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. 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. 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. THE ACQUISITION AND THE
RATIONALE BEHIND IT
Rationale
TATA
To tap mature European market.
Helped TATA to feature in Top 10
players in world.
Technological benefits.
Corus holds number of patents and
R&D facilities.
Cost of acquisition is lower than
setting up of Green field plant &
marketing and distribution channel.
TATA manufactures Low Value, long
and flat steel products ,while Corus
produce High Value Stripped
products.
CORUS
To extend its Global reach through
TATA.
To get access to Indian Ore
reserves, as well as virgin market for
steel.
To get access to low cost materials.
Saturated market of Europe.
Decline in market share and profit.
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. FUNDING STRUCTURE
It 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. 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.
