Case 5 Tata Steel's Acquisition of Corus

Tata Steels Acquisition of Corus
On January 31, 2007, Tata Steel Limited (Tata Steel), one of

the leading steel producers in India, acquired the Anglo
Dutch steel producer Corus Group Plc (Corus) for US$ 12.11
billion ( 8.5 billion). The process of acquisition concluded
only after nine rounds of bidding against the other bidder for
Corus - the Brazil based Companhia Siderurgica Nacional
(CSN).
This acquisition was the biggest overseas acquisition by an
Indian company. Tata Steel emerged as the fifth largest steel
producer in the world after the acquisition. The acquisition
gave Tata Steel access to Corus' strong distribution network
in Europe.
Corus' expertise in making the grades of steel used in
automobiles and in aerospace could be used to boost Tata
Steel's supplies to the Indian automobile market. Corus in
turn was expected to benefit from Tata Steel's expertise in low
cost manufacturing of steel. However, some financial experts
claimed that the price paid by Tata Steel (608 pence per share
of Corus) for the acquisition was too high.
Corus had been facing tough times and had reported a
substantial decline in profit after tax in the year 2006.
Analysts asked whether the deal would really bring any
substantial benefits to Tata Steel. Moreover, since the
acquisition was done through an all cash deal, analysts said
that the acquisition would be a financial burden for Tata
Steel.

The financials for this deal [require] high performance levels, perfect post-deal
execution and sustained high steel prices. It is a risky game and will be okay for Tata
as long as the economy is growing and no major bumps occur. If [these bumps] do
occur, they can become a challenge, and I am reminded of the high leverage days of
the mid-1980s.1
- Vivek Gupta, Managing Director, AT Kearney (India), in February 2007.
Indian steel companies are on a consolidation mode. The Tata-Corus deal has set
many records. So far, the only $1 billion-plus deal was done by ONGC, and its the
first milestone for India Inc, with the Tata deal crossing $10 billion mark. Its a
landmark deal since an Indian company has taken over an international company
three times its size.2
- S. Mukherji, Managing Director, ICICI Securities, in February 2007.
Introduction
On January 31, 2007, India based Tata Steel Limited (Tata Steel) acquired the Anglo
Dutch steel company, Corus Group Plc (Corus) for US$ 13.70 billion 3. The merged
entity, Tata-Corus, employed 84,000 people across 45 countries in the world. It had
the capacity to produce 27 million tons of steel per annum, making it the fifth largest
steel producer in the world as of early 2007 (Refer Exhibit I for the top ten players in
the steel industry after the merger). Commenting on the acquisition, Ratan Tata,
Chairman, Tata & Sons, said, Together, we are a well balanced company,
strategically well placed to compete at the leading edge of a rapidly changing global
steel industry.4
Exhibit I: Top Ten Players in the Global Steel Industry

S.No.
3
4
Company
Crude Steel Production

(In million tons)
Arcelor Mittal
109.7
Nippon Steel
32.9
POSCO
30.5
JFE Steel
29.9
Tata Corus
27.0
Baosteel
22.7
Did Tata Steel Overheat in its Zeal to Win Corus? Knowledge@Wharton, February 08,
2007.
Tata Win Booster for Corporate Indias Confidence, The Economic Times, February 01,
2007.
As on January 31, 2007, 1 US Dollar = 44.18 INR and 1 Pound = 86.73 INR.
Tata Steel Completes Acquisition of European Steelmaker Corus, International Herald
Tribune, April 03, 2007.
405
Mergers & Acquisitions, and Strategic Alliances
S.No.
Company

(In million tons)
US Steel
19.3
Nucor
18.4
Riva
17.5
10
ThyssenKrupp
16.5
Source: V. Sridhar, Burden of Steel, Frontline, November 04-17, 2006.
Tata Steel outbid the Brazilian steelmaker Companhia Siderurgica Nacionals (CSN)
final offer of 603 pence per share by offering 608 pence per share to acquire Corus. Tata
Steel had first offered to pay 455 pence per share of Corus, to close the deal at US$ 7.6
billion on October 17, 2006. CSN then offered 475 pence per share of Corus on
November 17, 2006. Finally, an auction5 was initiated on January 31, 2007, and after
nine rounds of bidding, Tata Steel could finally clinch the deal with its final bid 608
pence per share, almost 34% higher than the first bid of 455 pence per share of Corus.
Many analysts and industry experts felt that the acquisition deal was rather expensive
for Tata Steel and this move would overvalue the steel industry world over.
Commenting on the deal, Sajjan Jindal, Managing Director, Jindal South West Steel
said, The price paid is expensive...all steel companies may get re-rated now but its a
good deal for the industry. 6
Despite the worries of the deal being expensive for Tata Steel, industry experts were
optimistic that the deal would enhance Indias position in the global steel industry
with the worlds largest7 and fifth largest steel producers having roots in the country.
Stressing on the synergies that could arise from this acquisition, Phanish Puram,
Professor of Strategic and International Management, London Business School said,
The Tata-Corus deal is different because it links low-cost Indian production and raw
materials and growth markets to high-margin markets and high technology in the
West. The cost advantage of operating from India can be leveraged in Western
markets, and differentiation based on better technology from Corus can work in the
Asian markets.8
Background Note
Tata Steel
Tata Steel is a part of the Tata Group, one of the largest diversified business
conglomerates in India. Tata Group companies generated revenues of Rs. 967,229
million in the financial year 2005-06. The groups market capitalization was US$ 63
billion as of July 2007 (only 28 of the 96 Tata Group companies were publicly listed).
5
6
7
Since Tata Steel and CSN could not declare their final offer by January 31, 2007, an auction
had to be initiated by The Takeover Panel which oversees mergers and acquisitions in the UK.
India Inc. Hails Tatas Win, The Times of India, January 31, 2007.
On June 25, 2006, India born Laxmi Mittals Rotterdam based steel company Mittal Steel
Company N.V. (largest steel producer before the acquisition) acquired Luxembourg based
Arcelor SA (second largest steel producer before the acquisition). This acquisition resulted
in the formation of ArcelorMittal which became the largest steel producer in the world.
Pedal to the Metal: Challenges of Tata Steels Corus Takeover, Knowledge@Wharton,
October 31, 2006.
406
In 1907, Jamshedji Tata established Tata Steel at Sakchi in West Bengal. The site had
a good supply of iron ore and water. Tata Steel grew rapidly and by 1911, it had its
own railway network that connected its factory to the iron and coal beds. At this time,
the company was producing 70,000 tons of iron per year. During the first and the
second World Wars, Tata Steel was one of the main suppliers of steel required for
manufacturing shells and armored cars.
Tata Steels business continued to grow over the decades and in 1973, it took over
some flux mines and collieries near Jharia, West Bokaro9. In 1983, the company
acquired the Indian Tube Company Limited, a manufacturer of seamless and welded
tubes. In 1991, it acquired the ferro-chrome unit of OMC Alloys Limited near
Bamnipal in Orissa.
With the liberalization of Indian economy in the early 1990s, Tata Steels business
grew rapidly. In the mid-1990s, Tata Steel emerged as Asias first and Indias largest
integrated steel producer10 in the private sector. In April 2000, Tata Steel
commissioned its Cold Rolling Mill (CRM) plant at Jamshedpur.
In February 2005, Tata Steel acquired the Singapore based steel manufacturer
NatSteel Limited (NatSteel). NatSteel owned steel mills in Australia, China,
Philippines, Thailand and Vietnam. Thus, with this acquisition, the company gained
access to major Asian markets and Australia. To strengthen its position further in the
Asian steel industry, Tata Steel acquired the Thailand based Millennium Steel in
December 2005. These two acquisitions not only helped Tata Steel to strengthen its
presence in major Asian countries but also provided it with an additional customer
base of two million tons of steel.
Tata Steel generated net sales of Rs 175.52 billion in the financial year 2006-07. The
companys profit before tax in the same year was Rs 64.14 billion while its profit after
tax was Rs. 42.22 billion (Refer Exhibit II for consolidated income statement of Tata
Steel and Exhibit III for consolidated balance sheet of Tata Steel).
Exhibit II: Tata Steel Consolidated Income Statement (2003-07)

(In Rs. Million)
2007
1. Sales /
Income From
Operations
2006
2005
2004
197,625.70 171,442.20 158,768.70 119,209.60
2003
97,932.70
Less: Excise
Duty
(22,105.50) (20,048.30) (13,779.20) (12,185.70) (10,719.70)
Net Sales /
Income
from
operations
175,520.20 151,393.90 144,989.50 107,023.90
87,213.20
(105,787.50) (92,078.80) (84,535.90) (72,069.80)

2. Total
Expenditure
64,193.40
9
10
Till the year 2000, Bokaro was in Bihar. Now, it is a part of the new state, Jharkhand.
Integrated steel producers have the facilities to manufacture steel, from the iron ore stage
right up to the finished steel stage.
407
2007
2006
2005
2004
2003
74,069.40
61,862.70
61,933.90
36,359.20
23,019.80
4. Other
Income
4,336.70
2,547.60
1,480.30
1,405.10
503.90
5. Interest
( net)
(1,739.00)
(1,184.40)
(1,868.00)
(1,221.70)
3,048.20
6. Depreciation
(8,192.90)
(7,751.00)
(6,187.80)
(6,251.10)
5,554.80
7. Profit before
Tax and
Exceptional
Items
(3+4-5-6)
64,137.50
52,927.30
53,878.10
28,886.40
14,920.70
(1,521.00)
(527.70)
(905.30)
(2,226.80)
(2,295.70)
(20,395.00) (17,335.80) (18,231.20)
(9,197.40)
(2,618.80)
3. Operating
Profit (1-2)
8. Exceptional
Items
Employee
Separation
Compensation
9. Tax
10 Net Profit
(+) / Loss
(-) (7-8-9)
11. Paid-up
Equity Share
Capital (Face
Value :
Rs 10 per
Share )
12. Reserves
excluding
revaluation
reserves
13. Basic and
Diluted
Earnings per
Share (not
annualized )
(after
Exceptional
items)
14. Aggregate of
Public
Shareholding
408
42,221.50
35,063.80
34,741.60
17,462.20
10,006.20
5,806.70
5,536.70
5,536.70
3,691.80
3,679.70
133,684.20
73,266.70
Rs. 73.76
Rs. 63.35
Rs. 62.77
Rs. 47.32
Rs. 27.43
2007
Number of
shares Nos.
% of
shareholding
2006
2005
2004
2003
403,316,773 405,186,77 406,463,44 271,966,96 270,653,10

3
0
2
5
69.48%
73.21%
73.44%
73.71%
73.59%
Source: Tata Steel Annual Reports, 2004-07.
Exhibit III: Tata Steel Consolidated Balance Sheet (2003-07)

(In Rs. Million)
2007
2006
2005
2004
2003
Sources of
Funds
Total Share
Capital
5806.70
5536.70
5536.70
3691.80
3691.80
Equity Share
Capital
5806.70
5536.70
5536.70
3691.80
3679.70
Preference
Share Capital
0.00
0.00
0.00
0.00
0.00
13,3684.20
9,2016.30
6,5062.50
4,1466.80
2,8163.00
0.00
0.00
0.00
0.00
5.40
13,9490.90
9,7553.00
7,0599.20
4,5158.60
3,1860.20
Secured Loans
3,7589.20
2,1917.40
2,4681.80
3,0101.60
3,6676.30
Unsecured
Loans
5,8864.10
3244.10
2715.20
3720.50
5579.80
Total Debt
9,6453.30
2,5161.50
2,7397.00
3,3822.10
4,2256.10
Total
Liabilities
23,5944.20
12,2714.50
9,7996.20
7,8980.70
7,4116.30
Gross Block
16,0294.90
15,4071.70
13,1792.60
Less: Accum.
Depreciation
7,4863.70
6,6998.50
5,9396.80
5,4116.20
4,8499.90
Net Block
8,5431.20
8,7073.20
7,2395.80
7,0942.10
7,3427.20
Capital Work
in Progress
2,4974.40
1,1577.30
1,8726.60
7636.40
2010.80
Investments
6,1061.80
4,0699.60
2,4326.50
2,1941.20
1,1945.50
Reserves
Revaluation
Reserves
Networth
Application
of Funds
12,5058.30 12,1927.10
409
2007
Inventories
2006
2005
2004
2003
2,3329.80
2,1747.50
1,8724.00
1,2490.80
1,1529.50
6316.30
5394.00
5818.20
6513.00
9584.70
Cash and
Bank Balance
7,6813.50
2883.90
2467.20
2507.40
3731.20
Total Current
Assets
106,459.60
30,025.40
27,009.40
21,511.20
24,845.40
Loans and
Advances
40,259.50
19,944.60
21,606.30
15,080.00
20,000.80
Total CA,
Loans &
Advances
146,719.10
49,970.00
48,615.70
36,591.20
44,846.20
0.00
0.10
0.90
1.60
0.00
209.80
334.10
553.20
1,016.70
1,146.30
Current
Liabilities
53,892.20
45,523.90
42,972.40
39,000.00
35,942.30
Provisions
30,375.40
23,614.40
25,244.20
20,689.90
22,171.10
Total CL &
Provisions
84,267.60
69,138.30
68,216.60
59,689.90
58,113.40
Net Current
Assets
62,451.50
-19,168.30
-19,600.90
-23,098.70
-13,267.20
Miscellaneous
Expenses
2,025.30
2,532.70
2,148.20
1,559.70
0.00
235,944.20
122,714.50
97,996.20
78,980.70
74,116.30
50,729.60
22,094.50
19,111.20
15,080.10
13,162.20
240.22
176.19
127.51
122.32
86.54
Sundry
Debtors
Deferred
Credit
Fixed Deposits
Total Assets
Contingent
Liabilities
Book Value
(Rs)
Source: Tata Steel Annual Reports, 2004-07.
Corus
The history of Corus can be traced back to the early 20 th century when Koninklijke
Hoogovens (Hoogovens) was founded by the Government of Netherlands in The
Hague on September 20, 1918. The major objective of establishing Hoogovens was to
enable the Dutch industry become less dependent on imports of steel. Moreover, the
Netherlands had good access to the sea for the supply of raw materials and export of
finished goods. The company was established at IJmuiden, a town on the North Sea
coast with good access inland via the North Sea Canal.
410
After several acquisitions over the decades, Hoogovens had become one of the major
players in the European steel industry. By the year 1990, the Hoogovens group had
five divisions Steel, Aluminum, Technical Services, Subcontracting, and Steel
Processing & Trading. Hoogovens manufactured steel and aluminum and the
companys major customers were automobile, automobile components, aerospace,
ship building, construction, batteries, furniture and optics industries.
One of the major achievements on the business front in 1998 was Hoogovens
selection as the only long term European supplier to Boeing. The company bagged
various awards such as corporate supplier award by Volkswagen Audi Group, a
Toyota Achievement award and the Duracell award for continuous improvement 11.
On October 06, 1999, Hoogovens merged with British Steel Plc12 (British Steel) to
form Corus Group Plc, the worlds third largest steel producer during that time.
Hoogovens held 38.3% stake in the new company while British Steel held 61.7%. At
this point in time, British Steel was struggling, and the merger was initiated to help it
revive its business. British Steel had registered a net loss of more than 80 million in
the financial year 1998. According to John Bryant, the CEO of Corus in 1999, The
aim of the merger was to attain operating economies by combining the facilities of the
two companies to eliminate duplication and remove overlaps in marketing,
accounting, procurement, logistics, R&D and other functions. 13
However, the merger did face a few problems in the beginning. The Dutch and the
British did not get along well. A few strategic decisions like the closure of the
companys aluminum business were called off, and a merger with CSN was
abandoned.13 The losses kept mounting and by 2001, the merged entity had suffered
an operating loss of 1.152 billion. The bad financial performance reflected the very
low prices of steel, as low as US$ 200-250 per ton between 2001 and 2002. Pound
sterlings gains against the euro also worked against the company.
In 2003, Philippe Varin (Varin) took over as the CEO of Corus. Varin and Jim Leng
(Leng), Chairman of Corus, both worked to revive the companys business. They were
able to cut costs to the tune of 600 million and reduced operating losses from 425
million in 2002 to 199 million in 2003. Corus was able to earn an operating profit of
612 million in the year 2004.14 The duo resorted to major job cuts, purchase and
supply chain optimization, and also reduced the companys debt by selling its
aluminum business to a US based company, Aleris, for 570 million. These strategic
moves and favorable global conditions like increasing steel prices due to increased
demand from China and favorable pound-dollar exchange rate helped the company to
stage a turnaround.15 When Varin took charge, the share price of Corus was quoting at
an all time low of 40 pence. From April 2003 onwards, the share price moved up and
it stood at 390 pence before the companys merger with Tata Steel.
11
12
13
13
14
15
History Of Koninklijke Hoogovens, www.corus.com.

British Steel was formed after the nationalization of private steel companies in Britain in
1967, through the Iron and Steel Act. The company was privatized in 1988.
Jayanta Mallick, D Murali, Steel in the Melting Pot of Mergers, The Hindu Business Line,
October 16, 2006.
In 2002, CSN openly held talks with Corus about a possibility for a merger but backed off
mid way because of Corus poor financial performance and also uncertainties in the then
global economic scenario and international financial markets.
Corus Annual Report, 2004.
Jeremy Warner, Varin Has Done Well With Corus, But When The Steel Cycle Turns,
What Will He Do for an Encore, The Independent, March 17, 2006.
411
In 2006, Corus reported an annual turnover of 9 billion. The company had four
divisions -- aluminum, distribution & building products, long products and strip
products (Refer Exhibits IV for consolidated income statement of Corus and Exhibit
V for consolidated balance sheet of Corus). By 2006, Corus had slipped to the ninth
position among the largest producers of steel in the world.
Exhibit IV: Corus Consolidated Income Statement (2004-06)

(In Million)
2006
Group Turnover
2005
2004
9,733.00
9,155.00
9332.00
-9,276.00
-8,512.00
-8750.00
457.00
643.00
582.00
-202.00
-127.00
-123.00
Finance Income
34.00
31.00
12.00
Share of post-tax profits of join ventures

and associates
24.00
1.00
21.00
313.00
548.00
527.00
-119.00
-116.00
-119.00
194.00
432.00
408.00
35.00
19.00
33.00
229.00
451.00
441.00
223.00
452.00
447.00
6.00
-1
-6
229.00
451.00
441.00
Basic Earnings per ordinary share
21.01p
48.14p
46.40
Diluted Earnings per ordinary share
20.38p
46.21p
43.48
Basic Earnings per ordinary share
3.91p
2.70p
3.94
Diluted Earnings per ordinary share
3.72p
2.49p
3.65
Total Operating Costs

Group Operating Profit/Loss
Finance Costs
Profit before taxation

Taxation
Profit after taxation from continuing

operations
Profit after taxation from discontinued
operations
Profit after taxation
Attributable to:
Equity holders of the parent
Minority Interests
Earnings per share

From Continued operations:
From discontinued operations:
Source: Corus Annual Report, 2006.
412
Exhibit V: Corus Consolidated Balance Sheet

(In Million)
2006
2005
2004
Non-current Assets
Goodwill
72.00
83.00
85.00
Other tangible assets
58.00
56.00
39.00
Property plant and equipment
2,758.00
2,820.00
2,793.00
Equity accounted investments
89.00
95.00
109.00
Other investments
62.00
113.00
66.00
Retirement benefit assets
451.00
157.00
311.00
Deferred tax assets
178.00
172.00
174.00
3,668.00
3,496.00
3,577.00
Inventories
1,890.00
1,954.00
1,732.00
Trade and other receivables
1,683.00
1,512.00
1,363.00
7.00
21.00
19.00
Other Financial Assets
85.00
Short term investments
8.00
11.00
823.00
871.00
589.00
1.00
3.00
4,412.00
4,446.00
3,714.00
8,080.00
7,942.00
7,291.00
-159.00
-384.00
-379.00
-2017.00
-1844.00
-1,742.00
-89.00
-79.00
-117.00
-38.00
-2.00
-5.00
-18.00
-81.00
-117.00
-141.00
-2,348.00
-2,467.00
-2,397.00
Long term borrowings
-1,236.00
-1,308.00
-1,063.00
Deferred tax liabilities
-123.00
-126.00
-137.00
Retirement benefit obligations
-210.00
-436.00
-455.00
Current assets
Current tax assets
Cash and short term deposits

Assets held for sale
Total Assets
Current liabilities
Short term borrowings
Trade and other payables
Current tax liabilities
Other Financial Liabilities
Retirement benefit obligations
Short term provisions and other
liabilities
Non-current liabilities
413
2006
2005
2004
Provisions for liabilities and

charges
-94.00
-116.00
-122.00
Other non-current liabilities
-70.00
-46.00
-26.00
Deferred income
-65.00
-65.00
-33.00
-1,798.00
-2,097.00
-1,836.00
-4,146.00
-4,564.00
-4,233.00
3,934.00
3,378.00
3,058.00
1,725.00
1,697.00
1,696.00
389.00
173.00
168.00
2,338.00
331.00
283.00
201.00
Consolidated reserves
1,485.00
1,199.00
-1,378.00
Equity attributable to equity

holders of the parents
3,930.00
3,352.00
3,025.00
4.00
26.00
33.00
3,934.00
3,378.00
3,058.00
Total liabilities
Net Assets
Equity
Called up share capital
Share Premium Account
Statutory Reserve
Other reserves
Minority interests
Total Equity
Source: Corus Annual Report, 2006.
Tata Steel vs CSN: The Bidding War

There was a heavy speculation surrounding Tata Steels proposed takeover of Corus
ever since Ratan Tata had met Leng in Dubai, in July 2006 16. 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. Corus responded positively to the offer on October 20, 2006.
Agreeing to the takeover, Leng said, This combination with Tata, for Corus
shareholders and employees alike, represents the right partner at the right time at the
right price and on the right terms. 17
In the first week of November 2006, there were reports in media that Tata was joining
hands with Corus to acquire the Brazilian steel giant CSN 18 which was itself keen on
acquiring Corus. On November 17, 2006, CSN formally entered the foray for
acquiring Corus with a bid of 475 pence per share. In the light of CSNs offer, Corus
announced that it would defer its extraordinary meeting of shareholders to December
20, 2006 from December 04, 2006, in order to allow counter offers from Tata Steel
and CSN.
16
17
18
Kausik Datta, Ishita Ayan Dutt, Tatas to Float $2 bn Bond for Corus Buy, Business
Standard, October 06, 2006.
Hugo Duncan, Corus Agrees 4.3 Billion Takeover by Indian Rival, The Independent, October
20, 2006.
Baiju Kalesh, Corus Bankers Back Tatas in Bid to Buy CSN, The Times of India,
November 01, 2006.
414
On December 10, 2006, Tata Steel revised the acquisition bid to 500 pence per share.
Defending this revised bid, Ratan Tata said, We remain convinced of the compelling
strategic rationale of this partnership and the revised terms deliver substantial
additional value to Corus shareholders.19
CSN reacted quickly, making a counter bid of 515 pence a share on December 11,
2006. Otavio Lazcano, Chief Financial Officer, CSN gave the rationale for placing a
higher bid by saying. This is a project focused on industrial growth that complements
both the markets and the product portfolios of both companies. 20 Corus again
approved this bid and Leng offered his reasons of doing so. He said, It is ...
consistent with our strategic objective of securing access to raw materials, low-cost
production and growth markets. The combination of the two businesses will create a
strong platform from which to compete and grow in an increasingly global market and
[is] consistent with our strategic objective.21
In the light of offers and counter offers from Tata Steel and CSN, the Takeover
Panel22, Britains watch dog on mergers and acquisitions set the deadline of January
30, 2007 for both the companies to make their final offer (Refer Exhibit VI for
Takeover Regulations in the UK). The panel also stipulated that if no outright winner
emerged, an auction would be conducted. Even by January 30, 2007, none of the
companies had declared their final offer. The Takeover Panel then asked for an
auction to be held at 4:30 PM GMT on January 31, 2007, after the closing hours of the
London Stock Exchange (Refer Exhibit VII for the auction rules that governed
acquisition of Corus).
Exhibit VI: Takeover Regulations in the UK

The process for M&A transactions in the UK involving public companies is
primarily regulated by the City Code on Takeovers and Mergers, known as the
Takeover Code. The Takeover Code contains a detailed set of rules governing most
practical aspects of the process. The Takeover Code is administered and enforced
by the Panel on Takeovers and Mergers, which operates an interventionist regime
under which the participants in the M&A process have frequent access to the
Takeover Panels secretariat (the Panel Executive) that provides day-to-day
guidance (and formal rulings) on the application of the Takeover Code.
Other relevant sources of law and regulation applicable to M&A transactions
include the Companies Act 1985 (replaced by the Companies Act 2006), which
governs schemes of arrangement (see question 2.1) and the compulsory acquisition
(squeeze out) procedure. The Financial Services and Markets Act 2000 (known as
Contd
19
20
21
22
Surojit Chatterjee, Tata Steel Raises Corus Bid to $9.2 Billion, Watches CSNs Move,
International Business Times, December 11, 2006.
Surojit Chatterjee, CSN Tops Sweetened Offer for Corus, Bid War Enters End Game,
Surojit Chatterjee, CSN Tops Sweetened Offer for Corus, Bid War Enters End Game,
The Panel on Takeovers and Mergers (the Takeover Panel) is a regulatory body based in
London, UK. It was set up in 1968 and is charged with the administration of the City Code
on takeovers and mergers. Its role is to ensure that all the shareholders are treated equally
during takeover bids. The Panel is a non-statutory body. It has no legal power to enforce its
decisions. It is the de facto arbiter of takeover bids and has the support of government and
other organizations with statutory involvement.
415
Contd
FSMA), which regulates investment business and securities markets generally is

also relevant, in particular, as it regulates financial promotions, the public offering
of securities and market abuse. Prospectus rules and Listing Rules made by the
Financial Services Authority (FSA) may also be relevant to a securities exchange
offer, where the securities to be issued are to be listed, as they may affect the
freedom of action of the target.
There are two methods used to undertake an M&A transaction in the UK. These
are: (i) a takeover offer, under which the bidder makes a general offer to all target
shareholders to purchase all (or very rarely some) of their shares in the target; and
(ii) a scheme of arrangement, which is a court supervised process that involves a
shareholder vote.
Under either method, a bidder may pay in cash or through the issue of securities or
a combination of both (although in certain circumstances the bidder may be
required to provide, as a minimum, the opportunity for the target shareholders to
choose cash). The takeover offer may be quicker than a scheme of arrangement,
and can be successful with a lower level of support from target shareholders. A
scheme of arrangement provides an all or nothing result, as the bidder will, if it is
successful, acquire all the shares of the target; while if it fails, it will acquire none.
The main hurdle in the acquisition in UK or EU (European Union) is to achieve a
sufficient level of target shareholder support. This is easier if the recommendation
of the target board is obtained. It is necessary for the bidder to arrange committed
financing before a bid is launched (by a formal announcement). This can represent
a major hurdle for a bid dependent on significant leverage. It also becomes
problematic because of legal impediments on using the targets assets as collateral
for any acquisition finance. The prohibition on financial assistance can be
overcome but it is a constraint on the structuring and implementation of leveraged
bids. The other main hurdle is to obtain regulatory approval. In addition to target
shareholder acceptance or approval, the principal consents required will be
regulatory (anti-trust and other regulatory approvals, if any). As with any M&A
transaction, change of control requirements in the targets contractual arrangements
may be relevant, and it may be necessary for the bidder to obtain its own
shareholders approval. It is a general principle of the Takeover Code that all target
shareholders must be afforded equal treatment. This is translated into detailed rules
requiring that the same consideration be offered to all and prohibiting special deals
with any target shareholders.
The principal documentation involved in a takeover offer include: a press
announcement confirming the bidders intention to make an offer (setting out the
consideration to be offered and all conditions to which the offer is subject); an offer
document (containing the formal offer, with all terms and conditions and financial
and other information on the bidder and the target); a form of acceptance (by which
the offer can be accepted); and a circular from the target board to its shareholders
(setting out its views on the offer and the substance of the independent advice
received). Target employees may insist that a statement setting out their views on the
offer also be appended. If the transaction is undertaken through a scheme of
arrangement, the documentation is almost identical in terms of content but in place of
the offer document there is a circular to target shareholders and a notice convening
meetings of shareholders with proxy forms in place of the form of acceptance.
Contd
416
Contd
If the consideration includes securities, a prospectus (or equivalent document) will

be required. Regulatory filings may require substantial documents and considerable
preparation time. These are not, however, public documents.
Source: www.iclg.co.uk.
Exhibit VII: Auction Rules that Governed the

Acquisition of Corus
Much before the commencement of the auction, the maximum number of rounds
and all the rules of the auction are announced by the Takeover Panel. All the
concerned companies (the bidders and the company to be acquired) have to convey
their consent to these rules to the Takeover Panel. For example, in the takeover
auction for Corus, it was decided that the auction procedure would consist of a
maximum of nine rounds, comprising up to eight rounds in which each offeror was
able to lodge a fixed price bid in cash followed by a final round if the auction
procedure had not by then concluded. In the final round, each offeror was able to
lodge either a fixed price bid in cash or a cash bid calculated by a formula
according to which the offeror could lodge a bid at a specified amount in cash more
than the other offeror subject to a specified maximum cash amount.
It was also announced that ninth round would take place only if the offeror who has
the lower cash bid at the beginning of that round lodged increased cash bid in that
round. Such a cash bid was to be at least 5 pence higher than the cash bid at the
beginning of that round. It is expected that the increased bids (if any) lodged during
the auction procedure will not be publicly announced by any of the parties.
If the auction procedure is not completed within the stipulated time period, the
Panel Executive makes an announcement setting out the prices of the offers to be
announced by each offeror following the conclusion of the auction procedure and
expects to freeze the auction procedure at that time and to announce the prices of
the highest cash bids (if any) lodged by each offeror at that point.
The Panel Executive reserves the discretion to amend the auction procedure as
appropriate. Following the conclusion of the auction procedure, neither offeror is
permitted to revise the price of its offer from that established by means of the
auction procedure, or to introduce any new alternative offer.
Compiled from www.economictimes.com, www.corusgroup.com and other sources.
After nine rounds of bidding on January 31, Tata Steel emerged winner in the auction
with its final bid of 608 pence per share of Corus. Justifying his stand and as a reply to
the criticisms about the price paid being too high, Ratan Tata said, We had taken a
view that we would not go beyond a point... We did not reach that point. Had we
reached that point, we would have walked away. Overbidding or not is subjective
when it comes to a judgment call.23
On January 31, 2007, Corus shares rose by 6.8% to 601.5 pence on the London Stock
Exchange (Refer Exhibit VIII for Corus stock price chart between September 2002
and March 2007). However, the Indian investors were unhappy about the premium
23
Did Tata Steel Overheat in its Zeal to Win Corus? Knowledge@Wharton, February 08,
2007.
417
that Tata Steel had agreed to pay to acquire Corus. Tata Steels shares fell by 10.7% to
Rs. 463.95 on the Mumbai Stock Exchange (Refer Exhibit IX for Tata Steels stock
price chart between September 2002 and June 2007). In a press conference on the day
the auction concluded, Ratan Tata said that the market was being harsh about the deal.
He said, One makes the mistake of taking a short term view of a corporation and its
life. It would take several years for us to build a 19 million ton enterprise from
scratch, leave alone establishing it in Europe.24
Exhibit VIII
Corus Stock Price Chart (September 2002 March 2007)
Source: www.finance.yahoo.com.
Exhibit IX
Tata Steel Stock Price Chart (September 2002 June 2007)
Source: www.finance.yahoo.com.
24
Chris Noon, Ruth David, Tata Prevails in Corus Battle, www.forbes.com, January 31,
2007.
418
Financing the Acquisition

By the first week of April 2007, the final draft of the financing structure of the
acquisition was worked out and was presented to the Corus Pension Trusties and the
Works Council by the senior management of Tata Steel. The enterprise value of Corus
including debt and other costs was estimated at US$ 13.7 billion (Refer Table I for
fund raising mix for the Corus acquisition). Tata Steel decided to go in for an all cash
deal25 rather than opting for a share-swap26. To raise the required funds, Tata Steel
opted for a mix of debt (US$ 6.14 billion) and equity (US$ 7.56 billion). It was
planned that the acquisition would be completed through Tata Steels UK Special
Purpose Vehicle (SPV)27 named Tata Steel UK. Tata Steel UK planned to raise US$
6.14 billion through a mix of high-yield mezzanine28 and long term debt funding.
Most of these loans were secured by the cash flows and assets of Corus.
Table I: Fund Raising Mix for the Corus Acquisition
Mode
Amount
(In US$ Billion)
Tata Steel UK Non-recourse

Debt
6.14
Tata Steel Asia (Singapore SPV)
2.66
Tata Steel Equity Contribution
4.90
Break-up of Tata
Steel Equity
contribution
(In US$ Million)
Cash Reserves
700
External Commercial Borrowings
500
Preference Shares to Tata Sons
640
Rights Issue
862
Convertible Preference Shares
1400
Foreign Issue of Equity Instruments
798
Sub-total
Grand Total
4900
13.70
Source: Tatas Plan Fund Raising Mix for Corus, The Economic Times, April 18, 2007 and
other sources.
25
26
27
28
This is a mode of financing an acquisition by paying cash to the shareholders of the acquired
company in lieu of their shares. The acquired companys shares get de-listed after the acquisition.
This is a mode of financing an acquisition where in acquiring company uses its own stock to
pay for the acquired company. The shareholder of the acquired company receives a certain
number of shares of the acquiring companys stock for each share of stock they previously
held in the acquired company.
SPV is also referred to as a bankruptcy-remote entity whose operations are limited to the
acquisition and financing of specific assets. The SPV is usually a subsidiary company with
an asset/liability structure and legal status that makes its obligations secure even if the
parent company goes bankrupt.
A hybrid of debt and equity financing that is typically used to finance the expansion of
existing companies. Mezzanine financing is debt capital that gives the lender the rights to
convert to an ownership or equity interest in the company if the loan is not paid back in time
and if the full amount is not paid. It is generally subordinated to debt provided by senior
lenders such as banks and venture capital companies.
419
To provide for immediate funding of the acquisition, Tata Steel Asia (Tata Steels
Singapore SPV) raised US$ 2.66 billion through bridge loans29. Banks like ABN Amro,
Deutsche Bank, Lloyds and Standard Chartered Bank, agreed to provide bridge loans to
the company. Payment for these bridge loans upon their maturity was by way of nonrecourse30 facilities which were being arranged by a syndicate led by ABN Amro,
Citigroup and Standard Chartered Bank. The refinancing facility comprised of quasiequity instruments worth US$ 1.25 billion and long term loans of US$ 1.41 billion.
Tata Steels own contribution in the Corus deal amounted to US$ 4.9 billion. The
company invested US$ 1.84 billion to acquire Corus through its cash reserves of US$ 700
million, external commercial borrowings of US$ 500 million and an issue of equity shares
of Tata Steel to Tata Sons31 which fetched US$ 640 million32. The company planned to
raise the remaining US$ 3.06 billion through two rights issues and a foreign issue.
The first rights issue of Tata Steel was to be in the ratio of 1:5 at a price of Rs 300 per
share. This issue was expected to generate US$ 862 million. Tata Steel also planned a
second rights issue of convertible preference shares in the ratio of 1:7, having an interest
rate of 2 percent, convertible into equity shares after two years at a price in the range of
Rs 500 to Rs 600 per share. The price was to be determined at the time of the rights
issue. This issue was expected to provide a total amount of US$ 1.4 billion. Tata Sons
planned to invest money for any unsubscribed portion of both these rights issues.
Tata Steel also planned a foreign issue of an equity-related instrument to generate an
amount of US$ 798 million. The type of instrument to be issued in the foreign issue
had not been decided as of July 2007. According to industry experts, the most likely
option was an issue of ADRs or GDRs33.
The public announcement of the fund raising mix for the acquisition met with mixed
reactions in the market. The participants of Credit Default Swap (CDS) 34 segment of
29
30
31
32
33
34
A short-term loan that is used until a person or a company secures permanent financing or
removes an existing obligation. This type of financing allows the user to meet current
obligations by providing immediate cash flow. The loans are short-term (up to one year)
with relatively high interest rates and are backed by some form of collateral such as real
estate or inventory. A bridge loan is also known as interim financing, gap financing or
swing loan (www.investopedia.com).
Non-recourse debt refers to secured loan that is secured through the pledge of collateral, without
personal liability of the borrower. In case the borrower defaults on the payments, lender can
recover through the collateral and if the amount is not sufficient to cover the outstanding loan, the
borrower is not responsible to pay the remaining amount. This loan is normally used to finance
commercial real estate and projects that need high capital expenditure.
Tata Sons is the promoter of the Tata group and all its key companies. Tata Sons was
established in 1868 by Jamsetji Tata as a trading concern. Tata Sons holds a majority stake
in the Tata group companies.
Funding of Corus Transaction, www.tatasteel.com, April 17, 2007.
ADR is a negotiable certificate issued by a US bank representing a specified number of
shares (or one share) in a foreign stock that is traded on a US exchange. ADRs are
denominated in US dollars, with the underlying security held by a US financial institution
overseas. GDR is a negotiable certificate held in the bank of one country (for eg., UK)
representing a specific number of shares of a foreign stock (in this case, of Tata Steel)
traded on an exchange of another country (UK). (www.investorwords.com).
It is a swap designed to transfer credit exposure of fixed income products between parties. It
is the most widely used credit derivative. It is an agreement between a protection buyer and
a protection seller whereby the buyer pays a periodic fee in return for a contingent payment
by the seller upon a credit event (such as a certain default) happening in the reference entity.
Most CDS contracts are physically settled, where upon a credit event, the protection seller
must pay the par amount of the contract against the protection buyers obligation to deliver a
bond or loan of the name against which protection is being sold.
420
the derivative markets were amazed on Tata Steels decision to raise about 45 percent
of the required finances for the acquisition through Tata Steel UK, rather than by
raising the debt itself. Financial experts pointed out that Tata Steels security credit
rating was investment grade35 whereas Tata Steel UK had a lower security credit
rating. Due to the higher risk associated with raising debt through Tata Steel UK,
Fitch Ratings decided to downgrade its rating of the credit swap risks in the takeover
to negative36. (Refer Exhibit X for a note on Fitch Ratings).
Exhibit X: Fitch Ratings

Fitch Ratings Ltd was founded by John Knowles Fitch in 1913 in as the Fitch
Publishing Company in New York City. Head quartered in New York City and
London, Fitch Ratings Ltd is now an international credit rating agency. It has
defined various parameters for grading debt bonds issued by companies and these
grading are used world-wide to rate the bonds.
Investment Grade
AAA : the best quality companies, reliable and stable
AA : quality companies, a bit higher risk than AAA
A : economic situation can affect finance
BBB : medium class companies, which are satisfactory at the moment
Non-Investment Grade (also known as junk bonds)
BB : more prone to changes in the economy
B : financial situation varies noticeably
CCC : currently vulnerable and dependent on favorable economic conditions to
meet its commitments
CC : highly vulnerable, very speculative bonds
C : highly vulnerable, perhaps in bankruptcy or in arrears but still continuing to
pay out on obligations
D : has defaulted on obligations and Fitch believes that it will generally default on
most or all obligations
NR : not publicly rated.
Source: www.investopedia.com.
Financial experts said that Tata Steel opted for an all cash deal as compared to a
share swap deal as the latter would have been less attractive to the Corus
shareholders. Stressing this, Jayesh Desai, Head Investment Banking, Ernst & Young
said, Foreign sellers are not yet confident about accepting payments in the form of
equity in Indian companies. For them it would amount to foreign direct investment,
which brings regulatory issues. As for many private equity funds, they dont yet
understand the Indian market well and so are reluctant to accept stock. 37
35
36
37
A bond is considered investment grade if its credit rating is BBB- or higher given by
Standard & Poors or Baa3 or higher given by Moodys or BBB (low) or higher which is
given by DBRS. Generally, they are bonds that are judged by the rating agency as likely
enough to meet payment obligations that banks are allowed to invest in them.
Debt Traders Lose Their Shirt Over Tata Steel-Corus Deal, The Economic Times,
October 26, 2006.
How Indian Companies Fund Their Overseas Acquisitions, Knowledge@Wharton, December
14, 2006.
421
Another reason for the all cash deal was that a share swap would have diluted Tata
Steels equity base. Commenting on this, Dhanraj Bhagat, Practice Director, Grant
Thornton said, Indian promoters are wary of equity swaps because they could dilute
their equity base significantly if the acquisition price is high. Moreover, the cost of
equity at around 15% is higher than that of debt at around 8%, so paying in cash
brings down the cost of the acquisition. Sellers are reluctant to accept stock because
theyre not sure about the valuations of the buying firm. 38
The Integration Efforts

Industry experts felt that Tata Steel should adopt a light handed integration
approach, which meant that Ratan Tata should bring in some changes in Corus but not
attempt a complete overhaul of Corus systems (Refer Exhibit XI and Exhibit XII for
projected financials of Tata-Corus). N Venkiteswaran, Professor, Indian Institute of
Management, Ahmedabad said, If the target company is managed well, there is no
need for a heavy-handed integration. It makes sense for the Tatas to allow the existing
management to continue as before. Some level of planned restructuring can come in
later. This way there will be no bloodletting. 39
Exhibit XI: Tata-Corus Profile

TATA Steel
Corus
Combined
Market Capitalization
6,510
44.2%
8,227
55.8%
14,737
Sales (in USD Million)
5,067
20.5%
19,367
79.5%
24,374
EBITDA (in USD Million)
1,480
43.0%
1,962
57.0%
3,442
840
49.4%
861
50.6%
1,781
5.3
22.6%
18.2
77.4%
23.5
Net Income
Million)
(in
USD

(in million tones)
Adapted from Tata Steel Annual Report 2006-07.
Exhibit XII: Tata Corus Consolidated Financial Performance

Jan March 2006
Jan March 2007
Rs. Billion
USD
Million
Rs. Billion
USD
Million
Turnover
254.11
5,845
312.96
7,199
EBITDA
26.72
615
42.31
973
EBITDA Margin
11%
11%
14%
14%
Profit Before Tax
17.50
403
24.64
567
Net Profits
11.98
276
17.17
395
Adapted from Tata Steel Annual Report 2006-07.
38
39
How Indian Companies Fund Their Overseas Acquisitions, Knowledge@Wharton, December

14, 2006.
Neelima Mahajan, It Takes a Whole Lot to Sing a Perfect Chorus, The Times of India,
February 01, 2007.
422
Ratan Tata emphasized that Corus would not be Indianised. He said, The top
management of Corus will remain with the company and therefore will be part of our
integrated operations. The CEO of Corus will remain as the CEO of Corus. 40 Tata
Steel also maintained three Corus people (P. Varin, R. Henstra, D. Lloyd) on the TataCorus board. Tata Steel said that culturally, there was a strong fit with regard to the
values of both companies (Refer Table II for a comparison of the business cultures of
both the companies).
To take care of the merger integration efforts, Tata Steel formed a seven member
committee headed by Ratan Tata. The committee began its task of determining strategic
priorities of Tata-Corus in the near future. They also identified areas that had clear
business benefits in order to drive integration efforts towards those areas. Between June
2007 and October 2007, the committees verification and draft implementation plans
were to be kept ready while detailed synergy targets were to be included in business
unit/site plans for the second half of 2007 and the annual plan for 2008-10.41
Table II: Business Cultures of Tata Steel and Corus A Comparison

Tata Steel
Corus
Continuous improvement program

ASPIRE
Continuous improvement program

The Corus Way
Core Values:
Core Values Code of Ethics:
Trusteeship
Integrity
Respect for the individual
Credibility
Excellence
Integrity
Creating value in steel
Customer focus
Selective growth
Respect for our people
World class governance
World class governance
Source: Tata Steel Annual Report, 2006-07.
The Synergies
Most experts were of the opinion that the acquisition did make strategic sense for Tata
Steel. After successfully acquiring Corus, Tata Steel became the fifth largest producer
of steel in the world, up from fifty-sixth position. There were many likely synergies
between Tata Steel, the lowest-cost producer of steel in the world, and Corus, a large
player with a significant presence in value-added steel segment and a strong
distribution network in Europe.
Among the benefits to Tata Steel was the fact that it would be able to supply semifinished steel to Corus for finishing at its plants, which were located closer to the
high-value markets. Another area an obvious outcome of large scale consolidation
would be the synergies of joint procurement. Economies of scale would give more
strength during raw material purchase negotiations and also while implementing
product price changes. All these synergies, was expected to increase the merged
entitys profitability further.
40
41
Chris Noon, Ruth David, Tata Prevails in Corus Battle, www.forbes.com, January 31, 2007.
Ratan Tata to Head Corus Merger Panel, The Economic Times, May 21, 2007.
423
Tata Steels optimism regarding the synergies that could be generated after merger
with Corus was strong. B Muthuraman (Muthuraman), Managing Director, Tata Steel
said, In terms of synergies, we see synergies in improvement of operating practices
in many areas. We have had a reasonably good look at it in the limited time that we
had with Corus. We see synergies in procurement of materials, we see synergies in the
marketplace, we see synergies in shared services, we see synergies in improvement of
our operations in India using what Corus has in some areas which is better than us. In
terms of total synergies, we believe that it is roughly about US$ 300-350 million
dollars per year, which is something, which we will be able to bring to the bottomline
of the combined entity. It will take a little bit of time; it will start at a lower value for
the first 1 or 2 years. From the third year onward, we expect to realize the full
synergy.42
According to industry experts, Tata Steel would have two options with regard to steel
production after the acquisition. The first option would be to continue with its primary
steel production close to its iron-ore deposits, and then ship semi-finished steel for
finishing at Corus plants which were close to foreign consumer markets. The second
option would be to shift a part of Corus steel-making capacities to India, where Tata
Steel was already planning a massive expansion to cater to the rapidly growing
demand of steel in the country. Corus expertise in making better grades of steel used
in automobiles and in aerospace could be used to boost Tata Steels supplies to the
growing Indian automobile market.
Corus Consultancy Services based in Newport, South Wales, provided iron, steel and
metal related consultancy, right from the stage of ore mining to that of marketing the
finished products. It was planned that this would be synergized with an automation
unit that Tata had in India. Muthuraman said, Apart from steel, there are a lot of
other strengths Corus has, that can be tapped by Tata Steel, in consultancy and other
areas. Well try to increase these synergies. 43
The Pitfalls
Though the potential benefits of the Corus deal were widely appreciated, some
analysts had doubts about the outcome and effects on Tata Steels performance.
They pointed out that Corus EBITDA (earnings before interest, tax, depreciation
and amortization) at 8 percent was much lower than that of Tata Steel which was at
30 percent in the financial year 2006-07. Questions posed by financial experts were
primarily related to the valuation and funding of the deal. Corus ended up being
valued at approximately 7.7 times the EV (enterprise value) to EBITDA, which was
considered an overvaluation (Refer Exhibit XIII for an explanation on EV, EBITDA
and the EV/EBITDA). Commenting on the valuation, Navin Jindal, Vice-Chairman
and Managing Director, Jindal Steel and Power Limited said This is not an
attractive price but, if the Tatas have liquidity it will be a good investment in the
long run.44
42
43
44
Muthuramans Speech at a Press Conference for Corus Acquisition on January 31, 2007,
www.tatasteel.com.
TCS, Other Tata Companies to Benefit, The Economic Times, February 03, 2007.
424
Exhibit XIII: A Note on EV, EBITDA and EV/EBITDA

Enterprise Value (EV) is a measure of a companys value, often used as an
alternative to straightforward market capitalization. EV is calculated as market cap
plus debt, minority interest and preferred shares, minus total cash and cash
equivalents.
EBITDA can be used to analyze and compare profitability between companies and
industries because it eliminates the effects of financing and accounting decisions.
However, this is a non-GAAP measure that allows a greater amount of discretion
as
to what
is
(and
is
not) included in
the calculation.
This
also means that companies often change the items included in their
EBITDA calculation from one reporting period to the next.
EBITDA = Revenue Expenses (excluding tax, interest, depreciation and
amortization)
EV/EBITDA also known as Enterprise Multiple is a ratio used to determine the
value of a company. The enterprise multiple looks at a firm as a potential acquirer
would, because it takes debt into account an item which other multiples like the
P/E ratio do not include. Enterprise multiple is calculated as:
Enterprise Multiple = Enterprise Value
EBITDA
A low Enterprise Multiple ratio indicates that a company might be undervalued.
The enterprise multiple is used for several reasons:
1) It is useful for transnational comparisons because it ignores the distorting effects
of individual countries taxation policies.
2) It is used to find attractive takeover candidates. Enterprise value is a better
metric than market capitalization for takeovers. It takes into account the debt which
the acquirer will have to assume. Therefore, a company with a low enterprise
multiple can be viewed as a good takeover candidate.
However, it should be remembered that enterprise multiples can vary depending on
the industry. Therefore, one has to compare the multiple to other companies or to
the industry in general. Higher Enterprise Multiples are characteristic to high
growth industries and lower multiples to industries with slow growth.
Compiled from www.investopedia.com, www.answers.com and other sources.
Analysts expressed concerns that the Corus acquisition would result in significant
equity dilution of Tata Steel. The company would also become highly leveraged due
to the significant increase in debt in its capital structure. The US$ 6.14 billion debt
that was raised to finance the acquisition had been secured by the assets of Corus and
would be serviced by the cash flows generated by Corus. Post-acquisition, Tata-Corus
would have a net debt-equity ratio45 of 2.74:1 as against 1:1 Tata Steel had been
maintaining.
45
It is a measure of a companys financial leverage calculated by dividing its total

liabilities by stockholders equity. It indicates what proportion of equity and debt the
company is using to finance its assets. Debt Equity Ratio = Total Liabilities/Share Holders
Equity.
425
Financial experts pointed out the risk taken by Tata Steel as it piled the debt burden on
Corus. There was danger that if the business performance of Corus declined, the
companys cash inflows would reduce leading to a default on the loan taken.
According to the credit rating agency Standard & Poors (S&P) 46, the move was
financially risky for Tata Steel. According to S&P analyst Anshukant Taneja, The
size of the acquisition and the potential cash outflow in Tata Steels offer for Corus
could have an adverse impact on its financial risk profile. 47
It was also pointed out that after the Corus deal, Tata Steel would no longer remain as
the lowest cost producer of steel in the world. Tata Steels critical cost advantage was
its access to raw materials. Data suggested that Tata Steels captive iron reserves in
India would last about 50 years given the companys earlier annual production
capacity of 5.3 million tones of steel. However, the iron reserves would decrease
rapidly with the Tata-Corus production capacity of 27 million tons of steel per annum.
Corus itself did not have access to any iron ore or coal reserves.
The Road Ahead

Before the acquisition, the major market for Tata Steel was India. The Indian market
accounted for sixty nine percent of the companys total sales. Almost half of Corus
production of steel was sold in Europe (excluding UK). The UK consumed twenty
nine percent of its production. After the acquisition, the European market (including
UK) would consume 59 percent of the merged entitys total production (Refer Table
III for the spread of Tata-Corus markets before and after the acquisition).
Table III: Spread of Markets Before and After the Acquisition
Before the Acquisition
Tata
After the Acquisition

Corus
India
69%
Europe
49%
Asia (ex. India)
23%
UK
Rest of the World (ROW) 8%
Tata-Corus
Europe
37%
Asia
24%
North America 10%
UK
22%
Asia
9%
North America
8%
ROW
3%
ROW
9%
29%
Source: Tata Steel Annual Report, 2006-07.
Tata Steels immediate plan after completing the integration was to conduct a joint
synergy analysis and establish a plan or a timeline for delivery. Since Tata Steel had
quite a few brownfield48 and greenfield projects in the offing, they were to be pursued
46
47
48
S&P is a division of McGraw-Hill that publishes financial research and analysis on stocks
and bonds. It is one of the top three companies in this business, along with Moodys and
Fitch Ratings.
Chris Noon, Ruth David, Tata Prevails in Corus Battle, www.forbes.com, January 31,
2007.
A type of investment where a company or government entity purchases or leases existing
production facilities to launch a new production activity.
426
further. The achievement of an EBITDA of 25% was also targeted. Moreover, the
company aimed at a robust capital structure and financial flexibility.
As a result of the Corus acquisition, Tata Steel got access to the developed markets of
Europe. According to Muthuraman, Europe is a very mature market with the
customers demanding very high quality service and these require special capabilities,
which are resident in a company like Corus through which Tata Steel can also learn a
lot of things. So apart from bringing 19 million ton capacity all at once to Tata Steel
basket, it gives access to Tata Steel into the developed and mature markets of Europe
where quality of products is important, service is important. 49
The merged entity aimed at transferring European technology and the expertise of the
research and development wing of Corus to India to develop new products and capture
growth in India and Asia. By the year 2015, Tata-Corus targeted that production
should increase to more than 50 MTPA50 from about 27 MTPA in early 2007.
In mid-2007, Tata Steel formed 18 teams each consisting of three to four members
from both companies to work on various potential synergy areas like iron and steel
making, manufacturing, marketing, logistics and procurement of consumables. These
teams were to come up with a report on the synergy potential and priorities and it was
planned that by October 2007, detailed synergy targets would be set for the combined
entity.51 The objective was to develop efficient practices by sharing information,
know-how and best practices of both the companies with the ultimate aim of cost
reduction.
49
50
51
Muthuramans Speech at a Press Conference for Corus Acquisition on January 31, 2007,
www.tatasteel.com.
Tata Steel Annual Report 2006-07.
Tata Steel Annual Report 2006-07.
427
Suggested Readings and References:

1.
Corus Group: A Profile, BBC News Online, January 30, 2001.
2.
Tata Steel Acquires Thailand's Millennium Steel, domain-b.com,

December 15, 2005.
3.
Jeremy Warner, Varin Has Done Well With Corus, But When The Steel
Cycle Turns, What Will He Do for an Encore, The Independent, March 17,
2006.
4.
Kausik Datta & Ishita Ayan Dutt, Tatas to Float $2 Billion Bond for Corus
Buy, Business Standard, October 06, 2006.
5.
Tatas set M&A Street Ablaze with Corus Deal The Economic Times,
October 09, 2006.
6.
Jayanta Mallick, D.Murali, Steel in the Melting Pot of Mergers, The Hindu
Business Line, October 16, 2007
7.
Radhika Kamat Tata Steel: Challenges Ahead in Corus Acquisition The

Hindu Business Line, October 19, 2006.
8.
Hugo Duncan, Corus Agrees 4.3 Billion Takeover by Indian Rival, The
Independent, October 20, 2006.
9.
Corus Accepts Takeover Bid by Tata Steel, www.rediff.com, October 20,

2006.
10.
Jennifer Ryan Tata Debt for Corus Leaves Derivative Trades in Lurch
www.bloomberg.com, October 25, 2006.
11.
Debt Traders Lose Their Shirt Over Tata Steel-Corus Deal, The
Economic Times, October 26, 2006.
12.
Tata and Corus, Economist, October 26, 2006
13.
Pedal to the Metal: Challenges of Tata Steels Corus Takeover,

Knowledge@Wharton, October 31, 2006.
14.
Corus Bankers Back Tatas in Bid to Buy CSN The Times of India,
November 1, 2006.
15.
V Sridhar, Burden of Steel, Frontline, November 04 17, 2006
16.
Tatas Corus bid Hits Roadblock, www.tribuneindia.com, November 18,

2006.
17.
CSN Begins Due Diligence on Corus; Tata Steel Scrip Down, The Hindu
Business Line, November 21, 2006.
18.
Surojit Chatterjee, Tata Steel Raises Corus Bid to $9.2 Billion, Watches
CSNs Move, International Business Times, December 11, 2006.
19.
Surojit Chatterjee, CSN Tops Sweetened Offer for Corus, Bid War Enters
End Game, International Business Times, December 12, 2006.
20.
How Indian Companies Fund Their

Knowledge@Wharton, December 14, 2006.
21.
Shareholders of Tata Mum on Corus Pricing The Times of India,

December 14, 2006.
428
Overseas
Acquisitions,
22.
RPT-UK Takeover Panel to Launch Auction for Corus, www.reuters.com,

January 26, 2007
23.
Corus: Tata, CSN Battle to be Settled by Auction, www.tribuneindia.com,

January 27, 2007.
24.
Tata-CSN Battle Enters Final Round, The Economic Times, January 27,
2007.
25.
26.
Chris Noon, Ruth David, Tata Prevails in Corus Battle, www.forbes.com, January
31, 2007.
27.
Mr. Muthuramans Speech, Transcript of Press Conference for CORUS

Acquisition, www.tatasteel.com, January 31, 2007,
28.
Neelima Mahajan, It Takes a Whole Lot to Sing a Perfect Chorus, The

Times of India, February 01, 2007.
29.
Tata Win Booster for Corporate Indias Confidence, The Economic Times,
February 01, 2007.
30.
TCS, Other Tata Companies to Benefit, The Economic Times, February 03,
2007.
31.
Reinvention of Family Business The Economic Times, February 08, 2007.
32.
Did Tata Steel Overheat in its Zeal to Win Corus? Knowledge@Wharton,

February 08, 2007.
33.
D. Murali, Corus Vs Hutch: The Inevitable Comparison The Hindu

Business Line, February 09, 2007.
34.
Prasun Sonwalkar, Arvind Padmanabhan, Tata-Corus Deal - Tata Acquires

Corus for $12 Billion: Indias Biggest Overseas Takeover,
www.iacfpa.org, February 09, 2007
35.
Pallavi Roy, Mobis Philipose, This is Corus, Businessworld, February 19,

2007.
36.
Corus to be Unlisted from April: Tata Steel Mid-Day, March 05, 2007.
37.
C. P. Chandrashekhar, Tata's Gamble: Triumph or Nemesis? One World

South Asia, March 15, 2007.
38.
Tata Steel Completes Acquisition of European Steelmaker Corus,

International Herald Tribune, April 03, 2007.
39.
Tata Steel Completes Acquisition of Steelmaker Corus, www.cnbc.com,

April 03, 2007.
40.
Tatas unwrap details on Corus Funding The Times of India, April 11,
2007.
41.
Tatas more bullish on Corus Synergy The Hindu Business Line, April 17,
2007.
42.
Tatas Plan Funding Mix for Corus The Economic Times, April 18, 2007.
43.
Tatas More Bullish on Corus Synergy, The Hindu Business Line, April 18,
2007.
429
44.
Tata Steel Raising $2.3 b for Corus Payment, The Hindu Business Line,
April 18, 2007.
45.
Funding of Corus Transaction, www.tata.com, April 18, 2007.
46.
Citi and StanChart move in on Corus Debt www.projectfinancemagazine.com,

May 2007.
47.
Ratan Tata to Head Corus Merger Panel, The Economic Times, May 21,
2007.
48.
Mr Ratan Tata to Head TATA Corus Integration Committee,

www.steelguru.com,
May 22, 2007.
49.
Corus Group Employees Council investigating Tata Steel Financing

www.abcmoney. co.uk, May 31, 2007.
50.
Sambit Saha Tata Steel stalks Canadian Giant The Telegraph, June 03,
2007.
51.
A Background of the Indian

www.indiansteelalliance.com.
52.
Mergers & Acquisitions in U.K., 2007, www.iclg.co.uk.
53.
Mergers & Acquisitions in India, 2007, www.iclg.co.uk.
54.
PLC Cross Border Mergers and Acquisitions Handbook, 2006-2007,

www.practicallaw.com.
55.
Tata Steel Annual Reports, 2003-07.
56.
www.en.wikipedia.org.
57.
www.investopedia.com.
58.
www.investorwords.com.
59.
www.tata.com.
60.
www.tatasteel.com
61.
www.corusgroup.com.
62.
www.csn.com.br.
63.
www.forbes.com.
64.
www.steel.gov.in
430
Steel
Industry:
An
Introduction

Case 5 Tata Steel's Acquisition of Corus

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Tata Steels Acquisition of Corus

On January 31, 2007, Tata Steel Limited (Tata Steel), one of

Tata Steels Acquisition of Corus

Exhibit I: Top Ten Players in the Global Steel Industry

Crude Steel Production

Mergers & Acquisitions, and Strategic Alliances

Crude Steel Production

Source: V. Sridhar, Burden of Steel, Frontline, November 04-17, 2006.

Tata Steels Acquisition of Corus

Exhibit II: Tata Steel Consolidated Income Statement (2003-07)

197,625.70 171,442.20 158,768.70 119,209.60

(22,105.50) (20,048.30) (13,779.20) (12,185.70) (10,719.70)

175,520.20 151,393.90 144,989.50 107,023.90

(105,787.50) (92,078.80) (84,535.90) (72,069.80)

Mergers & Acquisitions, and Strategic Alliances

(20,395.00) (17,335.80) (18,231.20)

Tata Steels Acquisition of Corus

403,316,773 405,186,77 406,463,44 271,966,96 270,653,10

Source: Tata Steel Annual Reports, 2004-07.

Exhibit III: Tata Steel Consolidated Balance Sheet (2003-07)

Mergers & Acquisitions, and Strategic Alliances

Source: Tata Steel Annual Reports, 2004-07.

Tata Steels Acquisition of Corus

History Of Koninklijke Hoogovens, www.corus.com.

Mergers & Acquisitions, and Strategic Alliances

Exhibit IV: Corus Consolidated Income Statement (2004-06)

Share of post-tax profits of join ventures

Basic Earnings per ordinary share

Diluted Earnings per ordinary share

Basic Earnings per ordinary share

Diluted Earnings per ordinary share

Total Operating Costs

Profit before taxation

Profit after taxation from continuing

Earnings per share

From discontinued operations:

Source: Corus Annual Report, 2006.

Tata Steels Acquisition of Corus

Exhibit V: Corus Consolidated Balance Sheet

Other tangible assets

Property plant and equipment

Equity accounted investments

Retirement benefit assets

Deferred tax assets

Trade and other receivables

Other Financial Assets

Short term investments

Long term borrowings

Deferred tax liabilities

Retirement benefit obligations

Current tax assets

Cash and short term deposits

Mergers & Acquisitions, and Strategic Alliances

Provisions for liabilities and

Other non-current liabilities

Equity attributable to equity

Tata Steel vs CSN: The Bidding War

Tata Steels Acquisition of Corus

Exhibit VI: Takeover Regulations in the UK

Mergers & Acquisitions, and Strategic Alliances

FSMA), which regulates investment business and securities markets generally is

Tata Steels Acquisition of Corus