Mergers- A merger is a combination of two companies into one larger company.
Acquisition - When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition.
Types of Mergers .
Two companies that are in direct competition and share the same product lines and markets.
A customer and company or a supplier and company. Think of a cone supplier merging with an ice cream maker.
Two companies that have no common business areas. There are two types of mergers that are distinguished by how the merger is financed. Each has certain implications for the companies involved and for investors:
Two companies that sell the same products in different markets.
Two companies selling different but related products in the same market.
Product extension merger
Tata acquired Corus, which is four times larger than its size and the largest steel producer in the U.K. The deal, which creates the world's fifth-largest steelmaker, is India's largest ever foreign takeover and follows Mittal Steel's $31 billion acquisition of rival Arcelor in the same year.
Tata acquired Corus on the 2nd of April 2007 for a price of $12 billion. The price per share was 608 pence(rs 484), which is 33.6% higher than the first offer which was 455 pence.
VISION TATA STEEL
We aspire to be the global steel industry benchmark for value creation and corporate citizenship
Tata Steel Background
Tata Steel a part of the Tata group, one of the largest diversified business in india.
Founded in 1907, by Jamshed Ji Nusserwanji Tata.
In feb 2005 acquired singapore based Natsteel Ltd.
In dec 2005 acquired thaialand Millennium steel .
WAQAS AHMED BEM/973
CONTRIBUTION OF COUNTRIES TO GLOBAL STEEL INDUSTRY
Global Steel ranking Company Capacity(in million tonnes) Arcelor - Mittal 110 Nippon Steel 32 Posco 30.5 JEF Steel 30 Tata Steel - Corus 27.5 Bao steel China 23 US Steel 19
Corus Steel Industry
Formed on 6 th Oct 1999, through merger of 2 companies : British Steel and Koninklijke Hoogovens.
Consist of four divisions : Strip products, Long products, Aluminum and Distribution, Building system
Operates as an International company
Core business in Manufacturing, Development and Allocation of Aluminum and Steel products and services
Wide variety of products and services
Largest steel producer in UK with £10,142 million annual revenue and work force of 50,000 employees
Objectives of Acquisition
Global No. 5 company
By 2012, expected production of 40 million tonnes giving it the position of Global number 2.
To gain access to global steel market and expand production capacity to keep pace with growing demand for steel
Jim Leng, Chairman of Corus“This offer from Tata Steel reflects the substantial value created for Corus shareholders
Objectives of Acquisition
TATA looking for mature market in Europe for its finished products
Corus holds a number of patients and R & D facility.
Cost of Acquisition lower than setting up a green field plant and marketing and distribution channel.
Corus wanted to reduce its employees cost and TATA is well known for handling its labours efficiently.
IRFAN BADAR BME-958
Officially announced on April 2 nd 2007.
TATA’s motive is to capture the market value.
Total value of this acquisition was $12 Billion (608 pence per share except 603 per share).
Corus gained profitable opportunity to exit and a buyer for some time.
Ups and down
Sep 20, 06 : CORUS uses the strategy to work with low cost producer.
Oct 06, 06 : Initial offer by TATA is considered to be too low.
Oct 17, 06: TATA kept its offer to 455 pence per share.
Oct 20, 06 : CORUS accepts the offer of £4.3 billion.
Oct 23, 06 : Brazilian Steel Group CSN counter-offer to TATA’s offer.
Oct 27, 06 : CORUS criticized by JCB for acceptance of TATA’s offer.
Nov 18, 06 : The CSN approaches Corus With an offer of 475 pence per share
Nov 27, 06 : Board of Corus decides to give more time for shareholders to decide whether it issue forward a formal offer.
Dec 18,06 : Tata increases its original bid for Corus 500 pence per share, then CSN made its counter bid at 515 pence per share in cash
Jan 31, 07 : Tata had agreed to offer Corus investors 608 pence per share in cash
Apr 02, 07 : Tata steel manages to win acquisition to CSN and has the full voting support from Corus shareholders
TATA After Acquisition
Seven member team for this DEAL.
TATA has to pay $12 billion, where 2/3 rd was being financed.
After the bidding conflict with CSN, TATA ended up paying more to CORUS.
Still TATA earned operating profits of $840 million on sales of 5.3 million tonnes of steel, while CORUS earned $860 million on sales of 18.6 million tones of steel.
RAJESH KUMMAR BEM-1046
SWOT Analysis for TATA
Lowest cost producer in world.
Experience of TATA group in doing global activity.
Stable balance sheet (Low Debt to Equity Ratio).
Corus was triple the size of TATA steel in terms of production.
Consolidation trend in Steel Industry
CSN’s lost image after failure of 2002 negotiations
To get exposed to global steel market
Brazil company CSN
Russian company Severstal
No committed financers to support the possible deal
Loss in quarter 1 of 2009 - 2010
TATA Steel posted a consolidated net loss (including Corus) of Rs 2,209 crore ($461 million).
Incurred a profit of Rs 3,901 crore ($814 million ) in the April-June quarter of FY’09.
Sales volume of Indian operations was higher by 22 percent but sales from its European operations (Corus) fell heavily.
Group consolidated turnover was Rs.23,292 crores as compared to Rs. 43,496 crores.
“ I believe this will be the first step in showing that Indian industry can step outside the shores of India in an international market place and acquit itself as a global player”