Tata Corusdeal 130114031300 Phpapp02

8/13/2019 Tata Corusdeal 130114031300 Phpapp02

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TATA CORUS DEAL

By RasieekJain


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TATA STEEL HISTORY

Name:- Tata Steel Type:- Public Ltd. Industry:- Steel Founder(s):- Dorabji Tata Founded:- 1907 Headquarters:- Mumbai Chairman:- Mr. Cyrus Pallonji Mistry Parent:- Tata Group Subsidiaries:- Nat Steel, Tata Steel Europe,Tata

Steel Thailand.

NSE:- TATASTEEL, BSE: 500470


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CORUS HISTORY

Founded:- 1999

Formation:- Merger of British steel corp. &koninklijke N.V.

Type:- Subsidiary Industry :- Steel

Parent:- Tata steel,Tata Group.


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SWOT ANALYSIS TATA STEEL

Low cost of production

Easy access to rawmaterial

Low Debt-Equity ratioBrand TATA

Quality of steel was not asper International Standard

Lack of R & D

Lack of Technology

World Leader in steel byhaving Competitiveadvantage in cost & High

quality steel

Competition from WorldLeaders

SWOTANALYSIS


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Introduction Of Corus

London based Corus group is the worlds one of thelargest producer of steel & aluminum.

Corus was formed in 1999 following the merger ofDutch group koninclijike Hoogovens N.V. with UKs

British Steel Plc. On October 6,1999 . It employees 47300 people worldwide & 24000 people

in UK.

It had revenue of 9.2 billion in the year 2005,i.e.Rs.

64,400 CR. Corus provide Innovative solutions in construction

,automotive packaging, mechanical engineeringworldwide.


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SWOT ANALYSIS OF CORUS

Worlds ninth largest &Europe's second largest

company

Wide range of products of

high technology

Lack of access to RawMaterial

High Operational Cost

To get access to raw

material through MergerTo decrease the

Overlapping Cost of Valuechain

Increase in losses resultin winding up of company

SWOTANALYSIS


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Timelines Of Deal

On October 20, 2006, Tata Steel announced that it had agreedto pick up a 100% stake in the Anglo-Dutch steel maker Corusat 455 pence per share in an all cash deal, cumulativelyvalued at GBP 4.3 billion (USD 8.04 billion).

On November 19, 2006, the Brazilian steel company CSNlaunched a counter offer for Corus at 475 pence per share,valuing it at $8.4 billion.

On December 11, 2006, Tata preemptively upped the offer to500 pence, which was within hours trumped by CSN's offer of515 pence per share, valuing the deal at $ 9.6 Billion. TheCorus board promptly recommended both the revised offers toits shareholders.


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On December 11, 2006, CSN announced a formal offerfor the Company at an offer price of 515 pence perCorus Share, valuing the deal at $ 9.6 Billion

on December 19, 2006, UK Watchdog the Panel onTakeovers and Mergers announced that the last date foreach of Tata and CSN to announce revised offers for theCompany, should they wish to do so, is 30 January2007. They also warned that it would begin an auction

procedure if the two remained in competition. On January 31, 2007 Tata Steel won their bid for Corus

after offering 608 pence per share, valuing Corus at$11.3bn


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How The Deal Financed

Total TATA-CORUS deal of US $ 13.7 billion

Equity Component-US$ 7.56 billion using Rightsissue,Preferencial issue along with other financialmethods.

Debt Component-US $ 6.14 billion through mezzanine &long term loan arrengement with Citi Group,StandardChartered,ABN AMRO bank.

For immmediate financing Tata Steek UK raised 2.66billion bridge loans.

Acquisition was completed through Tata Steels UKSpecial Purpose Vehicle named Tata Steel UK.


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Deal

CORUS GROUP Plc

TATA STEEL UK LIMITED(U K)

TULIP UK HOLDINGS

TATA STEEL ASIA HOLDINGS(SINGAPORE)

TATA STEEL LTD(INDIA)


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Why Did TATA STEEL Bid ForCorus There is recognition that for indian economy to

continue its growth, its companies must look tocompete on a global scale.

Globally Tata steel was only 56 th largest steelproducer.

Buying Corus will leapfrogs it to fifth largest steelproducer in world.

Acquisition of Corus provide Tata steel of its

production line & technology. Economies of scale To tap europeon market. Corus hold No. of patents & R & D facilities.

Cost of acquisition is lower than setting up green field


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Why Corus Accepted The Deal

The main reason is backward integration.

Saturated market of europe.

Decline in market share & profit.

Lower net profit to sales ratio i.e.Revenue US$18.06billion & N.P.only $626 million.

Employee cost of Corus was 15% & Tata only 9%.

Loan of Corus was 1.6 billion.


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Why Cash Deal

A really confident acquirer will tend to pay for theacquisition by cash and the markets historically havebeen rewarding this confidence by responding throughrise in share value, a stock buy out could (almost

certainly) take the opposite direction if they sense thatthe stock is overvalued. In about 75% of the cases, thestock value of acquirer has taken a dip soon after thedeal is announced. The cash buyout also makes sure

that its shareholders do not give up any merger gains tothe acquired companies shareholders.

Immediate takeover was required

Share swap deal would have been less attarctive to

Corus Shareholder.


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Share swap deal may diluted the TataSteels share basewhich was not in favor of Tata Steels share holder.

Cost of acquisition Debt i.e.8% was less than cost ofequity i.e.15%.

Share swap deal means FDI & lot of regularity whichmight have not been accepted by Corus Shareholders.


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What Happened After Deal

There were a lot of apparent synergies between TataSteel which was a low cost steel producer in fastdeveloping region of the world and Corus which was ahigh value product manufacturer in the region of the

world demanding value products. Some of the prominentsynergies 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. Coruswas fighting to keep its productions costs under controland 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-


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Powerful combination of high quality developed and lowcost high growth markets

There would be technology transfer and cross-fertilization of R&D capabilities between the twocompanies that specialized in different areas of thevalue chain

There was a strong culture fit between the twoorganizations both of which highly emphasized on

continuous improvement and ethics. Tata steel'sContinuous Improvement Program Aspirewiththe corevalues :Trusteeship,integrity,respect for individual,credibility and excellence. Corus's Continuous

Improvement Program The Corus Way with the core


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Tata Steel Revenue & share PriceVolatility after Deal


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Global Steel Ranking


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CONCLUSION

On July 23, 2007, Tata Steel stock reached a 52-week highclose of 721.00 on the Bombay Stock Exchanges (BSE) 30-stock Sensex after hitting a low of 399.00 on March 8, 2007.

Tata Steel was one of the market leaders for the BSE Sensexup 27% in 2007.

Standard & Poors Ratings Services cut its credit rating to BBfrom BBB and removed them from the negative watch list onwhich they were placed after the financing structure for theacquisition of Corus was announced.

The rating was changed to a positive outlook.

If after acquisition,if this deal will able to acquire all thesynergies,then TATA STEEL-CORUS can be within top 3companies by the year 2015.


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References

www.bbc.co.uk

Wikipedia

Business Standard

www.corusgroup.com www.thehindubusinessline.com
http://www.corusgroup.com/http://www.corusgroup.com/


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THANK YOU

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Tata Corusdeal 130114031300 Phpapp02

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