FOR US $ 13 BILLOIN
Presented to:Prof . PRASAD
Presented By:Pragati Kedar
PRAGATI KEDAR INTRODUCTION ON ACQUISITION
INTRODUCTION ON TATA STEEL
AND CORUS STEEL
MANISHA MORE ACQUISITION
REASONS FOR ACQUISIONS
RACHIT JAJOO WHAT HAPPENED AFTER THE DEAL
COMPARATIVE BALANCE SHEET
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.
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.
Mr. Cyrus Pallonji Mistry
Nat Steel,Tata Steel,Europe,Tata
TATASTEEL, BSE: 500470
The Tata Group of Companies:
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.
After acquisition of Corus, Among the top ten steel manufacturers in the
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.
Type: Industry :
Merger of British steel corp. &
Tata steel,Tata Group.
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
Long products (including sections, plates, wire rod, narrow strip and engineering
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
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
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
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
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
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.
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
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.
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
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.
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.
Debt to Equity
RESERVES AND SURPLUS
TOTAL SHAREHOLDERS' FUNDS
DEFERRED TAX LIABILITY NET
PROVISION FOR EMPLOYEE SEPARATION
TOTAL FUNDS EMPLOYED
NET CURRENT ASSETS .......................................... 8248.23
APPLICATION OF FUNDS :