Brief analysis of JSW's acquisition of 41.29% shares in ISPAT followed by ISPAT's merger in JSW.

3. Background
JSW- STEEL
 One of the leading public listed companies in the
steel-manufacturing industry.
 JSW is owned by Jindal Group and is the result of
multiple restructurings.
 At present the company has total manufacturing
capacity of 18 MTPA.

4. Structuring of JSW Steel
Jindal Steel Piramel
JISCO
(Maharasthra)
JVSL (Karnataka)
Welspun Maxsteel Ltd JSW Steel
ISPAT Industries

5. ISPAT Industries
 Public Listed Company incorporated in 1984.
 Among the top 5 steel companies in India.
 Had the finest technologies such as integrated plant
for production of hot rolled coils, largest gas-based
single mega module plant for manufacturing sponge
iron, Conarc Process, compact strip process, 2 MTPA
Blast furnaces etc.

6. Reason for the deal
 In 2009, the demand for steel fell down.
 ISPAT owed a debt worth Rs 586 Crores + Interest.
 ISPAT was not in a position to pay the interest along
with the principal.
 JSW Steel wanted to expand its business.
 The process of acquiring land and setting up plant was
cumbersome and expensive.
 JSW acquired 41.29% shares in ISPAT for 2157 Crores.

7.  Acquisition was done by issuance of 108.66 Crore fresh
shares worth Rs 19.85 per share.
 This gave a 2.23% rise of JSW’s stock at BSE.
 Sale of shares: easiest method as it does not involve
Tribunal’s approval as per Companies Act, 2013.
 More than 25% acquisition: Takeover Code Regulation
3(1) triggered. Company made an open offer for 20%
stake.
 ISPAT remained listed on the stock exchange.
 Companies further applied for merger to Bombay HC
(Merger being a court-approved process).

8.  High Court approved merger with 1:72 share swap
ratio.
 JSW Steel issued 1.86 Crore new equity shares, thereby
increasing its outstanding shares to 24.17 Crore and
equity capital to Rs. 242 Crore from Rs. 223 Crore.
 JSW Steel issued 48.54 Crore new 0.01 per cent non-
convertible cumulative redeemable preference shares
to the preference shareholders of JSW Ispat.
 The holding of promoters in the merged entity got
diluted from 38.5% to 35.12%.
 Led to a fall in the holding of Japanese steel company
JFE Steel International holding from 15.17% to 14.92%.
 Overall public shareholding was fixed at 49.96 per
cent.

9.  Final merger led to an overall dilution of 8 (eight) per
cent in the shareholding by JSW Steel.
 The holding of the promoters in the merger entry
came down to 3 (three) percent.
 As per the chairman of JSW Steel, the expected overall
capacity of the combined entity would be 14.3 Million
Tonnes and would be further enhanced to 40 mt by
2020.
 At present, total capacity is 18 Million Tonnes.

10. Timeline for the final deal

11. Synergy
 JSW’s management believed that the transaction
would help JSW Steel to achieve a saving of Rs. 300-
350 crore by rationalizing administration and salary
cost, refinancing existing debt and negotiating better
price for raw material.
 JSW Ispat has a tax benefit of Rs. 288 Crore which is
accrued on the new combined entity.
 The merger brought down interest cost of JSW Ispat by
Rs. 250 Crore, as being a loss-making entity JSW Ispat
was paying 3.66 per cent more interest on loans.

12.  ISPAT’s plants at Maharashtra has helped in increasing
the overall capacity of JSW Steel to 18 Mtpa at present.
 JSW would have to spend around $1,000 per tonne to
buy a new plant but this deal resulted in the total
operational facility of around $700 per tonne.
 JSW saw a sharp 30% increase in book value.
 Overall expected synergy benefit: Rs 3-5 Bn.