition represents a defining moment for Tata Steel and is entirely consistent with our strategy of growth through international expansion. orus and Tata Steel are companies with long, proud histories. We have compatible cultures of commitment to stakeholders and complementary strengths in technology, efficiency, product mix and geographical spread. Together we will be even better equipped to remain at the leading edge of the fast changing steel industry.µ


´This offer from Tata Steel reflects the substantial value created for orus shareholders since the placing and open offer and launch of our ´Restoring Successµ programme in 2003. In the middle of last year, my board agreed a strategic way forward for orus to seek access to low cost production and high growth markets. onsistent with this, the ompany held talks with a number of parties from Brazil, Russia and India. This transaction represents the culmination of these talks. This combination with Tata, for orus shareholders and employees alike, represents the right partner at the right time at the right price and on the right terms. This creates a well balanced company, strategically well placed to compete in an increasingly competitive global environment.µ

€ It had the capacity to produce 28.€ On January 31st 2007.1million tons of steel per annum.7 billion . Tata-Corus employed 44000 people across 45 countries in the world. India based Tata steel acquired the Anglo Dutch steel company Corus Group plc for US $ 13. making it the sixth largest steel producer in the world as of early 2007 . € The merged entity.

€ Tata Steel had first offered to pay 455 Pence per share of Corus . to close the deal at US $ 7.6 Billion on October 17th 2006. CSN then offered 475 pence per share of Corus on Nov 17th 2006 .€ Tata Steel outbid the Brazilian steel maker CSN final offer of 603 pence per share by offering 608 pence per share to acquire Corus.

Tata steel could finally clinch the deal with its final bid 608 pence per share. € Many analysts and Industry experts felt that the acquisition deal was rather expensive for Tata Steel and this move overvalue the steel industry world over. almost 34% higher than the first bid of 455 pence per share. an auction was initiated on January 31st 2007 . and after nine rounds of bidding .. € Finally .

€ Tata steel is a part of the Tata Group. € Groups market capitalization was US $ 63 billion as of 2008. € Group . companies generated revenues of US $ 70.8 billion in the financial year 200809.One of the largest diversified business conglomerates in India.

€ Tata steel generated sales of 17452 crore in financial year 06-07. . € The company produced around 5 million tonnes of crude steel in 2007.The company·s profit in the same year was Rs 4222. € Tata steel operating margin were 40% in the year 2007.

.€ Global presence in over 50 developed European and fast growing Asian markets. with manufacturing units in 26 countries. € Ranked 56th producers in the world before Acquisition and ranked 5th after acquisition. with an annual crude steel production capacity of 28 Million Tonnes Per Annum (MTPA).

Coal.€ Self sufficient in raw material ² Iron Ore 100 % . € One of the lowest cost producers of steel in the world. . € Strong retail and distribution network in India and South East Asia.largely self sufficient.

Norway and Belgium € The company produced around 18 million tonnes of crude steel in 2005. France.€ Formed on 6th Oct 1999. The Netherlands. Germany. . through merger of 2 companies : British Steel and Koninklijke Hoogovens € Corus has manufacturing operations in many countries with major plants located in the UK.

‡ Annual turnover of £9. France and Belgium & sales offices/service centres in over 40 countries .300 employees worldwide ‡ Major manufacturing sites in UK.1 bn . with 47. Netherlands. Germany.

Aluminum and Distribution. Long products. .€ 9th largest steel producer in the world and the 2nd largest producer in Europe € Consist of four divisions : Strip products. Building system.

€ Supplier to many of the most demanding markets worldwide including construction. automotive. which is the 6th largest global steel producer . packaging. engineering € Corus was acquired by Tata Steel in 2007 and is now part of Tata Steel Group.

TATA STEEL Continuous improvement program ´ASPIREµ Core Values : Trusteeship Integrity Respect for Individual Credibility Excellence World class governance CORUS Continuous improvement program ´The Corus Wayµ Core Values.Code of Ethics Integrity Creating Value in Steel Customer focus Selective Growth Respect for our people World class governance .

Before the acquisition After the acquisition Europe 8% 23% 69% India Asia (ex India) ROW 8% 9% 37% Asia UK 22% 24% Nort America ROW .

Combined Entity has significant market presence in both emerging and developed economies Source :.Tata Steel FY 2005-06 Annual Report & Corus 2005 Annual Report .

€ Strengths 1. 2. Lowest Cost Producer in world Experience of TATA group in doing global acquisitions Low debt to equity ratio 2. 3. € Weakness 1. Corus was triple the size of TATA steels in terms of production Quality of Steel was not of International standards .

€ Threats 1.€ Opportunities 1. To get exposed to the global steel market ( will save time and learning space for them) Consolidation trend in Steel Industry 2. Brazilian player CSN Russian player Severstal . 2.

World·s ninth largest and Europe·s second largest steel producer Wide range of products Presence of operating facilities spread in whole EU 1. . 3. € Weakness 2. Corus was bleeding because of high operational costs Low operating margin 2.€ Strengths 1.

€ Threats 1. Huge pension liability might have led to collapse of the deal isagreement of Labor and government due to possibility of job cut .€ Opportunities 1. 2. Consolidation trend in Steel Industry To get right price at a time when market is less volatile 2.

7 32.NO.9 30.S.7 19.4 17.5 . 1 2 3 4 5 6 7 8 9 10 COMPANY Arcelor Mittal Nippon steel POSCO (South korea) JFE Steel (Japan) Tata Corus Baosteel (China) US Steel Nucor Riva (Italy) Thyssenkrupp (Ger) CRUDE STEEL PRODUCTION (in million tons) 109.9 27 22.5 29.5 16.3 18.

PRODUCTION (million tonnes) INDIA CHINA 53 489 CONSUMPTION million tonne 59 432 PER CAPITA CONSUMPTION 49 KG 318 KG .

€ To tap European Mature Market. . € TATA manufactures Low Value .while Corus produce High Value Stripped products.long and flat steel products . of acquisition is lower than setting up of € Cost Green field plant & marketing and distribution channel.

of scale. .€ Helped TATA to feature in Top 10 players in world. € Technology € Economic € Corus Benefit. holds number of patents and R&D facilities.

€ The . € The combination will also allow the crossfertilization of R & capabilities in the automotive. from Europe to India.powerful combination of low cost upstream production in India with the high end downstream processing facilities of Corus will improve the competitiveness of the European operations of Corus significantly. of technology. packaging and construction sectors and there will be a transfer. best practices and expertise of senior Corus management.

7 billion Steel decided to go in for an all cash deal rather than opting for a share ²swap € As per the acquisition plan a special purpose vehicle. € Tata . a wholly owned subsidiary.€ The enterprise value of Corus including debt and other cost was estimated at US $ 13. called Tata Steel UK would be set up by Tata Steel.

acquisition was proposed to be effected under section 425 of the English Companies Act 1985 and upon approval from the Corus shareholders € The acquisition was to be structured as a 100 percent leveraged buy out funded through cash resources and loans raised by Tata Steel and the SPV € The .

100 % Corus Group Plc .Tata Steel 100 % Tata Steel Asia Holding Pvt. Ltd 100 % Tata Steel UK Ltd.

14 Billion ) and equity ( US $ 7.56) € It was planned that the acquisition would be completed through Tata Steel·s UK special purpose vehicle (SPV) named Tata Steel UK € Tata steel UK planned to raise US $6. Tata Steel opted for for a mix of debt (US $6. € To .14 Billion through a mix of high yield mezzanine and long term debt funding . Most of these loans were secured by the cash flows and assets of Corus.raise the require funds .

Lloyds and Standard Chartered bank .9 billion . eutsche Bank .66 billion through bridge loans € Banks like ABN Amro . Tata Steel·s Singapore SPV raised US $ 2. € Tata steel·s own contribution in the Corus deal amounted to US $ 4.provide for immediate funding of the acquisition . agreed to provide bridge loans to the company. € To .



2006 18979 1846 610.70 Corus 31st Dec.41 .35 % 0.74 2006-07 $ Mn 4078 1704 1440 971 23% 1.Financial just before Acquisition TATA Steel 2006-07 crores Turnover EBITDA PBT PAT Net Profit Margin EPS 17453 7288 6660 4222 23% 72.35 446 2.

7% 38 % .9% 37.6% 41.In Rs-crores YEAR 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 NET SALES 14490 15132 17453 19654 24348 25022 PAT 3474 3506 4222 4687 5202 5046 OPM 41% 38.9% 39.

1% .1% 12.In Rs-crores YEAR 2007-08 2008-09 2009-10 NET SALES 131536 147329 102393 OPERATING PROFIT 13645 13862 PAT 12350 4951 (2120) OPM 14.6 9.

47 % 10018 305 3.5 18.3.87 766 593 4.6.53 % 12845 1846 14.28% 10845 1142 10.37 % $ Mn $ Mn % -644 -741 .7 18.Category Unit FY`02 FY`03 FY`04 FY`05 FY`06 Production `000 Mt 17.04% 12165 1251 10.72 610.4 19.47 % .47 -321 -388 .8 Revenue EBIDTA EBIDTA Margin PBT Net Profit Net Profit Margin $ Mn $ Mn % 11456 512 4.1 19.35 446 3.87 649 512 4.

30000 25000 20000 15000 10000 5000 0 2004-05 2005-06 2006-07 2007-08 2008-09 3474 3506 4222 4687 5202 14489 15132 sales PAT 19654 17452 24348 .

94 1.18 13 OPM % 37.87 .74 15.34 RNOW 19.25 36.68 41.2009 EPS Dividend / share 69.19 38.61 .42 39.27 Debt/equity 1.70 16 2008 63.44 41.1 .85 16 2007 72.38 50.5 2006 59.08 20.88 .91 13 2005 42.69 31.

2009 2010 2011 PROFIT 5202 EPS 42 PE RATIO 38 5046 72 22 5872 85 18 .

55 20.83 foreign omestic Institutions 58.share holding pattern 20.16 .

interest. € EBITDA = Revenue.EBITDA can be used to analyze and compare profitability between companies and industries because it eliminates the effects of Financing and accounting decisions. depreciation and amortization) Enterprise Multiple = EV/EBITDA .Expenses( Excluding tax.

Stocks + Min.Cash Equivalent = 3. interest + Long Term debt . EBITDA = £ 947 Million(From Con. Operations) Enterprise Multiple= EV/EBITDA = 4.947 = 4.255/.5 billion + 0 + 26 million + 1600 million ² 871 million =£ 4.EV = Mkt Cap.4931 X .255 billion. + Pref.

€ We have a transnational comparison in our case and EV/EBITDA ignores the distorting effects of individual countries taxation policies. € It allows fair comparison of companies with different capital structures. .€ EV/EBITDA is not affected by the capital structure of a company.

34X 14.98 X 3221 4.06 $ .5 X 538 1.72 X 15.14 X 864 1.41$ CSN 6.12 $ Severstal 18.29 X 2263 0.27 $ Nucor 9.96X 0.76 X 43.90 X 4.13 X 3.Peer Comparison for FY 2006 Ratio·s EV/EBITDA EV/TON Price/Book Value P/E Ratio EPS Corus 4.69 X 2.5 X 1.

99 3.35 64.2006-07 2007-08 2008-09 EBITDA/Turnover PBT (In crores Rs) PAT(In crores Rs) PBT/Turnover Interest Coverage Ratio EPS Debt /Equity P/E 31.65 3.14% 6313 4165 24.08 % 16371 12321 12.32 66 1.12 .95 14.24 7.43 % 4.66 0.91 12.39 % 3.18 1.61 % 16.71 6.46 177.55 % 6743 4849.

‡ ‡ Valuation TATA Steel Paid 7 Times EBITDA of Corus Enterprise Value Also. The point is Arcelor has much superior assets. wider market reach and financially stronger than Corus The price paid by Tata Steel looks almost obscenely high.1.9 times EBITDA for 12 Months ended 30th September 2006 Comparing with Arcelor . .5 times.Mittal deal‡ ‡ Mittal Steel Acquired at an EBITDA of 4.

2. Interest charges ƒ ƒ New Debt of $ 8 bn @ 8% annual interest cost i.e. . $ 640 mn Corus·s existing interest debt amounts to $ 725 mn.

strength Steel Superior Automotive Steel Rods for Tyre cord Structural Sections Advanced high.Tin Plate Packaging Steels strength Steel Superior Automotive Steel Rods for Tyre cord Structural Sections Packaging Steels Tin Plate Corus Leading Position Corus Rail Rail Leading Position .Galvanized Hot Roiled Rebars Sheets Coils / wire. Ro Cold Rolled Coils Sheets ads wire Galvanized Hot Rebars / Sheets Leading Position Roiled Sheets Coils / wire. Ro Cold Rolled Coils Sheets ads wire / Sheets Leading Position Hot Roiled Coils / Sheets Hot Roiled Coils / Sheets Advanced high.

€ Tata·s new debt amounting to $8 billion due to the acquisition. This amount combined with Corus· existing interest debt charges of $400 million on an annual basis implies that the combined entity·s interest obligation will amount to approximately $725 million after the acquisition. is expected to generate up to $640 million in annual interest charges (8% annual interest cost). financed with Corus· cash flows. .

The company had four divisions-Almunium. € The . the world·s third largest Steel producer during that time.Distribution & Building products. € On October 1999 the company merged with British Steel to form Corus Group.1918.Long products& Strip products. € In 2006.history of Corus can be traced back to the early 20th century when it was founded by the Government of Netherlands in The Hauge on September 20. Corus reported an annual turn over of pound 9 billion.

since just based on the numbers alone it turns out that at the end of the bidding conflict with CSN Tata ended up paying approximately 68% above the average price of Corus·shares. .€ The debate whether Tata Steel has overpaid for acquiring Corus is most likely to be certain.






Nonrecourse debt or a nonrecourse loan is a secured loan (debt) that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable. If the borrower defaults, the lender/issuer can seize the collateral, but the lender's recovery is limited to the collateral. If the property is insufficient to cover the outstanding loan balance (for example, if real estate prices have dropped), the difference between the value of the collateral and the loan value becomes a loss for the lender. Thus, non-recourse debt is typically limited to 50% or 60% loan-to-value ratios, so that the property itself provides "overcollateralization" of the loan.

€ Quasi-Equity: A

specialized form of private equity, characterized chiefly by use of subordinated debt, or preferred stock with an equity kicker



Subordinated debt has a lower priority. Because subordinated debt is repayable after other debts have been paid, they are more risky for the lender of the money. Subordinated loans typically have a higher rate of return than senior debt due to the increased inherent risk.


In leveraged buyouts, mezzanine capital is used in conjunction with other securities to fund the purchase price of the company being acquired. Typically, mezzanine capital will be used to fill a financing gap between less expensive forms of financing (e.g., senior loans, second lien loan, high yield financings) and equity. Often, a financial sponsor will exhaust other sources of capital before turning to mezzanine capital. Financial sponsors will seek to use mezzanine capital in a leveraged buyout in order to reduce the amount of the capital invested by the private equity firm. Because mezzanine lenders typically have a lower target cost of capital than the private equity investor, using mezzanine capital can potentially enhance the private equity firm's investment returns. Additionally, middle market companies may be unable to access the high yield market due to high minimum size requirements, creating a need for flexible, private mezzanine capital.


2 billion of term debt with an average life of around 5 years at very competitive terms. € Of the total Enterprise Value of USD 14.2 billion. € . at the close of the Corus acquisition process on April 2. 2007.During the year.5 billion as bridge funding. the balance being applied out of Tata Steel·s own cash and borrowings. the company raised around USD 6. € Despite very volatile credit markets globally. the Company completed the long term financing programme for the Corus acquisition. the financing included around USD 10.

recourse in nature was determined based on the cash flow servicing capability of our European operations and will be serviced by the Tata Steel UK (Corus) cash flows. € This .debt being non . € The syndication of the above debt was completed during the year with more than 25 banks and institutions participating in the process.

€ As a result of the above.27 billion (Rs. Tata Steel raised around USD 2.On the equity side. your Company raised around USD 10 billion during the year and completed the long term fi nancing for the Corus acquisition € .120 crores)of equity and convertible preference shares on a rights basis. 9. € The Company further raised around USD 875 million in Convertible Alternate Reference Securities (CARS) which is a 5 years convertible instrument with a coupon of 1% and a conversion premium of 35% to the prevailing market price in August 2007.

€ Tata steel group results were enhanced by dramatic turnaround in the performance TS Europe . which reported a positive EBIDTA of Rs 2303 crores in H2 FY10 compared to an EBIDTA loss in H1 FY10 of Rs 3655 crores .


14 2.MODE AMOUNT (in US $ Billion) Break-up of Tata Steel Equity Contribution in US Million Tata Steel UK Tata Steel Singapore Tata steel Equity contribution Cash reserve External commercial borrowing Preference shares to Tata sons Rights issue«««««. Convertible Preference shares Foreign issue Sub Total Grand Total 6.66 4.7 .9 700 500 640 862 1400 798 4900 13.

It takes into account the debt which the acquirer will have to assume. € 1) . a company with a low enterprise multiple can be viewed as a good takeover candidate. Enterprise value is a better metric than market cap for takeovers.It's useful for transnational comparisons because it ignores the distorting effects of individual countries' taxation policies. € 2) It's used to find attractive takeover candidates. Therefore.

it's important to compare the multiple to other companies or to the industry in general. .€ Keep in mind that enterprise multiples can vary depending on the industry. Expect higher enterprise multiples in high growth industries (like biotech) and lower multiples in industries with slow growth (like railways). Therefore.

.  Electric arc furnace (EAF).€ Steel is an alloy of iron and carbon € Important engineering and construction material in the world € Used in every aspect of our lives € Steel is made via one of two basic routes:  Integrated (blast furnace and basic oxygen furnace).

€ The .7% via EAF and 2.integrated route uses raw materials (that is. € The EAF method uses scrap as its principal input.9% via the other methods. limestone and coke) and scrap to create steel.4% was produced via the integrated route. 65. iron ore. € Of the steel produced in 2005. 31.

blooms. it takes 1.a steel mill. the crude steel production process turns molten steel into ingots. € Typically. € Finished steel products are forged from semifinished products € At . billets or slabs. These are called semi-finished products.5 tons of iron ore and about 450kg of coke to produce a ton of pig iron.

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