TATA Acquire CORUS

By

Ritu Sabnani Perisha Golash Mayuri Jain

Mergers- A merger is a combination of two companies into one larger company. Acquisition - When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded.

WHY?

Gain market share Economies of scale Enter new markets Acquire technology Utilization of surplus funds Managerial Effectiveness Strategic Objective Vertical integration

Why not?

Grasping for a company simply because its on the market , or because a competitor wants to buy it. Overpayment or misguided purchase. Inability to integrate well Diverse Business ;Unmanageable. Leaping without looking at the value.

PROFILE PRE MERGER

TATA STEEL

CORUS

102 years in steel bazaar Worlds 56th largest Capacity of 30 Million Founder:J.N. Tata Presence in 26 nations

Worlds 6th largest 2nd in Europe,1st in UK 371st rank in fortune list Presence in 50 nations 40,000 people worldwide.

Acquisition

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

Process of Acquisition

Finding A Target Business Appointing Advisers Negotiating terms Due Diligence Exchange of Contracts Completion

Finding A Target Business

Synergy of Operations Help the Organizations to Achieve Strategic Objectives Enter new markets Vertical Integration

Negotiating Terms

The nature of the fit Commonality of client base Financial strength Strategic intent Sharing of resources Applicable Benefits

Negotiation By Tata

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 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 emailed 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

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.

In-house systems synergy

Product Leadership (best product)

Operational Excellence (low cost producer)

Customer Intimacy (best total solution)

Strategy: Disciplines, Priorities

Operational Operational Excellence Excellence Competitive price Competitive price Error free, reliable Error free, reliable Fast (on demand) Fast (on demand) Simple Simple Responsive Responsive Consistent Consistent information for all information for all 'Once and Done' 'Once and Done'

Product Leadership Product Leadership New products or New products or services services Risk takers Risk takers Meet volatile customer Meet volatile customer needs needs Never satisfied - Never satisfied obsolete own and obsolete own and competitors' products competitors' products Learning organization Learning organization

Customer Intimacy Customer Intimacy Easy to do business Easy to do business with with Have it your way Have it your way (customization) (customization) Market segments of Market segments of one one Proactive, flexible Proactive, flexible Relationship and Relationship and consultative selling consultative selling Cross selling Cross selling

Business Structure Resources M&A Strategy Culture Leadership Person Objective

Global Steel Ranking: deal- 55)

Company

(Ranking of Tata steel before

Capacity (in million tonnes) 110.0 32.0 30.5 30.0 27.7 23.0 19.0 18.5 17.5 16.5

Arcelor - Mittal Nippon Steel Posco JEF Steel Tata Steel - Corus Bao Steel China US Steel Nucor Riva Thyssen Krupp

Rationale of the Corus deal

augmented its crude steel capacity to 27 mtpa the combined entity forms the 6th 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

SWOT ANALYSIS

Strength Lowest cost producer in world. Experience of TATA group in doing global activity. Stable balance sheet (Low Debt to Equity Ratio).

Weakness Corus was triple the size of TATA steel in terms of production.

Opportunity Consolidation trend in Steel Industry CSNs lost image after failure of 2002 negotiations To get exposed to global steel market

Threat
Brazil

company CSN Russian company Severstal No committed financers to support the possible deal

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.

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