MERGER & ACQUISITION OF TATA STEEL & CORUS

WHAT IS MERGER & ACQUISITION?

M&A' A general term used to refer to the consolidation of companies. A Merger is a
combination of two companies to form a new company, while an Acquisition is the purchase of
one company by another in which no new company is formed.

ABOUT THE DEAL:
On 20 October 2006 the board of directors of
Anglo-Dutch steelmaker Corus accepted a $7.6
billion takeover bid from Tata Steel, the Indian
steel company, at 455 pence per share of Corus.
The following months saw a lot of negotiations
from both sides of the deal. Tata Steel's bid to
acquire Corus Group was challenged by CSN,
the Brazilian steel maker. Finally, on 30 January
2007, Tata Steel purchased a 100% stake in the
Corus Group at 608 pence per share in an all
cash deal, cumulatively valued at USD 12.04
Billion. The deal is the largest Indian takeover of
a foreign company and made Tata Steel the
world's fifth-largest steel group.






ABOUT TATA STEEL:
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 1,321.10 billion and net profit of over Rs 123.50 billion during the year
ended 31 March 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, 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.

STRATEGIC RATIONALE:
It is important to understand the Deal Rationale for both Corus and Tata Steel. Also note that the
deal rationale has to be understood in keeping in mind the history of both the Companies and the
emerging Global Steel scenario.
So, the low levels of profitability and continued losses to the tune of 1.5 billion pounds in FY-
2001 of Corus was one of the important reasons why it was looking for getting into the
partnership with some low-cost steel producer. It realized that the reduction in losses in
subsequent period was only on account of the excessive rise in steel prices, which may not be
sustainable. Thus for long-term sustainability it had to do some fundamental re-thinking.
For Tatas, the ambition to be among the leading players in the world, entry into the European
markets, etc. were major motivating factors for the deal. However, the most important issue
perhaps was the Technology and opportunity to move up in the value chain in the auto and
aviation industry.




CATEGORY OF MERGER IMPLICATIONS ON INDUSTRY:

1. 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.
2. Tata had a strong retail and distribution network in India and South East Asia and was a
major supplier to the Indian auto industry and hence there would be a powerful
combination of high quality developed and low cost high growth markets.
3. Technology transfer and enhanced R&D capabilities between the two companies that
specializes in different areas of the value chain.
4. There was a strong culture fit between the two organizations both of which highly
emphasized on continuous improvement and ethics, i.e. The Corus Way with the core
values and code of ethics, integrity, creating value in steel, Customer focus, selective
growth and respect for people etc. were strong synergies.

FRIENDLY OR HOSTILE:



VALUATION:
While the experts continue to debate over the valuation logic what is clearly seen from this deal is the
importance of perceptions in the valuation process. While the original management of the Company had
almost sold the Company at 455 pence a share, there were at-least two other players in the market who
thought that the value of the company was much higher. Beauty lies in the eyes of the beholder.
Also note here that the valuation perception was influenced by the fact that the steel prices during the
period of the deal had shown an impressive rise. Different players would have different perceptions about
the sustainability of the price rise and may therefore have different views on valuation.
Synergies with current operations of the buyer would also influence valuation arithmetic in important
ways. If the synergies are high or strategic fit is strong, a buyer may offer better value than the other.
Total Tata Corus deal - US $13.7 billion
Equity component US $ 7.56 billion.
Debt Component - US $ 6.14 billion.
Acquisition was completed through Tata Steels UK Special Purpose vehicle(SPV) named Tata
Steel UK.
This SPV raised US $ 6.14 billion through a mix of high yield mezzanine and long term debt
funding.
For immediate financing Tata Steel UK raised US $2.66 billion through bridge loans.


POST MERGER INTEGRATION:
Key steps to successful Post Merger Acquisition
Meeting the objectives
Enhanced shareholder value

Soon after completing the Corus acquisition in April 2007, Tata Steel formed a high-power
seven-member Strategy & Integration committee, headed by Chairman Ratan Tata himself, to
spearhead the Tata-Corus union. In addition to Ratan Tata, the committee had three senior
leaders from each of the two uniting companies. Working at full swing and using a combination
of top-down and bottom-up approach, the committee identified a number of projects to achieve
the objectives and manage the cultural and organizational differences. By May 2007, a roadmap
had been drawn up and the overall synergy charter was ready. Tata decided that the Corus' top
management would continue with the enlarged Group and the Corus Board of Directors was
reconstituted to include representatives of Tata Steel. At the same time, in a spirit of partnership,
an invitation was extended to some senior members of Corus to join the Tata Steel board,
making the exchange mutual to further augment the integration process.
There were concerns also that Tata Steel could have problems in the power sharing process at the
senior and mid-level managements due to cultural differences between the two companies.
However, Tata management believed that Corus was a company which shared their values and
management systems.
Tata Steel did not want to engage in any hostile takeover bid. Ratan Tata had categorically
declared that he would not go in for acquisitions or partnerships if the value system of the target
company or its management grossly differed from that of the Tata group.

OVERALL SUCCESS OR FAILURE OR TOO EARLY TO TELL:

Tata Steel had been declared the winner in a heated battle for the Corus Group, topping an offer
from CSN (Companhia Siderurgica Nacional) group of Brazil. The final price paid for the
company was 30% more than the initial bid which led to financial analysts being unanimously
negative about the deal. As a result Tata Steel share prices plunged as much as 9% after the deal.
The Corus acquisition by Tata Steel was India's biggest foreign takeover ever.
TATA Steel Group rose to 5
th
position from 56
th
.
The production capacity increased from 4million tonnes to 28million tonnes by 2011
Standard & Poors Rating cut it credit Rating to BB from BBB and removed them from
the negative watch list
Despite skepticism of the merger, Tata Steel stock price went up from Rupees 399 to 799
and
Big boost to the Indian economy, as TATA was acquiring a company 3 times its size
The R&D Unit of Corus complements that of TATAs Links low cost Indian production
and raw materials and growth markets to high margin markets and high technology in the
West
Help from financing institutions as $8 billion was raised through debt
Net debt fell from $10.43 billion in June, 2010 to $9.13 billion in March, 2011
Tata Steel Group recorded profit after tax of Rs5,347 crores in Q1 FY12, almost three
times the profit of Rs1,825 crores recorded in Q1 FY11