Tata corus by Rishi Chourasia


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Tata corus by Rishi Chourasia

  1. 1. Tata Acquisition to Corus Prof Rishi Chourasia Founder & Director Management Vikalp1 www.managementvikalp.co.in
  2. 2. “I believe this will be the first step in showing that Indian industry can in fact step outside the shores of India in an international marketplace and acquit itself as a global player.” -- Ratan Tata , Chairman of Tata Steel2 www.managementvikalp.co.in
  3. 3. INDEX  Introduction  Strategic Choice  Acquisition Chronology  Legal & HR Issues  Final Destination  Funding for the Acquisition  Post Merger Scenario3 www.managementvikalp.co.in
  4. 4. Introduction – Steel Industry  Since the World War II, the steel industry has experienced three distinct phases – Growth (1950-73)  Annual growth rate of 5.8% – Stagnation (1974-2001)  Annual growth rate of 0.6%, overcapacity by 25% – Boom (2002-2006)  Annual growth rate of 7%-8% and emergence of China4 www.managementvikalp.co.in
  5. 5. Introduction – Tata Steel  One of the world’s lowest-cost producers of steel  High level of vertical integration and process improvisation,  Excellent product mix and good product quality.  Imported about 35% of its total coking coal requirement, effected by contract price movements. With a low cost structure and strong balance sheet, the company can foray into the Asian markets through acquisitions.5 www.managementvikalp.co.in
  6. 6. Introduction – Corus  Formed on 6th October, 1999 through the merger of British Steel and Koninklijke Hoogovens  Ranked 9th in the World & 2nd in Europe  High value product manufacturer  Employee strength on 47,300 in 2005 Fighting to keep its productions costs under control (operating profit fall by 37% in 2006) and was on the look out for sources of iron ore6 www.managementvikalp.co.in
  7. 7. Introduction – Tata Steel & Corus  Complimentary assets & skills – Corus revenue - $17.03 billion in 2005. – Annual production capacity of 18 million tones against Tata steel’s 5 million tonnes, 50 % share of the UK carbon steels market and 11 % of the European market. – Tata had a strong retail and distribution network in India and SE Asia – After Merger the combined entity would become 5th largest steel manufacturer in the world7 www.managementvikalp.co.in
  8. 8. Introduction – Comparisons Particulars Corus (in Rs bns) Tata (In Rs bns) Year 2006 2005 2004 2006 2005 2004 Assets 582.7 533.9 487.8 205.5 117.0 147.9 Debt 98.1 105 96 45.9 42 39.9 Liabilities 231.3 178.4 155.5 30.5 33.1 32.7 Revenue 760.5 699.9 596.5 202.4 159.9 111.2 Net Income 33.9 33.5 -22.9 37.2 36.03 17.88 www.managementvikalp.co.in
  9. 9. Strategy for Growth and Survival  Need for Growth for TATA Steel , and market constraints for Organic growth made TATA’s think Inorganically.  Looming Take Over Threat from L.N.Mittal, coupled with low Promoter holding in TATA steel made them more Vulnerable. CORUS was Best Fit In this Scenerio.  To sustain the Growth in Europe, it wanted to secure access to Low Cost , Higher Growth Regions.  Cultural Fit – Continuous improvement and ethics9 www.managementvikalp.co.in
  10. 10. Strategy  Necessity is mother of all inventions10 www.managementvikalp.co.in
  11. 11. Synergies  Tata – One of the lowest cost steel producers in the world and had self sufficiency in raw material. Corus – Fighting to keep its productions costs under control and was on the look out for sources of iron ore.  Tata – Strong retail & distribution network in India and SE Asia. – Major supplier to the Indian auto industry Corus – Inroad into the emerging Asian markets, a powerful combination of high quality developed11 and low cost high growth marketswww.managementvikalp.co.in
  12. 12. Synergies  Technology transfer and cross-fertilization of R&D capabilities between the two companies that specialized in different areas of the value chain  A strong culture fit between the two organizations both of which highly emphasized on continuous improvement and ethics12 www.managementvikalp.co.in
  13. 13. Acquisition Chronology  Oct 5, 2006 - Tatas confirm interest in acquiring Corus  Oct 17 - Tatas propose a $7.6 billion bid for Corus at 455 pence a share in cash  Oct 20 - Corus Board approves Tata bid  Nov 17 - CSN makes indicative bid of 475 pence a share  Nov 27 - Corus adjourns extraordinary shareholders meeting from Dec 4 to Dec 20 to allow CSN more time13 www.managementvikalp.co.in
  14. 14. Acquisition Chronology  Dec 10 - Tata Steel raises bid to $9.2 billion  Dec 10 - Tata Steel raises bid to $9.2 billion at 500 pence per Corus share; Corus Board recommends offer  Dec 11 - CSN makes formal bid of $9.6 billion at 515 pence a share in cash; Corus Board recommends offer  Dec 19 - UK Takeover Panel watchdog sets a January 30 deadline for Tata Steel and CSN to make revised offers  Dec 22 - Tata Steel wins approval from the14 European Commission to buy Corus www.managementvikalp.co.in
  15. 15. Acquisition Chronology 2007  Jan 26 - Takeover Panel says it will launch an auction on January 30  Jan 29 - EU clears CSN bid for Corus  Jan 30 - Auction for Corus starts  Jan 31 - Tatas outbid CSN with 608 pence a share offer; says expects to close transaction by middle of March 2007.  Tata Steel wins Corus with $11.3 billion offer15 www.managementvikalp.co.in
  16. 16. Legal issues  According to the rules, a resolution pertaining to the bid would have to garner support from 50 per cent of shareholders and 75 per cent of shares at the EGM  CSNs Corus play faces EU anti-trust probe- Advantage Tata16 www.managementvikalp.co.in
  17. 17. HR issues  The labor union of Corus Supported TATA takeover as it was more like minded to the Current Management.  TATA was clear and forthwith with the Union on the discussion of future Pension Benefits.  Corus will become more competitive, which will increase job security.17 www.managementvikalp.co.in
  18. 18. THE D DAY- January 30, 2007  Tata Steel board meets ahead of Corus auction  Nine-round auction called by the UK Takeover Panel to decide the winner between the two suitors began at 2200 hrs Indian time (1630 hrs GMT)  Tata Sons represented by Director Arun Gandhi along with IB’s and advisers  Tata Steel bid from the offices of its lawyers Herbert Smith in London  Herbert Smiths London office had been video- linked to the Tata headquarters18 www.managementvikalp.co.in
  19. 19. TATA wins over Corus19 www.managementvikalp.co.in
  20. 20. TATA wins over Corus  Corus buy is moment of fulfillment: Tata  Corus expensive, but worth it: Tata  We would not go beyond a point... we did not reach that point... had we reached, we would have walked away" :Tata  Tata offers best value for shareholders: Corus Chairman Jim Leng20 www.managementvikalp.co.in
  21. 21. TATA wins over Corus With a bid of 608 pence Rank Co. Name Mm tn/yr  1 Arcelor-Mittal (Lux) 110 a share, Indian 2 Nippon Steel 32 corporate giant Tata (Japan) Steel outsmarted CSNs 3 Posco (South 30.5 603 pence a share Korea) offer during the night- 4 JFE (Japan) 29.9 long auction process. 5 Tata-Corus 23.8 (India) 6 Baosteel (China) 22.7 7 US Steel (USA) 19.3 8 Nucor (USA) 18.4 9 Riva (Italy) 17.5 10 ThyssenKrupp (Ger) 16.521 www.managementvikalp.co.in
  22. 22. Corus Acquisition Economics22 www.managementvikalp.co.in
  23. 23. LBO Acquirer India 100% EquityOffshore Jurisdictions Loan SPV Lender Leveraged Buy-out Target www.managementvikalp.co.in 23
  24. 24. Funding the Corus acquisition24 www.managementvikalp.co.in
  25. 25. Use of Offshore entities - Singapore US CorporationUnited StatesSingapore Equity  Singapore  Limitation on Benefit (LoB) Clauses Singapore  Capital gains tax exemption tagged to Mauritius Treaty Equity / CCD  Income characterization issues  Interest taxed at 15%India Indian Company Shareholders 25 www.managementvikalp.co.in
  26. 26. Funding the Corus acquisition26 www.managementvikalp.co.in
  27. 27. Funding the Corus acquisition •Tata Steel UK would arrange a loan of £1.6 b ($3056m), a revolving credit facility •A bridge loan and the rest would come from Tata Steel (to the SPV).Tata Steel appointed Credit Suisse, ABN Amro and Deutsche Bank to arrange bridge financing. •Of the £3.3 billion of financing being raised at the SPV level, Credit Suisse would provide 45% and ABN AMRO and Deutsche 27.5% each. •The $1.8 billion bridge debt being raised at the Tata Steel level in India would be shared between Standard Chartered27 and ABN AMRO. www.managementvikalp.co.in
  28. 28. Funding the Corus acquisition  Financing Indias largest leveraged buyout comprised of a $3.88 billion equity contribution from Tata Steel, a fully underwritten non-recourse debt package of $5.63 billion, a revolving credit facility of $669 million.  As per the acquisition plan a special purpose vehicle, a wholly owned subsidiary, called Tata Steel UK would be set up by Tata Steel28 www.managementvikalp.co.in
  29. 29. Post Merger Scenario  Tata Rejigs Corus Senior Team  Jan 2009, Tata owned Corus to shed 3500 jobs  Tata Steel loses Corus chairman to Rio Tinto29 www.managementvikalp.co.in
  30. 30. Ratan Tata – Chairman of Tata Steel “This proposed acquisition represents a defining moment for Tata Steel and is entirely consistent with our strategy of growth through international expansion. Corus 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.”30 www.managementvikalp.co.in
  31. 31. Thank you31 www.managementvikalp.co.in