1) The document discusses a project studying the acquisitions of Tata and Corus by Group 4. It provides background on mergers and acquisitions in corporate finance.
2) It defines mergers and acquisitions, distinguishing between mergers and acquisitions. Mergers combine two companies as equals while acquisitions involve one company purchasing another.
3) The key to successful M&A is achieving synergies through cost savings and revenue growth. However, synergies are difficult to realize and M&A often fail to meet financial targets.
2. To organize and support the strategic planning process across the group
3. To originate and assess corporate business development initiatives i.e. corporate partnerships/alliances.
4. To monitor the steel industry which includes macro economic trends, steel market dynamics, competitive arena, technology, standards and regulationsTHE DETAILS ABOUT THE COMPANY’S PERFORMANCE<br />Balance sheet<br />Mar ' 10Mar ' 09Mar ' 08Mar ' 07Mar ' 06Sources of fundsOwner's fundEquity share capital887.41730.79730.78580.67553.67Share application money---147.06-Preference share capital-5,472.665,472.52--Reserves & surplus36,281.3423,501.1521,097.4313,368.429,201.63Loan fundsSecured loans2,259.323,913.053,520.583,758.922,191.74Unsecured loans22,979.8823,033.1314,501.115,886.41324.41Total62,407.9556,650.7845,322.4223,741.4812,271.45Uses of fundsFixed assetsGross block22,306.0720,057.0116,479.5916,029.4915,407.17Less : revaluation reserve-----Less : accumulated depreciation10,143.639,062.478,223.487,486.376,699.85Net block12,162.4410,994.548,256.118,543.128,707.32Capital work-in-progress3,843.593,487.684,367.452,497.441,157.73Investments44,979.6742,371.784,103.196,106.184,069.96Net current assetsCurrent assets, loans & advances13,425.2711,591.6638,196.3414,671.914,997.00Less : current liabilities & provisions12,003.0211,899.959,755.788,279.706,913.83Total net current assets1,422.25-308.2928,440.566,392.21-1,916.83Miscellaneous expenses not written-105.07155.11202.53253.27Total62,407.9556,650.7845,322.4223,741.4812,271.45Notes:Book value of unquoted investments44,243.2441,665.633,790.475,793.463,477.38Market value of quoted investments4,397.791,491.893,260.652,979.004,079.52Contingent liabilities13,184.6112,188.559,250.087,185.933,872.34Number of equity sharesoutstanding (Lacs)8872.147305.927305.845804.735534.73<br />Profit loss account Mar ' 10Mar ' 09Mar ' 08Mar ' 07Mar ' 06IncomeOperating income24,940.6524,348.3219,654.4117,452.6615,132.09ExpensesMaterial consumed8,491.428,279.446,024.805,679.954,661.53Manufacturing expenses 3,803.333,349.962,693.732,589.242,364.40Personnel expenses2,361.482,305.811,589.771,454.831,351.51Selling expenses82.1761.4952.5364.7180.75Adminstrative expenses1,622.771,518.831,224.54986.20902.30Expenses capitalised-326.11-343.65-175.50-236.02-112.62Cost of sales16,035.0615,171.8811,409.8710,538.919,247.87Operating profit8,905.599,176.448,244.546,913.755,884.22Other recurring income331.59305.36347.28485.14256.95Adjusted PBDIT9,237.189,481.808,591.827,398.896,141.17Financial expenses1,848.191,489.50929.03251.25168.44Depreciation 1,083.18973.40834.61819.29775.10Other write offs-----Adjusted PBT6,305.817,018.906,828.186,328.355,197.63Tax charges 2,168.502,114.872,380.282,040.471,734.38Adjusted PAT4,137.314,904.034,447.904,287.883,463.25Non recurring items909.49297.71239.13-123.02-4.37Other non cash adjustments---57.2947.50Reported net profit5,046.805,201.744,687.034,222.153,506.38Earnigs before appropriation14,555.7811,589.209,281.017,198.315,296.59Equity dividend709.771,168.951,168.93943.91719.51Preference dividend45.88109.4522.19--Dividend tax122.80214.10202.43160.42100.92Retained earnings13,677.3310,096.707,887.466,093.984,476.16<br />Cash flow<br /> Mar ' 10Mar ' 09Mar ' 08Mar ' 07Mar ' 06Profit before tax7,214.307,315.617,066.366,261.655,239.96Net cashflow-operating activity8,369.227,397.226,254.205,118.103,631.39Net cash used in investing activity-5,254.84-9,428.08-29,318.58-5,427.60-2,464.59Netcash used in fin. activity-1,473.133,156.4215,848.077,702.46-1,125.13Net inc/dec in cash and equivlnt1,641.251,125.56-7,216.317,392.9641.67Cash and equivalnt begin of year1,592.89465.047,681.35288.39246.72Cash and equivalnt end of year3,234.141,590.60465.047,681.35288.39<br />DIVIDEND<br />YearMonthDividend (%)2010May802009Jun1602008Jun1602007May1552006May1302005May1302004May1002003May802002April-2001May402000May501999May401998May401997May45<br />Annual results in brief<br /> Mar ' 10Mar ' 09Mar ' 08Mar ' 07Mar ' 06Sales25,021.9824,315.7719,693.2819,762.5717,144.22Operating profit8,952.099,133.438,223.546,973.275,931.51Interest1,508.401,152.69878.70173.90118.44Gross profit8,297.488,289.017,679.847,233.046,067.83EPS (Rs)56.8771.1864.1472.7163.33<br />Annual results in detailsMar ' 10Mar ' 09Mar ' 08Mar ' 07Mar ' 06Other income853.79308.27335.00433.67254.76Stock adjustment134.97-289.27-38.73-82.47-104.91Raw material5,494.745,709.913,429.523,121.462,368.30Power and fuel1,268.281,091.37--819.17Employee expenses2,361.482,305.811,594.771,456.831,353.01Excise---2,210.552,004.83Admin and selling expenses-----Research and development expenses-----Expenses capitalised-----Other expenses6,810.426,364.526,484.186,082.934,772.31Provisions made-----Depreciation1,083.18973.40834.61819.29775.10Taxation2,167.502,113.872,379.332,039.501,733.58Net profit / loss5,046.805,201.744,687.034,222.153,506.38Extra ordinary item--221.13-152.10-52.77Prior year adjustments-----Equity capital887.41730.79730.78580.67553.67Equity dividend rate-----Agg.of non-prom. shares (Lacs)6051.624825.234825.874033.174051.91Agg.of non promotoHolding (%)68.5366.0566.0669.4873.21OPM (%)35.7837.5641.7635.2934.60GPM (%)32.0733.6638.3435.8134.87NPM (%)19.5021.1223.4020.9120.15<br />The Acquisition Process:<br />The acquisition process 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 the process of acquisition are provided in the Exhibit 1 After the final round of bidding and when the results were awaited Ratan Tata seemed to have asked Muthuraman to prepare two speeches viz., (a) on conceding defeat and (b) on winning the bid. A group of executives from Tata Steel described on what Muthuraman had to say about his writing the two speeches<br />Exhibit 1: Key Milestones of the Tata Corus Deal<br />September 20, 2006:-Corus Steel has decided to acquire a strategic partnership with a Company that is a low cost producer<br />October 5, 2006 :- The Indian steel giant, Tata Steel wants to fulfill its ambition to Expand its business further.<br />October 6, 2006 :- The initial offer from Tata Steel is considered to be too low both by Corus and analysts.<br />October 17, 2006:- Tata Steel has kept its offer to 455p per share.<br />October 18, 2006:- Tata still doesn’t react to Corus and its bid price remains the same.<br />October 20, 2006:- Corus accepts terms of £ 4.3 billion takeover bid from Tata Steel.<br />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.<br />October 27, 2006:- Corus is criticized by the chairman of JCB, Sir Anthony<br />Bamford, for its decision to accept an offer from Tata.<br />November 3, 2006:- The Russian steel giant Severstal announces officially that it will not make a bid for Corus.<br />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.<br />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 pre- conditions and decide whether it issue forward a formal offer<br />December 18, 2006:- Within hours of Tata Steel increasing its original bid for Corus to500 pence per share, Brazil's CSN made its formal counter bid for<br />Corus at 515 pence per share in cash, 3% more than Tata Steel's Offer.<br />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<br />608 pence per share in cash<br />April 2, 2007:- Tata Steel manages to win the acquisition to CSN and has the full voting support form Corus’ shareholders<br />When Mr. Muthuraman tried to write the speech on conceding defeat; he could not write anything for long; his hand writing which is usually neat and beautiful was illegible with number of overwriting. After a lot of attempts he was able to write one. Whereas, he could smoothly and in beautiful hand writing wrote the winning speech. During the final rounds of bidding, the top management team of the Tata’s Including Ratan Tata, Muthuraman, Kaushik Chaterjee and their key support staff were in a secluded location that was inaccessible to others. Further, all their communication devices were changed in order that the competitors of the bidding or the rivals had any access to the discussion of the negotiating team of the Tatas.”<br />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. 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.<br />According the Scheme regulations, Tata Steel was required to deliver a consideration not later than 2 weeks following the official date of the completion of the transaction. <br />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.<br />The deal between Tata & Corus was officially announced on April 2 nd, 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 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 as compared to the Tatas, the company was valued less than Tata (at approximately $6.2 billion) at the time when the deal negotiations started.<br />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. What were the various motivations for Corus to have upported the acquisition by the Tatas? Was it because of better price offered by the Tatas? Was this deal the best way for the shareholders of Corus to exit from the loss making steel business?<br />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 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.<br />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 percent on the Bombay stock market. 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 complexity of the deal especially from the financial implications of the acquisition has gripped many.<br />