Tata Steel - Value Chain Analysis

Mergers, Acquisitions & Strategic Alliances

Group-1
EPGCSM-2020
TATA Steel Value Chain Mapping and M&A

Our Analysis will be limited to the subset of following companies

1) Labrador iron miles 2) New Millennium capital 3) Corus group 4) Millennium steel 5) NatSteel
6) Rawmet Ferrous Industries 7) Creative Port Development
Acquisitions by Tata Steel and their positioning in the Value Chain

Company’s Name Sector Positioning Integration

Labrador Iron Mines Mining and Minerals Upstream Vertical

New Millennium Capital Mining and Minerals Upstream Vertical

Corus Group Manufacturing Midstream Geographical

Millennium Steel Manufacturing Midstream Horizontal

NatSteel Manufacturing Midstream Geographical

Rawmet Ferrous Industries Manufacturing Midstream Horizontal

Creative Port Development Shipping & Logistics Downstream Vertical

Mapping of the various synergies from Mergers & Acquisitions Rating scale : 1 to 5 ( low to high)

Subsidiary Cost Cost Revenue $M Revenue Financial (Profit $M) Financial

synergy synergy synergy
Labrador Iron Mines $30 M 5 USD 3099 M 4 USD 842 M 5

New Millennium $22.6 2 BP 755.258 M 5 GBP 224.16 M 5

Capital M

Corus Group $12 M 2 BP 10 M 3 GBP (2325) M 3

Millennium Steel $404 M 2 baht 22304 M 4 baht 188 M 3

NatSteel $486 M 4 USD 110.22 M 5 USD 51.22 M 4

Rawmet Ferrous 100 % 2 INR 53,67.28 M 5 INR 1,11.22 M 4

Industries

Creative Port 51% 5 INR 10.18 M 4 INR (49.42) M 2

Development
Reasons for Synergy mapping

 Labrador Iron Mines : This will enable Tata Steel to seamlessly transport raw material from its existing mines in Canada through
rail and a port facility to the U.K. where it has major operations. This is possibly the first acquisition by the Tata Group after Cyrus
Mistry took over as Chairman.Additionally, the strategic relationship will include multi-part co-operation agreements in
logistics(Cost) and various ancillary mutual support and potential off-take arrangements(financial), including development of a
rail line that will pass through LIM’s rail yard facilities and connect TSMC’s processing plant with the main rail line and further
exploration of Howse deposit(revenue)
 New Millennium Capital :The JVC, named Tata Steel Minerals Canada Ltd, will acquire all of the DSO mining claims and related
assets(cost, revenue), carry out detailed engineering and construction of facilities and will be responsible for the operations of the
DSO Project. At closing, Tata Steel will own 80% of the JVC and NML the remaining 20%. NML will also be reimbursed for 80%
of the DSO Project costs incurred to closing(cost, financial).
 Millennium Steel : Market position , globalisation(financial) , South east asia market expansion(revenue).
 Corus : Economy of Scale, profitability and backward integration of Corus with forward integration for Tata steel(Financial) .
Tech transfer and tech fertilisation of R and D(cost) .To tap mature European market , patent and R&D (revenue).
 Natsteel : Acquisition at $296 Million of Singapore based NatSteel to access Asian Market and the enterprise value is subject
to certain adjustments those for any net debt, minority interest and other liabilities and for working capital variance relative to
SD 225 million(cost,financial).The acquisition would help the company to increase its manufacturing footprint to seven
countries in Asia like Vietnam, Singapore, Thailand among others(revenue).
 Rawmet Ferrous : Tata acquired 100 % stakes(financial) in this company which makes Ferro alloys in Orrisa . They set up a

Joint Venture Company with Larsen and Toubro Ltd for development of all weather deep water port in Orissa. Rawmet has a
Ferro Alloy Plant(cost) near Cuttack, consisting of two 16.5 MVA semi closed electric arc furnace having a capacity of
producing around 50,000 tonnes per annum of High Carbon Ferro Chrome(revenue, financial).
 Creative Port Development : Acquires 51% stakes, a move that may de risk and optimise in-bound and out-bound supply
chain for its steel plants(cost).Securing competitive logistics solution is a key aspect in de-risking supply chain requirements
and the proposed port will address the long-term strategic needs of the company(revenue,financial).
Mergers & Acquisitions Performance Kiran G

Subsidiary Announcement Implementat Duration Avg share Avg share % Market

date ion date (Years) Price pre Price post increase reaction
Announce Announce in share
ment ment price

Labrador Iron Mines March 13 2013 Sep 13 2013 0.7 340.92 337.72 -0.94% Negative

New Millennium Capital Nov 6 2009 Oct 27 2010 2 444.53 480.76 8.15% Very
positive

Corus Group Jan 31 2007 Apr 01 2007 0.4 424.01 388.82 -8.30% Very
negative

Millennium Steel April 4 2006 Dec 14 2006 0.8 439.81 455.25 3.51% Positive

NatSteel Aug 01 2004 Feb 2005 0.6 216.86 227.37 4.84% Positive

Rawmet Ferrous Industries Jan 15 2007 Mar 14th 0.3 387.89 407.65 5.10% Positive
2007

Creative Port Development Jan 25 2017 Sep 18 2018 1.8 439.34 445.40 1.38% Positive
Conclusion on each M&A deal

Subsidiary Conclusion

Labrador Iron Mines This deal was aimed at acquiring raw material with a strategy focussing on adding value accretive assets to its portfolio
to increase its raw material security. Although there has been a profit, the market reaction has been negative

New Millennium Capital

New Millennium's project complements Tata Steel’s strategy to increase self sufficiency in raw materials with supplies
from captive sources for their wholly owned UK and European subsidiary.The agreement provides exclusivity to Tata
Steel with respect to both the DSO Project. This was a positive move in terms of strategy and market acceptance as
well.

Corus Group
This is an interesting acquisition as the acquired company was almost four times the size of the acquirer in terms of
revenue. The combined entity became the fifth largest steel company in the world. The acquisition allowed Tata Steel
entry into the European market. The deal is a powerful combination of low cost upstream production in India with the
high end downstream processing facilities of Corus. The final deal valued Corus at 67% higher than the price of Corus
before the deal was announced. This did not prove profitable for Tata group
Millennium Steel
The investment is a significant progression in Tata Steel's globalisation initiatives and will significantly enhance its
market position in South East Asia. The acquisition would have a strong fit with Tata Steel’s strategic expansion plans
and there are likely to be significant synergy benefits in the future as a consequence of the transaction.

NatSteel
The acquisition played an important role in the global expansion and looked very positive during the times, but it didnot
worked out well and recently tata exited the venture at a loss.

Rawmet Ferrous Industries

This acquisition was yet another step to further strength the hundred year's relationship between the State and the
Company. It was a positive addition to the Tata Family and it surpassed its installed capacity of 50,000 TPA of charge
chrome/ferro-chrome.

Creative Port Development

This acquisition added to the competitive logistics solution of tata steel as it is a key aspect in de-risking supply chain
requirements and the proposed port will address the long-term strategic needs of the company. It was
Conclusion on M&A of the TATA Group (1/2)

We have tried to map seven acquisitions/ strategic alliances of Tata Steel Limited covering acquisitions/ alliances from various parts of the value chain. These
acquiree/ alliance companies include Labrador Iron Mines, New Millennium Capital, Corus Group, Millennium Steel, NatSteel, Rawmet Ferrous Industries
and Creative Port Development which represent different Integration strategies of the Tata Group. Some of these alliances were purely to diversify the
business or have a top to bottom integration of the industry process while others were to capture the market and establish the presence of Tata Group in the
respective market.

For example, acquisition of Corus Group Plc put not just Tata Steel but the Tata Group as a whole in the European market. Although the market reaction was
very negative towards this particular acquisition, acquisition price was not the sole reason for such market reaction, there were multiple factors at play such
as the overall downside faced by the Steel Industry itself and the period of depression. It was however, an over-ambitious acquisition wherein, even though
the strategists could justify their action and the price, it did not align with the market and its view.

Similarly, latest acquisition of the Creative Port Development is not only beneficial to the business of Tata Steel but also to the Tata Group as a whole. This
acquisition is a step towards resolving logistics issues as it reduces the dependency of the company/ group and makes it more competitive.
Conclusion on M&A of the TATA Group (2/2)

However, we can see from Fig 2 that most of the subsidiaries/ alliances of Tata Steel cover the entire value chain to make it an end to end
integrated group of companies in the industry except Marketing and Sales sector.

The M&A’s were targetted at strenghtening Tata Steel which also benefitted other tata group of companies like Tata motors, Tata Power.
Tata Sons as a corporate entity got financial leverage and overall increased networth for Tata group

As Shri Ratan Tata in one of his interviews said that he does not wait to make a right decision, he takes a decision and then makes it right.
This philosophy is reflected in the acquisitions made by the Tata Group and how they are well thought out, cherry picked but sometimes
they are driven by emotions as well. An unrelated such acquisition being that of Air India. It is very much clear that the main motive of this
acquisition was not the business or the assets possessed by Air India as they are all old Aircrafts and the employee culture also needs an
overhaul. This acquisition was driven purely by emotions and sentiments to have the company that was taken away during nationalisation
back in the family.