MANAS PHADNIS

International Business, Semester III, 2009-11 Batch.

TATA’S ACQUASITION OF CORUS

DEAL: Tata Steel (TISCO) acquires CORUS as a fully owned subsidiary.

DATE: January 31, 2007

INDUSTRY: Steel Industry.

AMOUNT: $ 12.04 Billon at 608p per share

SYNERGIES BETWEEN THE TWO COMPANIES

There were a lot of apparent synergies between Tata Steel which was a low cost steel producer in
fast developing region of the world and Corus which was a high value product manufacturer in
the region of the world demanding value products. Some of the prominent synergies that could
arise from the deal were as follows:

 Tata was one of the lowest cost steel producers in the world and had self sufficiency in
raw material. Corus was fighting to keep its productions costs under control and was on the
look out for sources of iron ore.

 Tata had a strong retail and distribution network in India and SE Asia. This would give
the European manufacturer a in-road into the emerging Asian markets. Tata was a major
supplier to the Indian auto industry and the demand for value added steel products was
growing in this market. Hence there would be a powerful combination of high quality
developed and low cost high growth markets

 There would be technology transfer and cross-fertilization of R&D capabilities between

the two companies that specialized in different areas of the value chain

 There was a strong culture fit between the two organizations both of which highly
emphasized on continuous improvement and ethics. Tata steel's Continuous Improvement
Program ‘Aspire’ with the core values :Trusteeship ,integrity, respect for individual,
credibility and excellence. Corus's Continuous Improvement Program ‘The Corus Way’ with
the core values: code of ethics, integrity, creating value in steel, customer focus, selective
growth and respect for our people.
MANAS PHADNIS
International Business, Semester III, 2009-11 Batch.

DEAL JUSTIFICATION
Tata’s view point.

1) Tata believed that Steel cycle is in a long term UP trend & risk of downturn is low

2) Expectations by International Iron and Steel Institute(IISI)

a. Growth of Steel Industry will be 4.9% till 2010.

b. Between 2010-2015 growth will 4.4%.

c. India & China to grow by 6.2 & 7.7%

3) Tata will gain access to major European Markets.

4) Tata Steel expects to earn $300 million per year through cost savings.
Benefit to Corus.

1) Corus was bleeding due to its high production cost.

SWOT Analysis
STRENGTH OPPORTUNITIES

• Lowest Cost producer in the world • Consolidation trend in Steel Industry.

• Experience of TATA group, both in • CSN’s tarnished image after the failure
global acquisitions & as firm of 2002 negotiations.
• Stable Balance-Sheet (Low Debt-to- • Getting exposure to global steel market.
Equity ratio)
MANAS PHADNIS
International Business, Semester III, 2009-11 Batch.

WEAKNESS THREATS

• CORUS was triple the size of TATA • CSN (Brazil), Sevestral (Russia)
Steel in terms of production. • No committed finances to support the
deal.

FINAL DEAL STRUCTURE

 $3.5–3.8bn infusion from Tata Steel ($2bn as its equity contribution, $1.5–1.8bn through
a bridge loan)
 $5.6bn through a LBO ($3.05bn through senior term loan, $2.6bn through high yield
loan)

MARKET RESPONSE
Market has not responded well to this deal as the price of the stocks fell. Investors were worried
about cash outflow and the resultant strain on company's balance sheet. Of the total cash to be
paid in the deal $4.1 billion would be forked by Tata steel, rest of the money will be as debts and
will be returned from Corus cash flows.

CONCLUSION
It was a win-win deal for TATA GROUP & for India. As stated above, TATA’s will be
benefitted on the production cost & the brand name of TATA is now on to the global steel
market.

SUGGESTIONS.
1) Tata steel needs to concentrate on bringing down the production cost which is
high now
MANAS PHADNIS
International Business, Semester III, 2009-11 Batch.

2) They need to use the best of their management skills and also requires an ace
Leadership.

3) The share holders need to keep their faith intact in the group and this will pay as it
has before.