Tata Corus is the fifth largest steel maker in the world. Tata Steel Stocks have experienced 21 per cent absolute gain since February 2007. Fall in steel production in UK every year since 2007 . The more competitive operations in the Netherlands have fared better, with output staging a recovery in 2010 itself, with production this year up another 10 per cent.

1. Tata Steel – Corus Deal
Manmeet Malik
Moulshree Mishra
Sneha Thacker
Nalini Nair
Uzair Mirza
Ritika Sharma
Pankaj Nehra

2. Motivation behind the merger
Tata Steel
Corus
To tap mature European market.
To extend its Global reach through TATA.
Technological benefits.
To get access to Indian Ore reserves, as
well as virgin market for steel.
Corus’s patents and R&D facilities.
To get access to low cost materials.
Cost of acquisition is lower than setting up
of Green field plant & marketing and
distribution channel.
Saturated market of Europe.
Decline in market share and profit
TATA manufactures Low Value, long and
flat steel products ,while Corus produce
High Value Stripped products.
Huge accumulated debt : 2433 million
GBP

3. How was Corus acquisition strategically fit for Tata?
Tata’s long term strategy:
• If raw materials and energy sources available – Creation of
Greenfield capacities (Both India & Abroad).
• If raw material not available but there are markets either developed
mature or growing markets – Acquisitions (Eg. NatSteel
Asia, Singapore) and Millennium steel, Thailand )

4. Acquisition process
• October 17, 2006 : Tata Steel’s initial offer 455p per share.
• October 23, 2006 : The Brazilian Steel Group CSN recruits a leading
investment bank to offer advice on possible counter-offer to Tata Steel’s
bid.
• November 3, 2006 : The Russian steel giant Severstal announces
officially that it will not make a bid for Corus
• November 18, 2006 : The battle over Corus intensifies when Brazilian
group CSN approached Corus with a bid of 475p per share
• December 18, 2006 : Within hours of Tata Steel increasing its original bid
for Corus to 500 pence per share, Brazil's CSN made its formal counter
bid for Corus at 515 pence per share in cash, 3% more than Tata Steel's
Offer.
• January 31, 2007 : Britain's Takeover Panel announces in an e-mailed
statement that after an auction Tata Steel had agreed to offer Corus
investors 608 pence per share in cash
• April 2, 2007 : Tata Steel manages to win the acquisition to CSN.

5. Terms of the transaction
• Offer price: 608 pence/ share
• Consideration: $12 billion (Payable in cash not later than 2 weeks following
the official date of the completion of the transaction.)
• Tata’s Contribution (Equity) : Only $4 billion
• Remaining Contribution (Debt) :

6. Initial market reaction
 Price paid by Tata represents:
 A very high 49% premium over the closing mid market share price of
Corus on 4 October, 2006
 A premium of over 68% over the average closing market share price over
the twelve month period.
 Since the deal was fully paid for in cash, automatically makes it more
expensive - £1.84 billion cash outlay
 Tata financed only $4 billion of the Corus purchase from internal company
resources. More than two-thirds of the deal financed through loans from
major banks.
 New Debt for acquisition = $8 billion
 Expected annual interest charges = Upto $640 million (8% annual
interest cost)
 Corus’ existing interest debt charges = $400 million (p.a.)
 Combined entity’s interest obligation = approximately $725 million
 Consequently , the day after the acquisition was officially announced, Tata
Steel’s share fell by 10.7 percent on the BSE.

7. Potential synergies
•
Tata Steel would get an access to the European market via Chorus’s well defined network.
•
It will have a low cost position in Europe and South East Asia.
•
The deal would expand scale from 7 MTPA to 25 MTPA and reap significant economies of scale.
•
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.
•
The combined entity will have more efficient operations through enhanced optionality to optimize
asset base and material flow, including sourcing of raw materials, and semi-finished steel.
•
Better equipped to race intensifying competition arising from consolidation in the industry globally.
•
There was a strong cultural fit between both the companies.
•
The acquisition was in line with Tata Steel’s stated objective of having a global distribution network.
•
With 84,000 employees across four continents and a joint presence in 45 countries, would make
the combined entity a serious rival to other steel giants.
•
Estimated increase in EBITDA to 25% for joint entity by executing Tata steel’s brownfield and
greenfield projects well in time.

8. Post-merger integration
 Tata Steel formed a seven-member integration committee to spearhead its union
with Corus group.
 Head of the committee : Ratan Tata,
 Three Tata Steel members:
 B Muthuraman (MD)
 T Mukherjee (Deputy MD (steel)
 Kaushik Chatterjee (CFO)
 Three Corus members:
Phillipe Varin (CEO )
David Lloyd (executive director (finance)
Rauke Henstra (division director (strip products)
 Several Taskforce Teams to ensure integration specific activities.
 Organizational structure for Group Strategy Function : Strategy Development,
Strategic Modelling, and Industry Group.

9. Situation now
 Tata Corus is the fifth largest steel maker in the world.
 Tata Steel Stocks have experienced 21 per cent absolute gain since February 2007.
 Fall in steel production in UK every year since 2007 . The more competitive
operations in the Netherlands have fared better, with output staging a recovery in
2010 itself, with production this year up another 10 per cent.
 Indian operations produce less than half of the steel volumes that European
operations produce but accounted for 60 to 96 per cent of the company's total
profits between FY08 and FY11.
 In FY10, Indian business’s Rs 5,000-crore reported net profits went a long way in
stemming the red-ink resulting from the European operations consolidated losses
of over Rs 2,000 crore.
 Net sales between FY08 and FY11 fell from Rs 131,000 crore to Rs 118,000 crore.

10. Situation now Contd.
 Adjusted net profits slipped from Rs 7,359 crore to Rs 6,560 crore over the same
period.
 Sale of its unprofitable three-million-tonne-a-year Teesside Casting operations for
a bargain price of about $700 million. A range of other assets has also been sold
off including Corus' aluminium and chemical businesses.
 The India operation's gross debt has moved from Rs 18,000 crore in FY08 to Rs
28,000 crore at the end of FY11.
 Cash from its rights offer earlier this year, issue of hybrid instruments and the sale
of various assets, the company has seen consolidated net debt:equity moderate
from 1.44 in FY08 to 1.2 during the most recent quarter ended June 2011.
 In an attempt to insulate the European arm from volatile input costs, Tata Steel
had to make additional investments in the past five years invested in iron ore and
coking coal mines in Canada, Africa and Australia.
 On May 13th 2013 Tata Steel announced a $1.6 billion impairment, mainly of its
takeover of Corus.

11. Thank you