Tata steel’s acquisition of corus


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Tata steel’s acquisition of corus

  2. 2. OUTLINE TATA STEEL background CORUS background Rationale for the acquisition Synergies expected from the deal Funding structure of the deal Long-term implications of the deal
  3. 3. TATA STEEL BACKGROUND A part of TATA Group of Company’s. Formerly known as TISCO and TATA IRON AND STEEL COMPANY LIMITED. Located in Jamshedpur, Jharkhand, India. World’s 7th largest steel company. India’s 2nd largest and 2nd most profitable private sector company. Data as per March 31, 2008 Capacity = 31 million tones Revenues = 132,110 crore Net profit = 12,350 crore
  4. 4. CORUS BACKGROUND One of the largest steel companies in Europe. Came into being in 1999 with the merger of British Steel plc and Dutch steelmaker. Also has a presence in The Netherlands, Germany, France, Belgium, the United States, and Canada. The company manufactures, processes, and distributes metals products to the construction, automotive, mechanical engineering, packaging, and other markets.
  5. 5. THE ACQUISITION AND THE RATIONALE BEHIND IT Rationale TATA CORUSTo tap mature European market. To extend its Global reach throughHelped TATA to feature in Top 10 TATA.players in world. To get access to Indian OreTechnological benefits. reserves, as well as virgin market forCorus holds number of patents and steel.R&D facilities. To get access to low cost materials.Cost of acquisition is lower than Saturated market of Europe.setting up of Green field plant & Decline in market share and profit.marketing and distribution channel.TATA manufactures Low Value, longand flat steel products ,while Corusproduce High Value Strippedproducts.
  6. 6. SYNERGIES EXPECTED FROM THE DEAL Tata was one of the lowest cost steel producers & Corus was fighting to keep its productions costs under control. Tata had a strong retail and distribution network in India and SE Asia. Hence there would be a powerful combination of high quality developed and low cost high growth markets Technology transfer and cross-fertilization of R&D capabilities. There was a strong culture fit between the two organizations both of which highly emphasized on continuous improvement and Ethics. Economies of Scale. Increase in profitability. Backward integration for Corus and Forward integration for Tata Steel.
  7. 7. FUNDING STRUCTUREIt was a CASH DEAL because- Immediate takeover was required. Share Swap deal would have been less attractive to the Corus shareholders. Share Swap would have meant FDI and that brings a lot of regulatory hassles which might not have been accepted by Corus shareholders. Share Swap would have diluted Tata Steel’s Equity base which was not in favor of Tata shareholders. And moreover cost of equity at around 15% is higher than that of debt of around 8%, so paying in cash brings down the cost of acquisition.Equity + Loan = Deal$3.95 + ($3.654 + $2.233 + $2.233) = $12.07
  8. 8. LONG - TERM IMPLICATIONS Integration has to be fast and efficient. Increasing reach to joint entity to 4 continents and 45 countries including high value market of Europe. Increasing the EBITDA to 25% for joint entity by executing Tata steel’s brownfield and greenfield projects well in time. Increasing the capacity of the company beyond 50 million tons by 2015 so as to become one of 3 top steel producers in the world.