while that of Tata Steel requires 38,000 employees
TATA To tap European mature market Cost of acquisition is lower than setting up green field plant and marketing and distribution channel. Tata manufactures low value long and fast steel products while Corus produced high value stripped products Acquisition would help Tata to feature in top 10 players in the world. Technology benefit Economies of scale Corus held a number of patents and R&D facilities CORUS Saturated market of Europe To extend its global reach through Tata To get access to low cost Indian Ore reserves Decline in market share and profit Total debt of Corus was 1.6 Bn GBP Facilities were old with high cost of production
Tata steel long term strategy is focused on sustainability and value creation.
Strategic management Tata acquisition of corus
A corporate action in which a company buys most, if not all, of the target company's
ownership stakes in order to assume control of the target firm. Acquisitions are often
made as part of a company's growth strategy whereby it is more beneficial to take over
an existing firm's operations and niche compared to expanding on its own.
TYPES OF ACQUISITION
Both the companies approve of the acquisition under friendly terms. There is no forceful
acquisition and the entire process is cordial.
A private company takes over a public company.
Back flip acquisition
A very rare case of acquisition in which, the purchasing company becomes a subsidiary
of the purchased company.
The smaller company is either driven to such a condition that it has no option but to say
yes to the acquisition to save its skin or the bigger company just buys off all its share,
their by establishing majority and hence initiating the acquisition.
• The following case is about acquisitions and results thereafter.
• In this case, we are going to analyze the situation of Tata steel of India acquiring Corus of
UK in the year 2007.
• This acquisition was smooth acquisition and brought huge effects to Indian steel market.
• The problem are -
1. To analyze the acquisition whether it was a success or a failure
2. To recommend future plans and strategy
• Established in 1907
• Asia's first integrated private sector steel company
• Annual crude steel capacity of over 29 million tonnes per annum
• World's second-most geographically-diversified steel producer
• Operations in 26 countries and a commercial presence in over 50 countries
• Turnover of Rs 1, 48,614 crores in FY 14
• Over 80,000 employees across five continents
• Fortune 500 company
• Operating companies within the Group include
o Tata Steel Limited (India)
o Tata Steel Europe Limited (formerly Corus),
o Tata Steel Singapore
o Tata Steel Thailand
• Vision is to be the world’s steel industry benchmark in “Value Creation”
and “Corporate Citizenship”
• Ninth largest steel manufacturer in the world
• Formed through the merger of British Steel and Koninklijke Hoogovens
(Hoogovens) on October 1999
• Standalone steel manufacturing capacity was 18.3 million tonnes
• More than 3 times that of Tata Steel
• 48,600 employees
• average coke consumption was lower in Corus possibly due to use of
secondary route of manufacturing steel
HISTORY AND EVOLUTION
1907: Tata Iron & Steel Co Ltd established by Jamsetji Tata.
1911: Blast Furnace operation at Sachi begins.
1912: Jamsetji Tata's plant produces its first steel ingot.
1912: 8 hour day introduced to maintain employee well-being.
1920: Leave-with-pay introduced. This practice was rare pre-1940s.
1924: TISCO close to closure as a result of 1920s Depression.
1951: Modernisation plan launch - with Kaiser Engineering support.
1971: Government attempt to nationalize TISCO fails.
1987: Collaboration started with Timken in bearings production.
1996: JV with Inland International - creation of Tata Ryerson.
2004: Acquisition of Singapore based NatSteel for ~$486m.
2004: Creation [with SAIL] of the mjunction online trading platform.
2005: Acquisition of 40% stake in Thailand's Millennium Steel.
2005: TISCO changed its name to Tata Steel.
2005: MoU signed for 5mt integrated plant at Jagdishpur.
2007: Tata Steel wins bid for Corus against Brazil's CSN.
2007: Acquisition of controlling stake in 2 Vietnamese rolling mills.
2010: Partial mothballing begins at Tata's TCP plant at Teesside.
2011: Tata Steel's Teesside Cast Products (TCP) plant sold to SSI.
2011: Llanwern hot strip mill in the UK temporarily mothballed.
2012: Blast furnace relit at former Corus Redcar steel plant.
2012: Rebuild commences of blast furnace No 4 in Port Talbot, UK.
2012: Retirement of Ratan Tata - Cyrus Mistry is new Chairman.
2013: Tata Steel Europe reports record GBP 1.2 bn loss.
2014: Plan announced to increase capacity 60% to 16 mt by 2020.
Body, Chassis, Powertrain,
Gear Box, Wheels & Tyres
Galvatite, Tata Wiron, Tata
Structural frame ,
envelope, internal fit out
applications , partition
Colorcoat Prisma, Tata
Tiscon, Tata Wiron, Tata
Lighting, Racking and
applications, Hot rolled
PRODUCTS & BRANDS
Steel is an essential material used in many industries
Backbone to countless products, structures and services
Shape the everyday lives of people throughout the world
Hot rolled and cold rolled
Wire rod and wire,
Sections, Plate, Bearings &
Tata Wiron, Celsius 355,
Food and beverage cans
Large and intermediary
steel drums and small
pails, Bulk Container
Heavy construction and
earth moving equipment,
Cranes and fork lift trucks,
Agricultural and forestry
Trailers, High strength
strip, Coil, quenched and
Special profiles for track shoe
and forklift masts, Engineered
steel bar and tubes
Tenform XK, Ympress
Aerospace Shipbuilding Rail
TATA CORUS ACQUISITION
• Tata acquired Corusn 31st January 2007
• US $ 12.11 Billion
• Nine rounds of bidding against Companhia Siderurgica Nacional (CSN).
Biggest overseas acquisition by an Indian company
Tata Steel Vs CSN: The Bidding War
• Heavy speculation surrounding takeover of Corus ever since Ratan Tata
had met Leng in Dubai, in July 2006.
• On October 17, 2006, Tata Steel made an offer of 455 pence a share in cash
valuing the acquisition deal at US$ 7.6 billion
• CSN offered 475 pence per share of Corus on November 17, 2006
• Competition between Tata Steel and CSN led to an auction mechanism
• CSN offers its final bid of 603 pence nearing $11.82 billion which was lesser
than Tata Steel’s winning bid of 608 pence per share totalling $12.1 billion
• A holding company was setup by Tata in Singapore to acquire Corus.
• Idea was to have all foreign acquisitions under one holding company.
• Singapore has a favorable Tax jurisdiction and gave Tata Steel an easy
avenue for raising global resources and funds
Tata Steel India
Tata Steel Holdings Asia
Tata Steel UK
Corus Group Ltd.
Equity capital from Tata Steel $4.10 billion
Long-term debt from consortium of banks $6.14 billion
Quasi-equity funding at Tata Steel Asia
Long-term capital funding at Tata Steel Asia
Total $12.90 billion
Tata Steel provided $4.1 billion from the various sources indicated above and
invested the above quantum through its wholly owned indirect subsidiary Tata
Non-recourse debt financing arranged by a consortium of banks of $6.14 billion
directly at Tata Steel UK.
Balance amount of $2.66 billion has presently been raised in the form of bridge
finance in Tata Steel Asia Singapore
NEED FOR ACQUISITION
• Manufacturing: Greater productivity leading to increased output and
• Procurement: Economies of scale leading to cost reduction through
• Research and Development: Cross fertilization of Research and
Development capabilities and operational best practices, leading to greater
innovation and operational efficiencies
• Finance and Corporate: Restructuring of organization and refinancing
Emerged as the fifth largest
steel producer in the world
Access to Corus' strong
distribution network in Europe
Expertise in making the grades
of steel can boost supplies to
the Indian automobile market
Expertise in low cost
manufacturing of steel..
Years 2014-2013 2013-2012 2012-2011
Current Ratio 0.57 0.86 0.93
Debt Equity Ratio 0.43 0.47 0.45
6.94 7.27 6.98
Debt Turnover Ratio 53.21 44.91 51.10
Porter’s Five Forces Model
• Increasing Demand for Steel.
• Low customer preference.
• High Raw Material Prices.
• Lack of Transportation.
• Fragmented Coke Suppliers.
Competitive Rivalry(very high)
• Competition from Foreign Players.
• Spurt in Merger and Acquisition
Threat of New Entrants (moderate)
• High Cost of Basic Inputs and
• Industry is Capital Intensive.
Threat of Substitutes(moderate)
• Use of Aluminium, Plastic, Carbon
• Turnover at 1,34,712 crores by 2013
• EBITDA is at 12,654 crores by 2013
• PAT is at -7058 crores by 2013.
• India leads in geographical distribution of revenue at 29% and in
capital employed by geographies by 46% for Tata Steel.
• Diversified customer base.
• Automotive ,Construction , Engineering , Consumer goods industries
etc are major customers.
• Increasing marketing efforts in industries like Railways , Ship
Building , Defense etc.
• Internal business processes
• Kar Vijay Har Shikhar ,a Continuous improvement programme, a well-defined
six step process involving TQM and statistical tools for improving quality.
• Some of the key themes through which process improvements are taken up are
– Throughput, Value-in-use, Energy Efficiency, Opportunistic Plays, Logistics
& Supply Chain
• Adoption of National Voluntary Guidelines to enforce transparency , ethics and
care for the community.
• Learning and Growth
• Presence of four research centers supporting cutting edge R&D in steel.
• Tata Steel Group Process Improvement Teams deployment for continuous
• Growth of the company as a whole has been affected by weak global economy
Internal Factor Evaluation Matrix
• In FY15 government is targeting promotion of housing for low medium income
• Reviewing road sector by setting a target of constructing 8500 kms.
• Rehabilitation of people in mining areas.
• Continuous casting machines.
• Application of SML(Steel Mark up language)
• Popularity of Steel portals.
• Increase in custom duty on coal from nil to 2.5% could create negative impact on
major steel producers like JSW , TATA STEEL and SAIL which are dependent on
• GDP growth rate.
• Mining scam e.g. Goa
• Recommendations on Captive Mines.
Factors Score(S) Weighta
Technology Risks 1 0.15 0.15
Raw Materials Security and
2 0.12 0.24
Forex, Credit, Liquidity and
2 0.07 0.14
Regulatory and Compliance
2 0.06 0.12
Health, Safety and
3 0.11 0.33
Macro environment 4 0.18 0.72
Industry Cyclicality 3 0.15 0.45
Growth Projects 3 0.12 0.36
Financing 3 0.08 0.24
External Factor Evaluation Matrix
Major players in Steel Sector
Main Producers (SAIL plants, Tata Steel and Vizag Steel/RINL),
Major Producers (Essar Steel, Jindal Steel & Power and Ispat Industries)
Total production value :
Public Sector 12.579 M tonnes
Private Sector 38.015 M tonnes
Total 50.594(89% cap util)
NAME MAJOR PRODUCTS TOTAL CAPACITY
Tata Steel wire rods, bars, and steel
Jindal Steel &
mild steel slabs
and sponge iron
Essar Steel sponge iron, steel and
iron ore pellets
liquid steel 30 1.7
Bhushan Power &
iron Ore beneficiation 12 (incl of the
Lloyds Steel corrugated sheets and
Steel Authority of
Stainless steel and iron 25 7.8
Major player in Steel Sector
The INTERNAL-EXTERNAL (IE) MATRIX is used to
analyze working conditions and strategic position of a
It’s based upon internal and external factors of the
The IE matrix used to plot the organization divisions in nine
cell diagram, each cell have some meaning associated which
IE matrix is a continuation of the EFE matrix and IFE matrix.
Internal External Matrix
1.0 4.0 1.0
• ANSOFF MATRIX helps a firm decide their market growth as well
as product growth strategies.
• Market Penetration- when the firm has an existing product and needs a
growth strategy for an existing market.
• Market Development- when the firm targets a new market with existing.
• Product development – firms which have a good market share in an
existing market and therefore might need to introduce new products for
expansion. Product development mainly happens when you have a good
customer base and you know that the market for your existing product
has reached saturation.
• Diversification – when the product is completely new and is being
introduced in a new market.
• Tata bearings
• Tata tubes
• Tata wiron
• Steel coils
• Corrugated steel
• Defense & security
EXISTING PRODUCTS NEW PRODUCTS
RELATIVE MARKET SHARE
GE MATRIX OR MCKINSEY MATRIX is a strategic
tool for portfolio analysis, initially developed by GE and
Compares different businesses on "Business Strength" and
"Market Attractiveness" variables.
The GE matrix has nine cells. Based on its position, a strategic
business unit can make any of the three resource allocation
GE MATRIX OR MCKINSEY MATRIX
HIGH MEDIUM LOW
BUSINESS UNIT STRENGTHINDUSTRYATTRACTIVENESS
GE/ Mc KINSEY MATRIX
SO STRATEGY (Use strengths to take advantage of
• Goodwill of TATA brand
• Existing dealers and service networks
• Large shareholders base for capital needs
• Loyal employees
• Innovation done by Tata with respect to its s
• Excellent corporate governance
WO STRATEGY (Overcome weakness
by taking advantage of opportunity)
• Lack of competence
• Lacks expertise on the new technology
• Degradation of brand value due to job
losses(recently they fired 400 employees
in UK , dated-16.07.2014)
ST STRATEGY (Use strengths to avoid threats)
Using good corporate governance Tata steel is
controlling the international competition as
they have acquired Corus.
With access to Corus talent pool they are using
advanced technology that will lead to
WT STRATEGY (Minimize weaknesses)
Usage of technology so that they
could forecast the future demands.
• Turnaround is a restructuring strategy. Here, a loss-bearing company is
transformed into a profit-earning company, by making systematic efforts.
• It tries to remove all weaknesses to help a sick company once again become
strong, stable and a profit-making institution.
• It tries to reverse the position from loss to profit, from declining sales to increasing
sales, from weakness to strength, and from an instability to stability.
• It helps the sick company to stand once again in the market.
• Tata steel before year 2007 was low in capacity and its market presence was
limited to Asia only.
• It was at 56th position in steel producers.
• In order to turnaround the situation it acquired Corus of U.k.
• By acquiring Corus it gained huge benefits such as
• Access to Europe Market.
• Helped in making global presence.
• Increased capacity.
• Increased Product portfolio.
• Access to better technology.
• Access to Corus talent pool.
• Thus all these benefits coupled with Tata capability to produce low cost steel
made it to 5th largest producer of steel.
This acquisition came out to be the turnaround strategy for Tata steel
The following points can be attributed:
• TATA Steel Group rose to 5th position from 56th
• The production capacity increased from 4million tones to 28million tones
• Standard & Poor’s Rating cut it credit Rating to BB from BBB and
removed them from the negative watch list
• Strong Research & Development Unit
• Several Patent’s to its credit
• Produces high end steel
• Large Customer base
Reduced growth, reduced consumption
Long steel growth remain prospective,
Fall in demand; increase in diversified
High demand, High growth
opportunity, High y-o-y growth
NAT STEEL Automation implementation, up
gradation of production units, increased
performance, obtained multiple projects
Iron Ore Project
Ramping up of coal production,
succesful completion of Direct shipping
TATA STEEL GLOBALLY
Brownfield expansion Increase in capacity, more
production, more dedicated
production to flat steel
Global wire business Largest wire manufacturer,
Revenue US$ 496 M
TATA growth shop Increased savings
Agrico Present in market for over 80
yrs, high popularity, high
Tinplate Company of
Largest producer, high growth
opportunities y-o-y 14%
Star cash cows
TATA Sponge Iron Ltd Improve synergies, future
GreenField expansion Future growth opportunity for
furthur product diversification
Business Model Analysis
• Nat Steel
valued by all
• Strong Base
• Access to Raw
• Processing Costs
• Interest on Debts
• Steel, Tubes and Alloys
• Sale of minerals & bearings
• Sale of Power and water
• Tata Corus deal was one of the largest deals that India has ever seen. The deal value
was $12.1 billion.
• Tata Steel became world’s fifth largest steel producer following this deal.
• The acquisition of Corus by Tata Steel has many synergistic benefits
• Although Tata Steel Group has succeeded in its efforts of integrating with Corus but, it
has paid a very high price for the acquisition.
• Also, the synergistic advantages that were foreseen after the deal have not been fruitful up
to expectations till date. Further, the margins that were supposed to increase have gone
down even after 4 years of the deal.
• So far, Tata Steel still has to wait for few more years for the deal to be profitable if
everything goes well.
External factor recommendations
• Updating frequently on the latest technological
• Improving storage facilities
• Cash management and treasury management techniques
Internal factor based decisions
• Improving operational efficiency.
• Merging with high technology foreign companies in similar
line of business.
• Incentivizing employees for long term association with the
Long Term Strategic plan