Contribution in the development of India’s economic growth:
The Indian steel industry is more than 100 years old now. The first steel ingot was rolled on
16th February 1912 - a momentous day in the history of industrial India. Steel is crucial to
the development of any modern economy and is considered to be the backbone of the
human civilization. The level of per capita consumption of steel is treated as one of the
important indicators of socio-economic development and living standard of the people in
any country. It is a product of a large and technologically complex industry having strong
forward and backward linkages in terms of material flow and income generation. All major
industrial economies are characterized by the existence of a strong steel industry and the
growth of many of these economies has been largely shaped by the strength of their steel
industries in their initial stages of development.
India is the seventh largest steel producer in the world, employing over half a million people
directly with a cumulative capital investment of around Rs. 1,00,000 crore. It is a core sector
essential for economic and social development of the country and crucial for its defense. The
Indian iron and steel industry contributes about Rs.8,000 crore to the national exchequer in
the form of excise and custom duties, apart from earning foreign exchange of approximately
Rs. 3,000 crore through exports. Consumption of finished steel grew by 5.9 % and increased
to 24.9 million tones. steel consumption is likely to increase in the at a rapid pace in future
due to large investments planned in infrastructure development, increase urbanization and
growth in key steel sectors i.e. automobile, construction and capital goods.
Since, then the Indian steel industry has emerged as one of the core sectors in the Indian
economy with a very significant impact on economic growth. India with its abundant
availability of high grade iron ore, the requisite technical base and cheap skilled labor is
thus well placed for the development of steel industry and to provide a strong
manufacturing base for the metallurgical industries.
TATA CORUS MERGER & ACQUISITION Page 3
The deregulated Indian steel industry is performing at its peak level in almost all spheres.
The total production of finished steel from April 2004 to March 2005 has been estimated to
be about 383.25 lakh tones as against the production of 369.57 lakh tones during the same
period last year showing an increase of 3.7 %. The most spectacular achievement has,
however, been recorded in export performance.
Steel has so far proved to be the single key factor responsible for industrial production and
thereby, for economic growth. And it is growing from strength to strength with newer
Developments--both within steel making practice as well as engineering developments,
which ask for more usage of steel. So much so, that economic development has become
almost synonymous with steel consumption.
“There are not many opportunities for producers in emerging low cost market to
gain access to the market of Europe other than by acquiring a company like Corus”
- John Quigley
(Editor, Industry Publication Steel Week)
Tata acquired Corus which is 3 times larger than its size and largest steel producer in
The deal which creates world’s 5th largest steel makers in India’s largest foreign
takeover worth US$12.11billion.
TATA CORUS MERGER & ACQUISITION Page 4
In the 1920s and 1930s, when it was still called Tata Iron and Steel Company,
TISCO's largely tribal workers fought pitched battles with the European or Parsi
management. Work conditions and the right to organize were important rallying issues, and
over the years, the company developed a reputation for union-busting, often by violent
means The value of Dorabji’s Expansion Program came to be appreciated only during the
phase when world was reeling under the pressure of the Great Depression. The Tatas
survived the depression and supplied nearly three-fourths of the country’s steel
By the Second World War, Tatas’ production capacities had expanded enough to make their
prices lower than those of steel produced in England raising them to an authoritarian
By the 1980s, the government was clearly in control of what had come to be called the
commanding heights of economy. More than 45% of output in organized industry came
from the public sector as well as bank and other long-lending institution.
In 1981-82, eight of the largest firms in India were in the public sector, as were 24 out of the
top 30 in terms of total capital employee. In this sense it could be said that Nehru’s goes
when he had begun the planning process had been achieved. But this success has to be seen
in the context of the fact that industrial growth rates had lagged at about 4%/annum
between 1964-65 and 1975-76.This rate was in sharp contrast to what was happening in
the Asian economies and in Southeast Asia. These countries had achieved consistent high
growth by opening up their markets and by abandoning policies of import substitution.
Indira Gandhi in her second stint as prime minister was not willing two inaugurate a
new industrial policy that departed from the socialist pattern put in place by her father. Yet
she was far too astute not to recognize the signs of crises that were waiting in the wings. She
made the gesture that her government supports the expansion and modernization of the
private sector. The basic elements of the new policy began to emerge against the
background of the India Special Drawing Rights billion-dollar loan agreement with the
International Monetary Fund to cope with the balance of payment deficits.
TATA CORUS MERGER & ACQUISITION Page 5
Rajiv Gandhi- Both internal & external finance shortages were worsening. Trade deficit
increased from 10 billion in 1983-84 to Rs. 34 billion in 1985-86 so it became difficult to
TATA Steel, formerly Tata Iron and Steel Company Ltd (Tisco), the company around
which the entire township of Jamshedpur was built, was registered in Bombay (now
Mumbai) on August 26, 1907. It had an initial capacity of 160,000 tons of pig iron, 100,000
tons of ingot steel, 70,000 tons of rails, beams and shapes and 20,000 tons of bars, hoops
and rods. It also had a powerhouse, auxiliary facilities and a laboratory. It was in 1955 that
Tata Steel began its two million-tone expansion programme, the largest project in the
private sector at that time. The project was completed in December 1958. Beginning in the
1980s, the company undertook in various phases an ambitious modernization programme.
The first phase, between 1981 and 1985, involved a total project cost of Rs.223 crores. This
phase, among other things, saw the installation of two 130 tone LD converters, two 250 tone
a day oxygen plants, a bar forging machine, two vertical twin-shaft lime kilns and a tar-dolo
brick plant. Significantly, a six-strand billet caster and a 130-tone vacuum arc refining unit
were installed, that too in the integrated steel plant.
The second phase (1985-1992), involving a project cost of Rs.780 crores, saw for the
first time in India coal injection in blast furnaces and coke oven battery with 54 ovens using
stamp-charging technology. Apart from this, a 0.3 mtpa (million tone per annum) wire rod
mill, a 2.5 mtpa sinter plant, a bedding and blending plant and a waste recycling plant of 1
mtpa were installed.
The cost of the third phase (1992-1996) of the project was a whopping Rs.3,600
crores, and that of the fourth phase (1996-2000) Rs.1,300 crores. The company recently
commissioned its 1.2 mt (million tone) capacity Cold Rolling Mill Complex at a project cost
of Rs.1,600 crores. This four-phase modernization program has enabled Tata Steel to be
equipped with the most modern steel-making facilities in the world. As of today, the Tata
Steel facility has a hot metal capacity of 3.8 mtpa and a crude steel capacity of 3.5 mtpa,
corresponding to a salable steel capacity of 3.4 mtpa. Tata Steel has been in the forefront of
India's industrialization and an engine of growth. It is part of Tata Group, a prestigious,
TATA CORUS MERGER & ACQUISITION Page 6
family-owned Indian multinational with 2005 revenues of $17.8 billion, the equivalent of
about 2.8 % of India's GDP. Tata Steel's acquisition of Corus was a marriage made in heaven.
Social responsiveness became integral to organizational objectives of Tata Steel, even
before the company was established in 1907. In 1970, however, Tata Steel formally
incorporated its commitment to the stakeholder concerns, including those of the nation, and
environment, in its Articles of Association. ‘The Company shall have among its objectives the
promotion and growth of the national economy through increased productivity, effective
utilization of materials and manpower resources and continued application of modern
scientific and managerial techniques in keeping with the national aspirations, and the
Company shall be mindful of its social and moral responsibilities to the consumers,
employees, shareholders, society and the local community.
For Jamsetji Tata, the progress of enterprise, welfare of people and the health of the
enterprise were inextricably linked. Wealth and the generation of wealth have never "been
ends in themselves, but a means to an end, for the increased prosperity of India.
Tata Steel’s efforts at environment management are well recognized. It’s Steel Works
in Jamshedpur, all its mines, collieries and manufacturing divisions in its out locations are
certified to ISO-14001. Jamshedpur is the only town in the country which has an ISO-14001
certified service provider. Significant achievements by the Company include an
improvement in environment and resource conservation, including a reduction in green
house erosion, raw materials and water consumption. The Company has increased waste
reuse and recycling.
The heritage of returning to society what they earn evokes trust among consumers,
employees, shareholders and the community. This heritage will be continuously enriched by
formalizing the high standards of behavior expected from employees and companies.
The TATA name is a unique asset representing Leadership with Trust. Leveraging
this asset to enhance group synergy and become globally competitive is the route to
TATA CORUS MERGER & ACQUISITION Page 7
sustained growth and long term success. Values Trusteeship Integrity Respect for Individual
Tata Steel has been fortunate to have leaders and a rich reservoir of committed
people who could see clearly through the future and transformed the plant into a modern
technological giant with the power of their meticulous envisioning, strategy and planning,
through several modernization programs having spent more than Rs. 70000 millions on
environment-friendly technologies since 1980. Installation of a modern Cold Rolling Mill
Complex, built at global speed and cost, is not only the epitome of Tata Steel’s
modernization program, but also remains a global benchmark in project management of its
kind. It is also worthwhile to mention that the Company lost dearly for their decision on the
installation of EOF (Energy Optimizing Furnace) at Jamshedpur Works, and CRM (Cold
Rolling Mill) at Gopalpur in Orrisa.
The Tatas made a great contribution in manpower development field too. From the
very beginning the Tatas invested substantial time, money and resources in training
schemes. In 1921, the Jamshedpur Technical Institute was set up with a purpose to replace
foreign technical experts with their Indian counterparts. Furnished with super-
sophisticated labs, advanced training aids and other infrastructural facilities, the Technical
Training Institutes in Jamshedpur is today one of the best in the country. Recently, a new
Management Development Centre has been built at Dimna to impart advanced management
training to middle and senior level managers in the Company.
Tata steel a part of the Tata group, one of the largest diversified business
conglomerates in India.
Started with a production capacity of 1, 00,000 tones, has transferred into global
In the mid-1990s, Tata steel emerged as Asia’s first and India’s largest integrated
steel producer in the private sector.
TATA CORUS MERGER & ACQUISITION Page 8
In February 2005, Tata steel acquired the Singapore based steel manufacturer
NatSteel, which let the company gain access t major Asian markets and Australia.
Tata steel acquired the Thailand based millennium steel in December 2005.
Tata steel generated net sales of Rs.175 billion in the financial year 2006-07.
The company’s profit before tax in the same year was Rs.64.14 billion while its profit
after tax is Rs.42.22billion.
-LOW COST PRODUCTION -QUALITY OF STEEL WAS NOT OF
-EASY ACCESS TO ROW MATERIAL
-NON AVAILABILITY OF LATEST R&D
-LOW EQITY DEBT RATIO FACILITY
- TO BECOME A WORLD LEADER IN
-TO COMPETE WITH OTHER BIG
LOW COST AND HIGH QUALITY
Various Policies of Tata Steel:
Safety Occupational Health and Environmental Policy
Human Resource Policy
Social Accountability Policy
Corporate Social Responsibility Policy
Drug & Alcohol Policy
HIV+ & AIDS Control Policy
TATA CORUS MERGER & ACQUISITION Page 9
Towards organization: Tata was the 1st company to amend its articles of association
including the clause of social welfare.
Towards shareholders: Equal participation, straight forward business policy.
Towards employees: Pioneer of P.F. scheme, free medical and workmen’s corporation
Towards Society: India should not be an economic super power, but a happy country.
Towards government: Suggestions of economic reforms and high tax payer company.
Towards consumers: Consumer is the king of market. Quality products & services timely
solutions of problems
The London-based Corus Group is one of the world's largest producers of steel and
aluminium. Corus was formed in 1999 following the merger of Dutch group Koninklijke
Hoogovens N.V. with the UK's British Steel Plc on October 6, 1999. It emoploys 47,300
people worldwide and 24,000 people in the United Kingdom.
Corus is a leading European manufacturer providing steel and aluminium products and
services worldwide. The company is comprised of four Divisions; Strip Products, Long
Products, Distribution & Building Systems and Aluminium2, and has a global network of
sales offices and service centres. It focuses on semi-finished and finished carbon steel
products and is not involved in iron ore extraction.
Corus is Europe’s second largest steel producer with revenues in 2005 of £9.2 billion
(US$18 billion and crude steel production of 18.2 million tonnes, primarily in the UK and the
Netherlands. Corus provides innovative solutions to the construction, automotive,
packaging, mechanical engineering and other markets worldwide.
Tata acquired corus, which is 4 times larger than its size and the largest steel
producer in the U.K. The deal, which creates the world’s fifth largest steelmaker, is India’s
TATA CORUS MERGER & ACQUISITION Page 10
largest ever foreign takeover and follow mittal steel’s $31 billion acquisition of rival arcelor
in same year.
Tata acquires corus on the 2nd of April 2007 for a price of $12 billion. The price per
share was 608 pence, which is 33.6% higher the first offer which was 455 pence.
For the fiscal year ended March 2006, the company generated revenues of
$3,693.6million (IR17,144.22 Crores), an increase of 0.1% over the previous fiscal
year. The company saw a net income of $755.4 million (IR3,506.38 Crores), an
increase of 8%over fiscal 2005 months.(3)
SWOT ANALYSIS OF CORUS
-Worlds ninth largest and europe's
second largest company. - High oprational cost
- Wide range of products of high - Lack of access to raw material.
-To get access to raw materialand growth
markets throug mergers.
-Increasing losses resulting to winding up
-To merger with acompany to elimanated of company.
duplication and remove overlaps in
marketing, accounting, etc.,
TATA CORUS MERGER & ACQUISITION Page 11
The change in management structure due to the privatisation of the British Steel
company in 1999 (which created Corus as a result of the merger of British Steel and
Hoogovens) led to strengthening the manufacturing company, which, prior to the merger,
had suffered serious cumulative losses between 1975 and 1984. A combination of increased
investment, reduced overheads, devolved decision-making and revolutionised working
practices has become the foundation of making Corus into one of Europe’s largest
manufacturing companies as of date. The company, spearheaded by Brian Moffat since
1993, used a range of different approaches to global development such as joint ventures
(Western Europe and USA), overseas transplants (USA, Eastern Europe and possibly Asia
and South America); and continued exports of high-added value products in order to further
strengthen their international presence in the manufacturing business.
In the crisis-filled years that Corus suffered, critics have commented that the
company has a lack of long-term vision, evidenced by their concentration on small steel
ventures in the US, when all the other competitors have been making giant alliance moves in
order to give them stronger market positions in developing markets. It has not used its
financial strength to spread its operations globally, in this day and time when going global is
a key factor to success. Poor management prior to Moffat’s administration has also caused
the firm a not-so-good image with employees, as in 2000, they were forced to reduce their
workforce due to radical restructuring of its bulk steel operations.
With the observed inability of Corus to spread operations globally, the opportunity
therefore is to take advantage of the increasingly boundless global market in order to not
only increase profits for the company, but also to gain market leadership, because it is
believed that the manufacturing company has got what it takes to take on a worldwide scale.
TATA CORUS MERGER & ACQUISITION Page 12
They also have the opportunity to further increase their production capacities through
adoption of systems which technology nowadays offers, and also to prepare for the
increased demand for their products once they decided to conquer the wider international
markets. The steel prices that are likely to continue to rise in the future – partly as a result of
the dynamic Chinese economy’s effect on world prices – should present an opportunity for
Corus to utilise to the fullest so that they could realise their true company potentials. With
Philippe Varin now in the helm after Moffat announced his resignation in 2003, opportunity
offered by a new organisational structure is also evident.
The strengthening of the pound against European currencies in the second half of the
1990s created a threat for the company, since by that time much of their sales were still in
Europe. It is therefore a threat to the firm at this time, when the tug against who is the
stronger currency still exists in the market. There is also the threat, not only for the Corus
group, but for the whole steel industry as well, of the European rules with respect to
opening the market of power generation, which would mean creating an unfair distortion of
competition for the industry concerned.
Name: TATA Steel
Formal Name: Tata Iron & Steel Company Limited
Founder: Jamsetji Tata
Chairman: Ratan Tata
Type: Public (BSE 500470)
Parent: Tata Group
TATA CORUS MERGER & ACQUISITION Page 13
Formation: Merger of Bristish Steel Corporation and koninklijke hoogovens N.V
CEO: Kirby Adams
Parent: Tata Steel, member of TATA Group
Tata Was Looking To Manufacture Finished Products In Mature Markets Of
A Diversified Product Mix Will Reduce Risks While Higher End Products Will Add
To Bottom Line.
Corus Holds A Number Of Patents And R&D Facility
Tata Is Known For Efficient Handling For Labor And It Aims At Reducing
Employee Cost And Improve Productivity
It Will Move From 55th Position In World To 5th In Production Of Steel Globally.
Reasons for Tata Steel to Bid to tap European Mature Market.
Cost of acquisition is lower than setting up of Green field plant & marketing and
TATA manufactures Low Value, long and flat steel products, while Corus produce
High Value Stripped products. Helped TATA to feature in Top 10 players in world.
Technology Benefit, Economic of scale. Corus holds number of patents and R&D
TATA CORUS MERGER & ACQUISITION Page 14
To tap European Mature Market.
Cost of acquisition is lower than the setting Green field Plant & distribution channel.
TATA manufactures Low value long & fast steel products while corus produced high
value Stripped product.
Helped TATA to feature in top 10 players in the world.
Economic of scale.
Corus holds number of patents and R&D facilities.
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.
Total Debt Of Corus Is 1.6 Bn Gbp
Corus Needs Supply Of Raw Material At Lower Cost
Though Corus Has Revenue Of $ 18.06 Bn Its Profit Was Just Of $626 Mn
Corus Facilities Were Relatively Old With High Cost Of Production
Employee Cost Is 15% While That Of Tata Steel Is 9%
TATA acquired Corus on 2nd April2007.
The deal price was US$12.11 billion.
On 17th Oct, 2006 TATA’s bided at 455pence per share and price per share was 390
pence at that time.
TATA steel, winner of the auction for CORUS declares a bid of 608 pence per share.
TATA Surpassed the final bid from Brazilian steel maker ”COMPANHIA SIDERUGGICA
NACIONAL” (CSN) OF 603 pence per share.
TATA CORUS MERGER & ACQUISITION Page 15
The combined entity has become the world’s fifth largest steel makers after the deal.
Total TATA-Corus deal- US $ 13.7 billion
Equity component – US $7.56 billion
Debt component – US $ 6.14 billion
Acquisition was completed through Tata steel’s UK special Purpose vehicle named
TATA STEEL UK.
This SPV raised US $ 6.14 billion through a mix high yield mezzanine and long term
For immediate financing Tata Steel UK raised US$ 2.66 billion through bridge loans.
Immediately take over 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 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
And moreover cost of equity at around 15% is higher than that debt of around 8%, so
paying in cash brings down the cost of acquisition.
The Corus-Tata deal continues to make news, even as both the companies continue to
consider various options to combine. For watchers of M&A (merger and acquisition), the
deal is a case study of how Indian acquirers have to consider takeover code and other laws
in a different country, such as the UK. This, apart from taking care that Indian laws are
While the Indian Companies Act, 1956, usually governs mergers in India,
international deals involve additional compliances with rules lay down under the FEMA
TATA CORUS MERGER & ACQUISITION Page 16
(Foreign Exchange Management Act, 1999) and associated law. Further, listed companies
are also subject to the rules and regulations laid down by the SEBI (Securities and Exchange
Board of India).
"The latter two laws can complicate any cross-border M&A," says Mr Diljeet Titus of
Titus & Co, Advocates, New Delhi.
"There are often occasions when an interplay between SEBI regulations and those of
FEMA can make it difficult for deals to be structured.
The best example is the 3(3) notice required to be given in the case of inter-se
promoter acquisition under the SEBI takeover code," he says, referring to Regulation 3(3) of
SEBI (Substantial Acquisition of Shares and Takeovers) Regulations.
"The 3(3) notice mandates that a notice has to be given to the stock exchange where
the shares of the company are listed four days prior to any inter-se promoter transfer of
"However, under the FEMA a non-resident can only acquire shares of an Indian
company at market price."
Mr Titus reasons that if the four-day notice is given to the stock exchanges, it
encourages speculation on the company's share price, making it difficult for the foreign
acquirer to buy the shares at market price.
"Because the market price may not be the true price of the shares but just a
speculative price over four days."
It is possible to make M&A less painful, feels Mr Titus. "SEBI and the RBI (Reserve
Bank of India) may each establish an effective legal cell, which should be able to respond to
questions raised by the parties to a merger on a timely basis," he suggests.
"A comprehensive database of FAQ (frequently asked questions) from these two
organizations could help. For, many of the questions that arise in current deals may arise in
future deals too."
TATA CORUS MERGER & ACQUISITION Page 17
An amalgamation is regulated by the Companies Act, 1956 (CA56), and the company (Court)
Rules, 1959 (Rules). A company may merge with another body corporate, whether or not an
Indian company, provided the surviving entity of the merger is a company within the
meaning of the CA56. A scheme of amalgamation (scheme) requires approval of the High
Court (Court) of the States where the registered offices of amalgamating companies are
situated. The steps for amalgamation of companies under the CA56 and the Rules are as
(1) Apply to the Court (by the company or any creditor or member of the company) for
directions to convene a meeting of the members and/or of creditors of the company,
for purposes of considering and approving the Scheme. Notice of the application
must also be given to the Regional Director, Company Law Board, whose
representation is considered by the Court before passing final orders.
(2) Pursuant to the Court’s directions the amalgamating companies would need to give
21 days’ notice of the meetings by advertisement in newspapers and then hold
meetings fo their respective members and/or creditors, according to the dates times,
venues and quorum fixed for the meetings by the Court. After approval of the Scheme
by the requisite majority (1) the Chairman of each ,eeting files his meetings report
with the Court.
(3) Within seven days of submission of the chairman’s report to the Court, a final
petition is filed with the Court conforming the Scheme with a request for appropriate
orders and directions by the Court. The Court fixes a date for hearing the petition and
the notice of the hearing must be advertised in the newspaper(s) at least 10 days
before the date fixed for the hearing.
(4) While considering the Scheme, the Court considers whether the applicant has
disclosed to the Court by affidavit all material facts relating to the company, such as
the latest financial position of the company, any investigation proceedings pending
TATA CORUS MERGER & ACQUISITION Page 18
by the Company Law Board and that the Scheme does not violate any provisions of
law is not contrary to public policy but is fair, just and reasonable.
If the Court receives no adverse representation from the Regional Director,
the Court may sanction the Scheme with appropriate orders and directions necessary
for its proper working, including transfer of properties or liabilities, dissolution of
the transfer company without the procedure of winding up, allotting of shares,
debentures or other like interests, etc.
Thereafter, the amalgamating companies are required to file the order(s) of the
Court sanctioning the Scheme with their respective Registrars of Companies and, upon
such filing; the order of the Court becomes effective and legally binding. This Court
process takes 3 – 6 months.
Tax Consideration: The Court order, being in effect a conveyance, is an
instrument liable to stamp duty that varies from state to state. However, if (1) at least
90% of the issued share capital of the transferee company is in the beneficial ownership
of the transferor company, or (2) transfer is between a parent company and a
subsidiary company, one of which is the beneficial owner of not less 90% of the issued
share capital of the other, or (3) transfer is between two subsidiaries where not less than
90% of the issued share capital of each is in the beneficial ownership of a common
company of the other, then no stamp duty is payable, provided an exemption certificate
is obtained from the officer appointed by the State Government on their behalf.
The transferee company may carry forward losses incurred before the
amalgamation. However, to do this at least 51% of the shareholders of the transferee
company (prior to the amalgamation) should beneficially hold at least 51% of the votes
on 31st March of each of the future fiscal years in which the past losses are to be carried
If the transferor company is carrying forward losses, then the following
conditions must be met to enable the transferee company to carry forward losses of the
transferor company (post-merger)
TATA CORUS MERGER & ACQUISITION Page 19
1. The transferee company holds continuously for a minimum period of five years from
the date of amalgamation at least 75% of the book value of fixed assets of the
transferor company acquired in the Scheme;
2. The transferee company continuous the business of the transferor company for a
period of five years from the date of amalgamation;
3. The transferee company, owing an industrial undertaking of the transferor company
by way of amalgamation, achieves the level of production of at least 50% of the
installed capacity of this undertaking before the end of four years from the date of
amalgamation and continues to maintain this minimum level of production till the
end of five years from the date of amalgamation.
However, the Central Board of Direct Taxes, on an application made by the
transferee company, can in suitable cases relax the condition of achieving the level of
production or the period during which it is to be achieved or both. The precondition
for this is that genuine efforts are made by the transferee company to attain the
prescribed level of production and there are circumstances preventing such efforts
from attaining this level.
4. The transferee company furnishes to the Assessing Officer a certificate verified by an
accountant, with reference to the books of accounts and other documents showing
particulars of production, along with the return of income. These should relate to the
assessment year relevant to the previous year during which the prescribed level of
production is achieved and to subsequent assessment years relevant to the previous
year’s falling within five years from the date of amalgamation.
An acquisition may be in the acquisition of either shares or assets. While not considering
the merits and acquisition of assets and the higher stamp duty on the sale of assets.
1. FIPB Approval: Under the foreign direct investment policy of the Government of
India, a proposal for the acquisition of shares of an India company by a foreign
company requires the prior approval of the Foreign Investment Promotion Board
(FIPB). However, FIPB approval is not required for the sale and transfer of shares of
TATA CORUS MERGER & ACQUISITION Page 20
an Indian company by a person resident outside India (not being a non-resident
Indian) to another person resident outside India(not being a non-resident India),
provided the transferee does not have a previous venture or investment in India in
shares or debentures or a technical collaboration or trade mark agreement in the
“same” or “allied” field in which the Indian company whose shares are being acquired
2. RBI Approval: An acquisition involving transfer of shares from a resident
company/Individual to a person not resident in India requires the prior approval of
the FIPB and the Reserve Bank of India(RBI). RBI approval is a two-tier process, with
an “in principle” approval (approving the transfer of shares, inter alia, subject to the
remittance of the purchase price to the resident company/individual) and thereafter
a “Final approval”.
3. Compliance with the Securities and Exchange Board of India (SEBI) Act, 1992;
Acquisition of the shares of a listed company must comply with the requirements
under the SEBI act (Substantial Acquisition of Shares & Takeovers Regulations),
4. Approval of the Department of Company Affairs under CA56: An acquisition of shares
in a public company or a private company which is a subsidiary of a public company
(Public Company), requires the prior approval of the Department of Company Affairs
(DCA), if (1) the acquirer is under the same management as the Public Company (2)
the acquisition would result in the acquirer becoming the holder of more than 25%
of the paid up share capital of the Public Company, (3) the acquirer is the owner of a
dominant undertaking and there would be, as a result of such acquisition, an increase
in the production, supply or distribution of goods produced in India or services
rendered in India by the dominant undertaking, or the acquirer could, as a result of
the acquisition, become the owner of a dominant undertaking.
Further, a transferor holding 10% or more of the nominal value of the equity shares
of the Public Company must inform the DCA before transferring one or more of such
In some jurisdiction, mergers and acquisitions attract significant antitrust
legislation. However, in India, being a dominant undertaking does not, per se, create
TATA CORUS MERGER & ACQUISITION Page 21
any antitrust or competition issues. Only an “abuse” of a dominant market position
may create antitrust issues.
Tax Considerations: Capital gains tax may be payable on the gains made by
the seller on sale of the shares of the company.
Also, to enable the transferor company to carry forward its losses, it is
essential that at least 51% of the shareholders of the transferor company (prior to
the acquisition) beneficially hold at least 51% of the votes on 31st March of each of
the future fiscal years in which the past losses are to be carried forward.
Tata acquired Corus, which is 4 times larger than its size and the largest steel
producer in the U.K. The deal, which creates the world’s fifth largest steelmaker, is India’s
largest ever foreign takeover and follow Mittal steel’s $31 billion acquisition of rival arcelor
in same year.
Tata acquires Corus on the 2nd of April 2007 for a price of $12 billion. The price per share
was 608 pence, which is 33.6% higher the first offer which was 455 pence.
TATA CORUS MERGER & ACQUISITION Page 22
Equity contribution from Tata Steel - $3.88 billion Credit Suisse leaded, joined by ABN
AMRO and Deutsche provided bank in the consortium.
In 2005, Tata Steel was only the world's 56th biggest steel producer and its takeover
of Corus represents its first expansion outside Asia.
OBJECTIVES OF MERGER & ACQUISITION
The main objective of Merger & Acquisition transaction is as follows:
• Proper utilization of all available resources.
• To prevent exploitation of unutilized and underutilized assets and resources.
• Forming a strong human base.
• Reducing tax burden.
• Improving profits.
• Eliminating or limiting the competition.
• Achieving savings in monitoring costs.
The deal (between Tata & Corus) was officially announced on April 2nd, 2007 at a
price of 608 pence per ordinary share in cash. This deal is a 100% acquisition and the new
entity will be run by one of Tata’s steel subsidiaries. As stated by Tata, the initial motive
behind the completion of the deal was not Corus’ revenue size, but rather its market value.
Even though Corus is larger in size compared to Tata, the company was valued less than
Tata (at approximately $6 billion) at the time when the deal negotiations started. But from
Corus’ point of view, as the management has stated that the basic reason for supporting this
deal were the expected synergies between the two entities. Corus has supported the Tata
acquisition due to different motives. However, with the Tata acquisition Corus has gained a
great and profitable opportunity to make an exit as the company has been looking out for a
potential buyer for quite some time.
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The total value of this acquisition amounted to ₤6.2 billion (US$12 billion). Tata Steel
the winner of the auction for Corus declares a bid of 608 pence per share surpassed the final
bid from Brazilian Steel maker Companhia Siderurgica Nacional (CSN) of 603 pence per
share. Prior to the beginning of the deal negotiations, both Tata Steel and Corus were
interested in entering into an M&A deal due to several reasons. The official press release
issued by both the company states that the combined entity will have a pro forma crude
steel production of 27 million tons in 2007, with 84,000 employees across four continents
and a joint presence in 45 countries, which makes it a serious rival to other steel giants.
The official declaration of the completed transaction between the two companies was
announced to be effective by Court of Justice in England and Wales and consistent with the
Scheme of Arrangement of the Tata Steel Scheme on April 2, 2007. According the Scheme
regulations, Tata Steel is required to deliver a consideration not later than 2 weeks
following the official date of the completion of the transaction.
The process has started on September 20, 2006 and completed on July 2, 2007. In the
process both the companies have faced many ups and downs. The details of this process has
September 20, 2006: Corus Steel has decided to acquire a strategic partnership with a
Company that is a low cost producer
October 5, 2006: The Indian steel giant, Tata Steel wants to full fill its ambition to expand
its business further.
October 6, 2006: The initial offer from Tata Steel is considered to be too low both by Corus
October 17, 2006: Tata Steel has kept its offer to 455p per share.
October 18, 2006: Tata still doesn’t react to Corus and its bid price remains the same.
October 20, 2006: Corus accepts terms of ₤ 4.3 billion takeover bid from Tata Steel
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.
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October 27, 2006: Corus is criticized by the chairman of JCB, Sir Anthony Bamford, for its
decision to accept an offer from Tata.
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 the board of the company with a bid of 475p per share
November 27, 2006: The board of Corus decides that it is in the best interest of its will
shareholders to give more time to CSN to satisfy the preconditions and decide whether it
issue forward a formal offer
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 and has the full voting
support form Corus’ shareholders
Tata Steel has formed a seven-member integration committee to spearhead its union
with Corus group. While Ratan Tata, chairman of the Tata group, heads the
committee, three of the members are from Tata Steel and the other three are from
The acquisition by Tata amounted to a total of 608 pence per ordinary share or ₤6.2
billion (US $12 billion) which was paid in cash. First of all, the general assumption is
that the acquisition was not cheap for Tata.
The price that they paid represents a very high 49% premium over the closing mid-
market share price of Corus on 4 October, 2006 and a premium of over 68% over the
average closing market share price over the twelve month period. Moreover, since
TATA CORUS MERGER & ACQUISITION Page 25
the deal was paid for in cash automatically makes it more expensive, implying a cash
outflow from Tata Steel in the amount of £1.84 billion.
Tata has reportedly financed only $4 billion of the Corus purchase from internal
company resources, meaning that more than two-thirds of the deal has had to be
financed through loans from major banks.
The day after the acquisition was officially announced, Tata Steel’s share fell by
10.7% on the Bombay stock market. Despite its four times smaller size and smaller
capacity, Tata Steel’s operating profit for 2006, earning $840 million on sales of 5.3
million tons, were very close in amount to those generated by Corus ($860 million in
profits on sales of 18.6 million tons).
Tata’s new debt amounting to $8 billion due to the acquisition, financed with Corus’
cash flows, is expected to generate up to $640 million in annual interest charges (8%
annual interest cost). This amount combined with Corus’ existing interest debt
charges of $400 million on an annual basis implies that the combined entity’s interest
obligation will amount to approximately $725 million after the acquisition.
The debate whether Tata Steel has overpaid for acquiring Corus is most likely to be
certain, since just based on the numbers alone it turns out that at the end of the
bidding conflict with CSN Tata ended up paying approximately 68% above the
average price of Corus shares.
Another pressing issue resulting for this deal that has created a dilemma between
experts and analysts opinions is whether this acquisition for the right move for Tata
Steel in the first place. The fact that Tata has managed to acquire a British steel
maker that has been a symbol of Britain’s industrial power and at the same time its
dominion over India has been perceived as quite ironic. Only time will show whether
Tata will be able to truly benefit from the many expected synergies for the deal and
not make the typical mistakes made in many large M&A deal during this beginning
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The Companies Act Amendment Bill, which was tabled in Parliament in the Budget
session that adjourned last week, has proposed to allow Indian companies to merge with
overseas companies, a move that could introduce greater flexibility in cross-border merger
and acquisitions (M&As).
At present Sections 391-394 of the Companies Act, 1956, allow only foreign companies
to merge with Indian ones. The Bill has introduced Section 205 that also allows the reverse
and stipulates that payment to shareholders of listed Indian companies being merged can be
in the form of cash, shares or Indian Depository Receipts (IDRs) issued by the overseas
The amendment was first suggested in 2005 by an expert committee on company law
chaired by Tata Sons Director J J Irani. The report had stated that “both contract as well as
court-based mergers between an Indian company and a foreign company, where the foreign
company is the transferee, needs to be recognised in Indian law.
The committee recognises that this would require some pioneering work between
various jurisdictions in which such mergers and acquisitions are being executed/created”.
If this amendment goes through, it will meet a key demand of many multinational
companies investing in India.
Legal experts said the merger of an Indian company with a foreign one can help
structure M&A deals in many ways. For example, if an overseas company has acquired
another foreign company that has a subsidiary in India, the new provision will allow the
acquirer to merge the Indian operations with itself, instead of retaining it as a separate
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With Corus in its fold, Tata Steel can confidently target becoming one of the top-3
steel makers globally by 2015. The company would have an aggregate capacity of
close to 56 million tons per annum, if all the planned Greenfield capacities go on
stream by then.
We can conclude that if the acquisitions well planned, Executed and the necessary
precautions taken for the deal a company can achieve its strategic objectives and
thus ensure its growth through Acquisition.
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