Accounting Standard (AS) 14* (issued 1994)

Accounting forAmalgamations
(This Accounting Standard includes paragraphs 28-46 set in bold italic type and paragraphs 1-27 set in plain type, which have equal authority. Paragraphs in bold italic type indicate the main principles. This Accounting Standard should be read in the context of the Preface to the Statements of Accounting Standards1.) The following is the text ofAccounting Standard (AS) 14, Accounting for Amalgamations, issued by the Council of the Institute of Chartered Accountants of India. This standard will come into effect in respect of accounting periods commencing on or after 1.4.1995 and will be mandatory in nature.2 The Guidance Note on Accounting Treatment of Reserves in Amalgamations issued by the Institute in 1983 will stand withdrawn from the aforesaid date .

Introduction
1. This statement deals with accounting for amalgamations and the treatment of any resultant goodwill or reserves. This statement is directed principally to companies although some of its requirements also apply to financial statements of other enterprises. 2. This statement does not deal with cases of acquisitions which arise when there is a purchase by one company (referred to as the acquiring * A limited revision to this Standard has been made in 2004, pursuant to which paragraphs 23 and 42 of this Standard have been revised (see footnotes 4 and 8). 1 Attention is specifically drawn to paragraph 4.3 of the Preface, according to which Accounting Standards are intended to apply only to items which are material. 2 Reference may be made to the section titled Announcements of the Council regarding status of various documents issued by the Institute of Chartered Accountants of India appearing at the beginning of this Compendium for a detailed discussion on the implications of the mandatory status of an accounting standard.

Accounting for Amalgamations 201

company) of the whole or part of the shares, or the whole or part of the assets, of another company (referred to as the acquired company) in consideration for payment in cash or by issue of shares or other securities in

the acquiring company or partly in one form and partly in the other. The distinguishing feature of an acquisition is that the acquired company is not dissolved and its separate entity continues to exist.

Definitions
3. The following terms are used in this statement with the meanings specified: (a) Amalgamation means an amalgamation pursuant to the provisions of the CompaniesAct, 1956 or any other statutewhich may be applicable to companies. (b) Transferor company means the company which is amalgamated into another company. (c) Transferee company means the company into which a transferor company is amalgamated. (d) Reserve means the portion of earnings, receipts or other surplus of an enterprise (whether capital or revenue) appropriated by the management for a general or a specific purpose other than a provision for depreciation or diminution in the value of assets or for a known liability. (e) Amalgamation in the nature of merger is an amalgamation which satisfies all the following conditions. (i) All the assets and liabilities of the transferor company become, after amalgamation, the assets and liabilities of the transferee company. (ii) Shareholders holding not less than 90%of the face value of the equity shares of the transferor company (other than the equity shares already held therein, immediately before the amalgamation, by the transferee company or its subsidiaries or their nominees) become equity shareholders of the transferee company by virtue of the amalgamation. 202 AS 14 (issued 1994) (iii) The consideration for the amalgamation receivable by those equity shareholders of the transferor company who agree to become equity shareholders of the transferee company is discharged by the transferee companywholly by the issue of equity shares in the transferee company, except that cash may be paid in respect of any fractional shares. (iv) The business of the transferor company is intended to be carried on, after the amalgamation, by the transferee company. (v) No adjustment is intended to be made to the book values of

the assets and liabilities of the transferor company when they are incorporated in the financial statements of the transferee company except to ensure uniformity of accounting policies. (f) Amalgamation in the nature of purchase is an amalgamation which does not satisfy any one ormore of the conditions specified in sub-paragraph (e) above. (g) Consideration for the amalgamation means the aggregate of the shares and other securities issued and the payment made in the form of cash or other assets by the transferee company to the shareholders of the transferor company. (h) Fair value is the amount for which an asset could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arms length transaction. (i) Pooling of interests is a method of accounting for amalgamations the object of which is to account for the amalgamation as if the separate businesses of the amalgamating companies were intended to be continued by the transferee company. Accordingly, only minimal changes are made in aggregating the individual financial statements of the amalgamating companies.

Explanation Accounting for Amalgamations 203 Types of Amalgamations

4. Generally speaking, amalgamations fall into two broad categories. In the first category are those amalgamations where there is a genuine pooling not merely of the assets and liabilities of the amalgamating companies but also of the shareholders interests and of the businesses of these companies. Such amalgamations are amalgamations which are in the nature of merger and the accounting treatment of such amalgamations should ensure that the resultant figures of assets, liabilities, capital and reserves more or less represent the sum of the relevant figures of the amalgamating companies. In the second category are those amalgamations which are in effect a mode by which one company acquires another company and, as a consequence, the shareholders of the company which is acquired normally do not continue to have a proportionate share in the equity of the combined company, or the business of the company which is acquired is not intended to be continued. Such amalgamations are amalgamations in the nature of purchase. 5. An amalgamation is classified as an amalgamation in the nature of merger when all the conditions listed in paragraph 3(e) are satisfied. There are, however, differing views regarding the nature of any further conditions

that may apply. Some believe that, in addition to an exchange of equity shares, it is necessary that the shareholders of the transferor company obtain a substantial share in the transferee company even to the extent that it should not be possible to identify any one party as dominant therein. This belief is based in part on the view that the exchange of control of one company for an insignificant share in a larger company does not amount to a mutual sharing of risks and benefits. 6. Others believe that the substance of an amalgamation in the nature of merger is evidenced by meeting certain criteria regarding the relationship of the parties, such as the former independence of the amalgamating companies, the manner of their amalgamation, the absence of planned transactions that would undermine the effect of the amalgamation, and the continuing participation by themanagement of the transferor company in the management of the transferee company after the amalgamation.

204 AS 14 (issued 1994) Methods of Accounting for Amalgamations

7. There are two main methods of accounting for amalgamations: (a) the pooling of interests method; and (b) the purchase method. 8. The use of the pooling of interests method is confined to circumstances which meet the criteria referred to in paragraph 3(e) for an amalgamation in the nature of merger. 9. The object of the purchase method is to account for the amalgamation by applying the same principles as are applied in the normal purchase of assets. This method is used in accounting for amalgamations in the nature of purchase. The Pooling of Interests Method 10. Under the pooling of interests method, the assets, liabilities and reserves of the transferor company are recorded by the transferee company at their existing carrying amounts (after making the adjustments required in paragraph 11). 11. If, at the time of the amalgamation, the transferor and the transferee companies have conflicting accounting policies, a uniformset of accounting policies is adopted following the amalgamation. The effects on the financial statements of any changes in accounting policies are reported in accordance with Accounting Standard (AS) 5, Prior Period and Extraordinary Items and Changes in Accounting Policies.3 The Purchase Method 12. Under the purchase method, the transferee company accounts for the amalgamation either by incorporating the assets and liabilities at their existing carrying amounts or by allocating the consideration to individual identifiable

assets and liabilities of the transferor company on the basis of their fair values at the date of amalgamation. The identifiable assets and liabilities may include assets and liabilities not recorded in the financial statements of the transferor company. 3 AS 5 has been revised in February 1997. The title of revised AS 5 is Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies. Accounting for Amalgamations 205 13. Where assets and liabilities are restated on the basis of their fair values, the determination of fair values may be influenced by the intentions of the transferee company. For example, the transferee company may have a specialised use for an asset,which is not available to other potential buyers. The transferee company may intend to effect changes in the activities of the transferor company which necessitate the creation of specific provisions for the expected costs, e.g. planned employee termination and plant relocation costs.

Consideration
14. The consideration for the amalgamation may consist of securities, cash or other assets. In determining the value of the consideration, an assessment is made of the fair value of its elements. A variety of techniques is applied in arriving at fair value. For example, when the consideration includes securities, the value fixed by the statutory authorities may be taken to be the fair value. In case of other assets, the fair value may be determined by reference to the market value of the assets given up. Where the market value of the assets given up cannot be reliably assessed, such assets may be valued at their respective net book values. 15. Many amalgamations recognise that adjustments may have to be made to the consideration in the light of one or more future events. When the additional payment is probable and can reasonably be estimated at the date of amalgamation, it is included in the calculation of the consideration. In all other cases, the adjustment is recognised as soon as the amount is determinable [see Accounting Standard (AS) 4, Contingencies and Events Occurring After the Balance Sheet Date].

Treatment of Reserves on Amalgamation

16. If the amalgamation is an amalgamation in the nature of merger, the identity of the reserves is preserved and they appear in the financial statements of the transferee company in the same form in which they appeared in the financial statements of the transferor company. Thus, for example, the General Reserve of the transferor company becomes the

General Reserve of the transferee company, the Capital Reserve of the transferor company becomes the Capital Reserve of the transferee company and the Revaluation Reserve of the transferor company becomes the Revaluation Reserve of the transferee company. As a result of preserving 206 AS 14 (issued 1994) the identity, reserves which are available for distribution as dividend before the amalgamation would also be available for distribution as dividend after the amalgamation. The difference between the amount recorded as share capital issued (plus any additional consideration in the formof cash or other assets) and the amount of share capital of the transferor company is adjusted in reserves in the financial statements of the transferee company. 17. If the amalgamation is an amalgamation in the nature of purchase, the identity of the reserves, other than the statutory reserves dealt with in paragraph 18, is not preserved. The amount of the consideration is deducted from the value of the net assets of the transferor company acquired by the transferee company. If the result of the computation is negative, the difference is debited to goodwill arising on amalgamation and dealt with in the manner stated in paragraphs 19-20. If the result of the computation is positive, the difference is credited to Capital Reserve. 18. Certain reserves may have been created by the transferor company pursuant to the requirements of, or to avail of the benefits under, the Incometax Act, 1961; for example, Development Allowance Reserve, or Investment Allowance Reserve. The Act requires that the identity of the reserves should be preserved for a specified period. Likewise, certain other reserves may have been created in the financial statements of the transferor company in terms of the requirements of other statutes.Though, normally, in an amalgamation in the nature of purchase, the identity of reserves is not preserved, an exception is made in respect of reserves of the aforesaid nature (referred to hereinafter as statutory reserves) and such reserves retain their identity in the financial statements of the transferee company in the same form in which they appeared in the financial statements of the transferor company, so long as their identity is required to be maintained to comply with the relevant statute. This exception is made only in those amalgamations where the requirements of the relevant statute for recording the statutory reserves in the books of the transferee company are complied with. In such cases the statutory reserves are recorded in the financial statements of the transferee company by a corresponding debit to a suitable account head (e.g., Amalgamation Adjustment Account) which is disclosed as a part of miscellaneous expenditure or other similar category in the balance sheet.When the identity of the statutory reserves is no longer required to be maintained, both the reserves and the aforesaid account are reversed.

Accounting for Amalgamations 207

Treatment of Goodwill Arising on Amalgamation

19. Goodwill arising on amalgamation represents a payment made in anticipation of future income and it is appropriate to treat it as an asset to be amortised to income on a systematic basis over its useful life. Due to the nature of goodwill, it is frequently difficult to estimate its useful life with reasonable certainty. Such estimation is, therefore, made on a prudent basis. Accordingly, it is considered appropriate to amortise goodwill over a period not exceeding five years unless a somewhat longer period can be justified. 20. Factors which may be considered in estimating the useful life of goodwill arising on amalgamation include: the foreseeable life of the business or industry; the effects of product obsolescence, changes in demand and other economic factors; the service life expectancies of key individuals or groups of employees; expected actions by competitors or potential competitors; and legal, regulatory or contractual provisions affecting the useful life.

Balance of Profit and Loss Account

21. In the case of an amalgamation in the nature of merger, the balance of the Profit and Loss Account appearing in the financial statements of the transferor company is aggregated with the corresponding balance appearing in the financial statements of the transferee company. Alternatively, it is transferred to the General Reserve, if any. 22. In the case of an amalgamation in the nature of purchase, the balance of the Profit and Loss Account appearing in the financial statements of the transferor company, whether debit or credit, loses its identity.

Treatment of Reserves Specified in A Scheme of Amalgamation

23. The scheme of amalgamation sanctioned under the provisions of the 208 AS 14 (issued 1994) Companies Act, 1956 or any other statute may prescribe the treatment to be given to the reserves of the transferor company after its amalgamation. Where the treatment is so prescribed, the same is followed. In some cases, the scheme of amalgamation sanctioned under a statute may prescribe a different treatment to be given to the reserves of the transferor company after amalgamation as compared to the requirements of this Statement that would have been followed had no treatment been prescribed by the scheme. In such cases, the following disclosures are made in the first financial

statements following the amalgamation: (a) A description of the accounting treatment given to the reserves and the reasons for following the treatment different from that prescribed in this Statement. (b) Deviations in the accounting treatment given to the reserves as prescribed by the scheme of amalgamation sanctioned under the statute as compared to the requirements of this Statement that would have been followed had no treatment been prescribed by the scheme. (c) The financial effect, if any, arising due to such deviation.4

Disclosure
24. For all amalgamations, the following disclosures are considered appropriate in the first financial statements following the amalgamation: (a) names and general nature of business of the amalgamating companies; (b) effective date of amalgamation for accounting purposes; 4 As a limited revision to AS 14, the Council of the Institute decided to revise this paragraph in 2004. This revision comes into effect in respect of accounting periods commencing on or after 1-4-2004. General Clarification (GC) - 4/2002 on AS 14, issued by the Accounting Standards Board in June 2002, stands withdrawn from that date (See The Chartered Accountant, February 2004, pp. 816). The erstwhile paragraph was as under: 23 The scheme of amalgamation sanctioned under the provisions of the Companies Act, 1956 or any other statute may prescribe the treatment to be given to the reserves of the transferor company after its amalgamation. Where the treatment is so prescribed, the same is followed. Accounting for Amalgamations 209 (c) the method of accounting used to reflect the amalgamation; and (d) particulars of the scheme sanctioned under a statute. 25. For amalgamations accounted for under the pooling of interests method, the following additional disclosures are considered appropriate in the first financial statements following the amalgamation:

(a) description and number of shares issued, together with the percentage of each companys equity shares exchanged to effect the amalgamation; (b) the amount of any difference between the consideration and the value of net identifiable assets acquired, and the treatment thereof. 26. For amalgamations accounted for under the purchase method, the following additional disclosures are considered appropriate in the first financial statements following the amalgamation: (a) consideration for the amalgamation and a description of the consideration paid or contingently payable; and (b) the amount of any difference between the consideration and the value of net identifiable assets acquired, and the treatment thereof including the period of amortisation of any goodwill arising on amalgamation.

Amalgamation after the Balance Sheet Date

27. When an amalgamation is effected after the balance sheet date but before the issuance of the financial statements of either party to the amalgamation, disclosure is made in accordance with AS 4, Contingencies and Events Occurring After the Balance Sheet Date, but the amalgamation is not incorporated in the financial statements. In certain circumstances, the amalgamationmay also provide additional information affecting the financial statements themselves, for instance, by allowing the going concern assumption to be maintained. 210 AS 14 (issued 1994) Accounting Standard 28. An amalgamation may be either (a) an amalgamation in the nature of merger, or (b) an amalgamation in the nature of purchase. 29. An amalgamation should be considered to be an amalgamation in the nature of merger when all the following conditions are satisfied: (i) All the assets and liabilities of the transferor company become, after amalgamation, the assets and liabilities of the transferee company. (ii) Shareholders holding not less than 90% of the face value of the equity shares of the transferor company (other than the equity shares already held therein, immediately before the amalgamation, by the transferee company or its subsidiaries or their nominees) become equity shareholders of the transferee company by virtue of the amalgamation.

(iii) The consideration for the amalgamation receivable by those equity shareholders of the transferor company who agree to become equity shareholders of the transferee company is discharged by the transferee company wholly by the issue of equity shares in the transferee company, except that cash may be paid in respect of any fractional shares. (iv) The business of the transferor company is intended to be carried on, after the amalgamation, by the transferee company. (v) No adjustment is intended to be made to the book values of the assets and liabilities of the transferor company when they are incorporated in the financial statements of the transferee company except to ensure uniformity of accounting policies. 30. An amalgamation should be considered to be an amalgamation in the nature of purchase, when any one or more of the conditions specified in paragraph 29 is not satisfied. Accounting for Amalgamations 211 31. When an amalgamation is considered to be an amalgamation in the nature of merger, it should be accounted for under the pooling of interests method described in paragraphs 3335. 32. When an amalgamation is considered to be an amalgamation in the nature of purchase, it should be accounted for under the purchase method described in paragraphs 3639. The Pooling of Interests Method5 33. In preparing the transferee companys financial statements, the assets, liabilities and reserves (whether capital or revenue or arising on revaluation) of the transferor company should be recorded at their existing carrying amounts and in the same form as at the date of the amalgamation. The balance of the Profit and Loss Account of the transferor company should be aggregated with the corresponding balance of the transferee company or transferred to the General Reserve, if any. 34. If, at the time of the amalgamation, the transferor and the transferee companies have conflicting accounting policies, a uniform set of accounting policies should be adopted following the amalgamation. The effects on the financial statements of any changes in accounting policies should be reported in accordance with Accounting Standard (AS) 5 Prior Period and Extraordinary Items and Changes in Accounting Policies.6 35. The difference between the amount recorded as share capital issued (plus any additional consideration in the form of cash or other assets) and the amount of share capital of the transferor company should be adjusted in reserves.

The Purchase Method7 36. In preparing the transferee companys financial statements, the assets and liabilities of the transferor company should be incorporated 5 For accounting for taxes on income in case of an amalgamation, see Accounting Standards Interpretation (ASI) 11, published elsewhere in this Compendium. 6 AS 5 has been revised in February 1997. The title of revised AS 5 is Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies. 7 See footnote 5. 212 AS 14 (issued 1994) at their existing carrying amounts or, alternatively, the consideration should be allocated to individual identifiable assets and liabilities on the basis of their fair values at the date of amalgamation. The reserves (whether capital or revenue or arising on revaluation) of the transferor company, other than the statutory reserves, should not be included in the financial statements of the transferee company except as stated in paragraph 39. 37. Any excess of the amount of the consideration over the value of the net assets of the transferor company acquired by the transferee company should be recognised in the transferee companys financial statements as goodwill arising on amalgamation. If the amount of the consideration is lower than the value of the net assets acquired, the difference should be treated as Capital Reserve. 38. The goodwill arising on amalgamation should be amortised to income on a systematic basis over its useful life. The amortisation period should not exceed five years unless a somewhat longer period can be justified. 39. Where the requirements of the relevant statute for recording the statutory reserves in the books of the transferee company are complied with, statutory reserves of the transferor company should be recorded in the financial statements of the transferee company. The corresponding debit should be given to a suitable account head (e.g., Amalgamation Adjustment Account) which should be disclosed as a part of miscellaneous expenditure or other similar category in the balance sheet. When the identity of the statutory reserves is no longer required to be maintained, both the reserves and the aforesaid account should be reversed. Common Procedures 40. The consideration for the amalgamation should include any noncash element at fair value. In case of issue of securities, the value fixed by the statutory authorities may be taken to be the fair value. In case of other assets, the fair value may be determined by reference to the

market value of the assets given up. Where the market value of the assets given up cannot be reliably assessed, such assets may be valued at their respective net book values . Accounting for Amalgamations 213 41. Where the scheme of amalgamation provides for an adjustment to the consideration contingent on one or more future events, the amount of the additional payment should be included in the consideration if payment is probable and a reasonable estimate of the amount can be made. In all other cases, the adjustment should be recognised as soon as the amount is determinable [see Accounting Standard (AS) 4, Contingencies and Events Occurring After the Balance Sheet Date]. Treatment of Reserves Specified in A Scheme of Amalgamation 42. Where the scheme of amalgamation sanctioned under a statute prescribes the treatment to be given to the reserves of the transferor company after amalgamation, the same should be followed. Where the scheme of amalgamation sanctioned under a statute prescribes a different treatment to be given to the reserves of the transferor company after amalgamation as compared to the requirements of this Statement that would have been followed had no treatment been prescribed by the scheme, the following disclosures should be made in the first financial statements following the amalgamation: (a) A description of the accounting treatment given to tbe reserves and the reasons for following the treatment different from that prescribed in this Statement. (b) Deviations in the accounting treatment given to the reserves as prescribed by the scheme of amalgamation sanctioned under the statute as compared to the requirements of this Statement that would have been followed had no treatment been prescribed by the scheme. (c) The financial effect, if any, arising due to such deviation.8 8 As a limited revision to AS 14, the Council of the Institute decided to revise this paragraph in 2004. This revision comes into effect in respect of accounting periods commencing on or after 01-04-2004. General Clarification (GC) 4/2002 on AS 14, issued by the Accounting Standards Board in June 2002, stands withdrawn from that date (See The Chartered Accountant February 2004, pp. 816). The erstwhile paragraph was as under: 42. Where the scheme of amalgamation sanctioned under a statute prescribes

the treatment to be given to the reserves of the transferor company after amalgamation, the same should be followed. 214 AS 14 (issued 1994) Disclosure 43. For all amalgamations, the following disclosures should be made in the first financial statements following the amalgamation: (a) names and general nature of business of the amalgamating companies; (b) effective date of amalgamation for accounting purposes; (c) the method of accounting used to reflect the amalgamation; and (d) particulars of the scheme sanctioned under a statute. 44. For amalgamations accounted for under the pooling of interests method, the following additional disclosures should be made in the first financial statements following the amalgamation: (a) description and number of shares issued, together with the percentage of each companys equity shares exchanged to effect the amalgamation; (b) the amount of any difference between the consideration and the value of net identifiable assets acquired, and the treatment thereof. 45. For amalgamations accounted for under the purchase method, the following additional disclosures should be made in the first financial statements following the amalgamation: (a) consideration for the amalgamation and a description of the consideration paid or contingently payable; and (b) the amount of any difference between the consideration and the value of net identifiable assets acquired, and the treatment thereof including the period of amortisation of any goodwill arising on amalgamation. Amalgamation after the Balance Sheet Date 46. When an amalgamation is effected after the balance sheet date Accounting for Amalgamations 215 but before the issuance of the financial statements of either party to the amalgamation, disclosure should be made in accordance with AS 4, Contingencies and Events Occurring After the Balance Sheet Date, but the amalgamation should not be incorporated in the financial statements. In certain circumstances, the amalgamation may also provide additional information affecting the financial statements themselves, for instance, by allowing the going concern assumption to be maintained.

MERGER AND ACQUISITION OFTATA AND CORUS

1.Pest

Analysis

OF

TATA

STEEL

INDUSTRY

Political:

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 meansThe value of Dorabjis Expansion Programme 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 countrys steel requirements. 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 position.

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 Nehrus goes when he had began 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.

Rajiv Gandhi- Both internal & external finance shortages were worsening. Trade deficit increased from 10 billion in 198384 to Rs. 34 billion in 1985-86 so it became difficult to repay loan.(A)

BJP: Commitment to women all round empowerment- To provide job opportunities to unemployed womens.(B)

Economic:

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 tones of pig iron, 100,000 tones of ingot steel, 70,000 tones of rails, beams and shapes and 20,000 tones 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.(2) 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 programme has enabled Tata Steel to be equipped with the most modern steelmaking 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, 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:

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. (4)

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 Steels efforts at environment management are well recognized. Its 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 in by the and Company resource include an improvement environment 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 behaviour 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 sustained growth and long term success. Values Trusteeship Integrity Respect for Individual Credibility Excellence. (5)

Technology:

Tata Steel has been fortunate to have leaders and a rich reservoir of committed people who could see clearly through the future and transformed with the and the plant of into their a modern several technological envisioning, giant power meticulous

strategy

planning,

through

modernization programmes 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 Steels modernization programme, 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.

Various Policies of Tata Steel:

Quality Policy Safety Occupational Health and Environmental Policy Human Resource Policy Social Accountability Policy Corporate Social Responsibility Policy Drug & Alcohol Policy HIV+ & AIDS Control Policy Energy Policy

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 workmens corporation fund.

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

Corus

Introduction of corus

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 semifinished and finished carbon steel products and is not involved in iron ore extraction.

Corus is Europes 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 worlds fifth largest steelmaker, is Indias largest ever foreign takeover and follow mittal steels $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

STRENGTHS: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 Europes 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.

WEAKNESSES: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 Moffats 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.

OPPORTUNITIES: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. 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 economys 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.

THREATS: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.

Vision We aspire to be the global steel industry benchmark for value creation and corprate citizenship.

Tata Steel and Corus: A Compelling Vision in Steel

REASONS FOR MERGER:-

FOR CORUS:

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 Facilites Were Relatively Old With High Cost Of Production Employeee Cost Is 15% While That Of Tata Steel Is 9%

FOR TATA:

Tata Was Looking To Manfacture Finished Products In Mature Markets Of Europe A Diversified Product Mix Will Reduce Risks While Higher End Products Will Add To Bottim Line.

 Corus Holds A Number Of Patents And R&D Faclity Tata Is Known For Efficent Handling For Labor And It Aims At Reducing Employee Cost And Improve Productivity It Will Move From 55 Th Positon In World To 5 Th In Prodcution Of Steel Globally.

Corus-Tata deal: An instance of how laws can constrict M&A

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 complied with. While the Indian Companies Act, 1956, usually governs mergers in India, international deals involve additional compliances with rules laid down under the FEMA (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 shares. "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 organisations could help. For, many of the questions that arise in current deals may arise in future deals too."

MERGER AND ACQUISITION OF & CORUS

TATA

I believe this will be the first step in showing that Indian industry can in fact step outside the shores of India in an international marketplace and acquit itself as a global player. RATAN TATA

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 worlds fifth largest steelmaker, is Indias largest ever foreign takeover and follow mittal steels $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.

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

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 Tatas 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.

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 tones 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 described below. 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 fulfill 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 and analysts. October 17, 2006 : Tata Steel has kept its offer to 455p per share.

October 18, 2006 : Tata still doesnt 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 Steels bid.

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

Post Acquisition Tata

 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 Steel and the other three are from Corus group. members are from Tata

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 the deal was paid for in cash automatically makes it moreexpensive, 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 Steels share fell by 10.7 percent on the Bombay stock market. Despite its four times smaller size and smaller capacity, Tata Steels operating profit for 2006, earning $840 million on sales of 5.3 million tones, were very close in amount to those generated by Corus ($860 million in profits on sales of 18.6 million tons).

Tatas 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 entitys 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 ofCorusshares. 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 Britains 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 period.