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MERGERS & ACQUISITION

To:

Mrs. Drashti Shah By: Group „A‟

Kushal Bhagat

(02)

Soyeb Jindani

(14)

Ashish Sakariya (46)

About TATA

  • Tata Steel, formerly known as TISCO (Tata Iron and Steel Company Limited), was the world's 56th largest and India's 2nd largest steel company with an annual crude steel capacity of 3.8 million tonnes.

  • It is based in Jamshedpur, Jharkhand, India. It is part of the Tata Group of

companies.

  • Post Corus merger, Tata Steel is India's second-largest and second-most profitable company in private sector with consolidated revenues of Rs 1,32,110 crore and net profit of over Rs 12,350 crore during the year ended March 31, 2008.

  • The company was also recognized as the world's best steel producer by World Steel Dynamics in 2005. The company is listed on BSE and NSE; and employs about 82,700 people (as of 2007).

About Corus

  • Corus was formed from the merger of Koninklijke Hoogovens N.V. with British Steel Plc on 6 October 1999.

  • It has major integrated steel plants at Port Talbot, South Wales; Scunthorpe, North Lincolnshire; Teesside, Cleveland (all in the United Kingdom) and IJmuiden in the Netherlands.

  • It also has rolling mills situated at Shotton, North Wales (which manufactures Colorcoat products), Trostre in Llanelli, Llanwern in Newport, South Wales, Rotherham and Stocksbridge, South Yorkshire, England, Motherwell, North Lanarkshire, Scotland, Hayange, France, and Bergen, Norway.

  • In addition it has tube mills located at Corby, Stockton and Hartlepool in England and Oosterhout, Arnhem, Zwijndrecht and Maastricht in the Netherlands.

  • Group turnover for the year to 31 December 2005 was £10.142 billion. Profits were £580 million before tax and £451 million after tax.

Key Dates

  • 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 doesn’t react to Corus and its bid price remains the same.

  • October 20, 2006 : Corus accepts terms of £ 4.3 billion takeover bid from Tata Steel

  • October 23, 2006 : The Brazilian Steel Group CSN recruits a leading investment bank to offer advice on possible counter-offer to Tata Steel’s bid.

Continued…

  • 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

  • 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 from Corus’ shareholders

PROFILE PRE MERGER

TATA STEEL

  • 102 years in steel bazaar

  • World’s 56th largest

  • Capacity of 30 Million

  • Founder:J.N. Tata

  • Presence in 26 nations

CORUS
CORUS
  • World’s 6 th largest

  • 2 nd in Europe,1 st in UK

  • 371 st rank in fortune list

  • Presence in 50 nations

  • 40,000 people worldwide.

Achievement of Business

Objective

Business Resources Structure M&A Strategy
Business
Resources
Structure
M&A
Strategy
Leadership
Leadership

Culture

Person
Person

Objective

Deal

  • TATA-CORUS

  • Tata acquired Corus, which is four times larger than its size and the largest steel producer in the

U.K. The deal, which creates the world's fifth-

largest steelmaker, is India's largest ever foreign takeover and follows Mittal Steel's $31 billion acquisition of rival Arcelor in the same year.

  • Tata acquired Corus on the 2nd of April 2007 for a price of $12 billion. The price per share was 608 pence(rs 484), which is 33.6% higher than the first offer which was 455 pence.

Financing the Deal

  • TATA- CORUS Deal - $12 billion

  • Equity Contribution from Tata Steel- $3.88 billion

  • Credit Suisse leaded, joined by ABN AMRO and Deutsche Bank in the consortium.

  • Of the $ 8.12 billion of financing , Credit Suisse provided 45% and ABN AMRO and Deutsche provided 27.5% each.

objective behind this deal

  • Gain market share

  • Economies of scale

  • Enter new markets

  • Acquire technology

  • Utilization of surplus funds: surplus fund mean cash flow available after the payment of tax. It is the remaining money after all liabilities including

tax, insurance and expenses.

  • Managerial Effectiveness: it is base on 3 views. Traditional perspective, organizational and individual.

  • Strategic Objective: It is base on the mission n

vision statement that how they fulfill or move

steps

  • Finding A Target Business

  • Appointing Advisers

  • Negotiating terms

  • Due Diligence

  • Exchange of Contracts

  • Completion

Legal Documents

Share sale Agreement

  • The shares being sold

  • The Price

  • Restrictive Agreements

  • Warranties

  • Conditions to the Deal

  • Transferring tangible assets

  • Transferring Intangible assets

  • Transferring Liabilities

    • The Tax Deed:

  • Transferring Employees

    • The Disclosure Letter:

Post acquisition problems

  • 1. Time Factor

  • 2. Leadership style differences

  • 3. Who’s in charge? (Who won?)

  • 4. Organic vs. bureaucratic cultures

  • 5. Open vs. closed communication

  • 6. Decision making speed & style

  • 7. Structures that don’t match

competitive advantages

Product Leadership

(best product)

competitive advantages Product Leadership (best product) Operational Excellence (low cost producer) Customer Intimacy (best total solution)

Operational Excellence

(low cost producer)

Customer Intimacy

(best total solution)

Strategy: Disciplines, Priorities

Strategy: Disciplines, Priorities  Operational Excellence  Competitive price  Error free, reliable  Fast (on
  • Operational Excellence

  • Competitive price

  • Error free, reliable

  • Fast (on demand)

  • Simple

  • Responsive

  • Consistent information for all

  • 'Once and Done'

Strategy: Disciplines, Priorities  Operational Excellence  Competitive price  Error free, reliable  Fast (on

Product Leadership

New products or

services

Risk takers

Meet volatile customer needs

Never satisfied -

obsolete own and

competitors' products

Learning organization

Customer Intimacy

Easy to do business with

Have it your way (customization)

Market segments of one

Proactive, flexible

Relationship and consultative selling

Cross selling

Strategy: Disciplines, Priorities  Operational Excellence  Competitive price  Error free, reliable  Fast (on

Ranking

(Ranking of Tata steel before deal- 56)

Company

Capacity (in million tonnes)

Arcelor - Mittal

110.0

Nippon Steel

32.0

Posco

30.5

JEF Steel

30.0

Tata Steel - Corus (5 th )

27.7

Bao Steel China

23.0

US Steel

19.0

Nucor

18.5

Riva

17.5

Effect on balance sheet ?

Particulars

Year

ASSETS

DEBTS

LIABILITIES

Equity Share capital

Book value

Effect on balance sheet ? Particulars Year ASSETS DEBTS LIABILITIES Equity Share capital Book value After

After Tata Corus deal

Currency: Rupee Millions

TATA Steel Ltd

Currency: Rupee Millions

Effect on balance sheet ? Particulars Year ASSETS DEBTS LIABILITIES Equity Share capital Book value After

2009

2008

2007

2006

2005

Effect on balance sheet ? Particulars Year ASSETS DEBTS LIABILITIES Equity Share capital Book value After
  • 56650.78 45322.42

23741.48

205,450.70

177,033.10

Effect on balance sheet ? Particulars Year ASSETS DEBTS LIABILITIES Equity Share capital Book value After

26946.18

18021.69

9645.33

45,932.70

42,073.10

Effect on balance sheet ? Particulars Year ASSETS DEBTS LIABILITIES Equity Share capital Book value After

8965.76

6842.26

6349.24

30492.10

33146.80

Effect on balance sheet ? Particulars Year ASSETS DEBTS LIABILITIES Equity Share capital Book value After

730.79

730.78

580.67

553.67

553.67

2004

147,988.70

39,982.90

32665.90

369.18

331.68

298.78

240.31

176.26

127.56

122.79

Benefits of the deal

  • Augmented its crude steel capacity to 27 mtpa

  • The combined entity forms the 5th largest Steel company

  • The merged entity has brought Tata Steel to the world platform

  • Provided Tata Steel access to new markets and presence across the steel value chain

  • Much broader distribution network

Analysis

  • “It is a two-way street now.”

Can anyone explain how ???

Key Findings (Facts)

  • 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.

  • Moreover, since the acquisition was done through an all

cash deal, analysts said that the acquisition would be a financial burden for Tata Steel.

  • 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.

  • 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.

  • 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

rowth and res ect for our

Synergies such as ..

  • 1. in manufacturing,

  • 2. access to global customers,

  • 3. opening India to Corus or

  • 4. leveraging research and development for

Tata Steel’s greenfield projects.

  • It hopes these will save costs up to $350 million per year.

  • The combined entity could also scout for more acquisitions together effectively it is eyeing more buyouts in finished steel and iron ore.

Conclusion

  • With Corus in its fold, Tata Steel can confidently target becoming one of the top-3 steel makers globally by 2015. The company would have an aggregate capacity of close to 56 million tones per annum, if all the planned Greenfield capacities go on stream by then.

  • We can conclude that if the acquisitions well planned , Executed and the necessary precautions taken for the deal a company can achieve its strategic objectives and thus ensure its growth through Acquisition.

Now Q & A session.