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Tata corus deal

Tata corus deal

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  • 1. PRESENTATION ON AN ACQUISITION FOR US $ 13 BILLOIN Presented to:Prof . PRASAD Subject:Accounts Presented By:Pragati Kedar Sandesh Bhirade Aniket Salvi Manisha More Rachit Jajoo
  • 2. ROLL NO. 101 121 98 128 124 NAME OF MEMBERS TOPIC NAME PRAGATI KEDAR INTRODUCTION ON ACQUISITION ANIKET SALVI INTRODUCTION ON TATA STEEL AND CORUS STEEL MANISHA MORE ACQUISITION REASONS FOR ACQUISIONS AN ANALYSIS SANDESH BHIRADE RACHIT JAJOO WHAT HAPPENED AFTER THE DEAL COMPARATIVE BALANCE SHEET
  • 3.  A corporate action in which a company buys most, if not all, of the target company's ownership stakes in order to assume control of the target firm. Acquisitions are often made as part of a company's growth strategy whereby it is more beneficial to take over an existing firm's operations and niche compared to expanding on its own. Acquisitions are often paid in cash, the acquiring company's stock or a combination of both.
  • 4.  TATA steel acquisition of CORUS was a bold and smart move. Complementarities in scale, market geography, financials, technology and raw materials offered a strong rationale for the deal.  The acquisition of CORUS has been timely. Given the rising momentum of consolidation in the industry and rising valuations of steel companies, had TATA steel not acted when it did, the opportunity could have been lost forever.
  • 5.          Name:Type:Industry:Founder(s):Founded:Headquarters:Chairman:Parent:Subsidiaries:-  NSE:- Tata Steel Public Ltd. Steel Dorabji Tata 1907 Mumbai Mr. Cyrus Pallonji Mistry Tata Group Nat Steel,Tata Steel,Europe,Tata Steel Thailand. TATASTEEL, BSE: 500470
  • 6. The Tata Group of Companies:  Collaborative growth  Vision of becoming India's as well as world's most respected and successful business conglomerates.  Six continents with diverse cultures.  Products include steel bearing rings, forgings, flanges, steel tubes, cold rolled strips, seamless tubes and metallurgical machinery.  Tata Steel:  After acquisition of Corus, Among the top ten steel manufacturers in the world.  An annual crude steel capacity of over 28 million tons per annum (mtpa).  Established in 1907.  Most geographically-diversified steel producers, with operations in 26 countries and a commercial presence in over 50 countries.  Turnover of US$ 26.13 billion in FY 2011- 2012.  Over 81,000 employees across five continents  Fortune 500 company.
  • 7. 300 280 260 240 220 200 TATA Steel Revenue 180 Corus Revenue 160 140 120 100 FY 02 FY 03 FY 04 FY 05 FY 06
  • 8. Founded: Formation: Type: Industry :  Parent:- 1999 Merger of British steel corp. & koninklijke N.V. Subsidiary Steel Tata steel,Tata Group.
  • 9.  CORUS :  Europe's second largest steel producer  Revenues in 2005 : GBP 9.2 billion, and crude steel production of 18.2 million tones  Primarily in the UK and Netherlands.  Manufacturer of semi-finished and finished carbon steel products.  Strip products ( coated and uncoated strip, welded tubes, sold both as coil and sheet)  Long products (including sections, plates, wire rod, narrow strip and engineering steels)  The distribution and building systems division, which operates as a link between Corus's manufacturing operation and its customers.  Formation: Merger of British Steel Corporation & Koninklijke Hoogovens N.V.  Headquarter: London, England, UK
  • 10. Date: 20 October 2006 Amount: $7.6 billion takeover bid Bidder : Tata Steel Target : Corus Share capital of Corus Group: At a price of 455 pence in cash for each share valuing Corus at GBP 4.3 billion. Governing & Regulating Act: Section 425 of the (English) Companies Act 1985, subject to High Court of Justice in England and Wales and Corus' shareholders' approvals being obtained. At par with Tata Steel's stated objective of growth and globalization.
  • 11. There is recognition that for indian economy to continue its growth, its companies must look to compete on a global scale.  Globally Tata steel was only 56 th largest steel producer.  Buying Corus will leapfrogs it to fifth largest steel producer in world.  Acquisition of Corus provide Tata steel of its production line & technology.  Economies of scale  To tap europeon market.  Corus hold No. of patents & R & D facilities.  Cost of acquisition is lower than setting up green field project & marketing & distribution channel 
  • 12.       The main reason is backward integration. Saturated market of europe. Decline in market share & profit. Lower net profit to sales ratio i.e.Revenue US$18.06 billion & N.P.only $626 million. Employee cost of Corus was 15% & Tata only 9%. Loan of Corus was £ 1.6 billion.
  • 13. Assumptions for Valuations  According to data monitor report, April 2009, CAGR 18.6% growth forecasted for Europe for the steel industry. Therefore, we have assumed peak growth in 2013. After that the growth slows down linearly till it hits 6% in 2025 (GDP growth rate in a mature economy). We have assumed terminal growth rate to be 4% due to rising costs and competitive factors.  For 2009-10, Tata Steel posted a 49.5% fall in consolidated profits. Sales and profits tumbled because of the global economic crisis (contraction in demand from the automotive and construction sectors). This is reflected in the NEGATIVE COI in 2009-10. We are assuming that with slow down, Tata Steel will decrease its Net working capital by increasing liabilities
  • 14.          Of the $ 8.12 billion of financing , Credit Suisse provided 45% and ABN AMRO and Deutsche provided 27.5% each. Funding was for 60:40 debt equity. Equity Contribution from Tata Steel - $ 3.88 billion. Share Swap deal less attractive to shareholders as Share Swap means FDI and brings regulatory hassles which are unfavorable to Corus shareholders. Share Swap would have diluted Tata Steel’s Equity base which was not in favor of Tata shareholders Cost of equity - 15% is higher than that of debt of around 8%, so paying in cash brings down the cost of acquisition High value paid. Approximately 7.7 times its Enterprise Value. Corus’ EBITDA was at 8% which was much lower as compared to Tata Steel’s 30%. Debt of US $ 6.14 was raised against the cash flows of Corus (LBO). It was a risky proposition. Tata’s debt equity ratio was adversely affected to 2.74:1 from 1.1 which it was maintaining earlier. Fast consumption of Tata Steel’s captive iron ore reserves as production capacity increased from 5.3 million ( estimated for 50 years at this capacity) to 27 million tons of steel per annum.
  • 15.       TATA Steel Group rose to 5th position from 56th The production capacity increased from 4million tones to 28million tones by 2011 Standard & Poor’s Rating cut it credit Rating to BB from BBB and removed them from the negative watch list Big boost to the Indian economy as TATA acquired a company 3 times its size. The R&D Unit of Corus complements that of TATA’s Help from financing institutions as $8 billion was raised through debt
  • 16.    There were a lot of apparent synergies between Tata Steel which was a low cost steel producer in fast developing region of the world and Corus which was a high value product manufacturer in the region of the world demanding value products. Some of the prominent synergies that could arise from the deal were as follows : Tata was one of the lowest cost steel producers in the world and had self sufficiency in raw material. Corus was fighting to keep its productions costs under control and was on the look out for sources of iron ore. Tata had a strong retail and distribution network in India and SE Asia. This would give the European manufacturer an inroad into the emerging Asian markets.
  • 17.    Powerful combination of high quality developed and low cost high growth markets There would be technology transfer and cross-fertilization of R&D capabilities between the two companies that specialized in different areas of the value chain There was a strong culture fit between the two organizations both of which highly emphasized on continuous improvement and ethics. Tata steel's Continuous Improvement Program ‘Aspire’with the core values :Trusteeship,integrity,respect for individual, credibility and excellence. Corus's Continuous Improvement Program ‘The Corus Way’ with the core values : code of ethics, integrity, creating value in steel, customer focus, selective growth and respect for our people.
  • 18. 3 2.5 2 2.45 1.99 1.87 1.5 1 1.78 1.65 0.71 0.5 0 FY 06-07 FY 07-08 Debt to Equity Current ratio FY 08-09
  • 19.               SHARE CAPITAL RESERVES AND SURPLUS TOTAL SHAREHOLDERS' FUNDS 2007 2006 727.73 553.67 13368.42 9201.63 14096.15 LOANS 9645.33 DEFERRED TAX LIABILITY NET 748.94 PROVISION FOR EMPLOYEE SEPARATION COMPENSATION 1107.08 TOTAL FUNDS EMPLOYED 25597.50 FIXED ASSETS 11040.56 INVESTMENTS 6106.18 NET CURRENT ASSETS .......................................... 8248.23 MISCELLANEOUS EXPENDITURE 202.53 APPLICATION OF FUNDS : 25597.50 9755.30 2516.15 957.00 1388.71 14617.16 9865.05 4069.96 428.88 253.27 14617.16