EXECUTIVE SUMMARY

1
A land mark deal in the history of Indian industry in general and the steel
industry in particular. This very factor has led the researcher in choosing
the topic for dissertation.
The other reason which is personal an d inherent to the
researcher is the belongingness ant therefore the abilit y to relate. Tata
Steel‘s largest facilit y is based out at Jamshedpur, Jharkhand. The
researcher is a close neighbor and has always been proud –that India‘s
biggest private sector st eel plant is in Jamshedpur.
As a student of financial management it seemed to be the
most interesting case-stud y and therefore it made every sense to explore
the same.
In the present business world , India along with china is
being viewed as the major dev eloping countries that would engine the
growth of future businesses. It therefore becomes necessary that India
comes up with companies who are global when it comes to level ad scale
of operation.
Tata steel has been a pioneer in this area and would go a
long way in the history of Indian industry.
As stated , the takeover is being studied as a case of financial
management where the focus is on the price that TATASTEEL paid to
CORUS.
A merger/takeover, as known well in management circles is
a complex process where several issues are into play in conjunction.
The researcher specificall y focuses on the pricing and other
related areas are discussed on a surface level and not in depth.
The findings have been based on personal anal ysis, study of
relevant literature and discussion with the research guide and research
supervisor.

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Ch
INTRODUCTION TO PROJECT
I

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 Acquisition

An acquisition , also known as a ―takeover‖ or a ―buyout‖ or a

"merger", is the buying of one company (the ‗target‘) by a nother. An
acquisition may be friendl y or hostile. In the former case, the co mpanies
cooperate in negotiations; in the latter case, the takeover target is
unwilling to be bought or the target's board has no prior knowledge of the
offer. Acquisition usuall y refers to a purchase of a smaller firm by a
larger one. Sometimes, however, a smaller firm will acquire management
control of a larger or longer established company and keep its name for
the combined entit y. This is known as a reverse takeover . Another t ype of
acquisition is reverse merger a deal that enables a private company to get
publicl y listed in a short time period. A reverse merger occurs when a
private company that has strong prospects and is eager to raise financing
buys a publicl y listed shell company, usuall y one with no business and
limited assets. Achieving acquisition success has proven to be very
difficult, while various studies have shown that 50% of acquisitions were
unsuccessful. The acquisition process is very complex, with many
dimensions influencing its outcome.

The buyer buys the shares, and therefore control, of the target
company being purchased. Ownership control of the company in turn
conveys effective control over the assets of the company, but since the
company is acquired intact as a going concern, this form of transaction
carries with it all of the liabilities acc rued by that business over its past
and all of the risks that company faces in its commercial environment.

The buyer buys the assets of the target company. The cash the
target receives from the sell -off is paid back to its shareholders by
dividend or through liquidation. This t ype of transaction leaves the target
company as an empty shell, if the buyer buys out the entire assets. A
buyer often structures the transaction as an asset purchase to "cherry-

4
pick" the assets that it wants and leave out the assets and liabilities that it
does not. This can be particularl y important where foreseeable liabilities
may include future, unquantified damage awards such as those that could
arise from litigation over defective products, employee benefits or
terminations, or environmental damage. A disadvantage of this structure
is the tax that many jurisdictions, particularl y outside the United States,
impose on transfers of the individual assets, whereas stock transactions
can frequentl y be structured as like -kind exchanges or other arrangements
that are tax -free or tax -neutral, both to the buyer and to the seller's
shareholders.

5
Distinction between Mergers and Acquisitions
Although they are often uttered in the same breath and used as
though they were synonymous, the terms merger and acquisition mean
slightl y different things.

When one company takes over another and clearl y establishes itself
as the new owner, the purchase is called an acquisition. From a legal point
of view, the target company ceases t o exist, the buyer "swallows" the
business and the buyer's stock continues to be traded.

In the pure sense of the term, a merger happens when two firms
agree to go forward as a single new company rather than remain
separatel y owned and operated. This kind of action is more precisel y
referred to as a "merger of equals". The firms are often of about the same
size. Both companies' stocks are surrendered and new company stock is
issued in its place. For example, in the 1999 merger of Glaxo Wellcome
and SmithKline Beecham, both firms ceased to exist when they merged,
and a new company, GlaxoSmithKline, was created.

In practice, however, actual mergers of equals don't happen ver y

often. Usuall y, one company will buy another and, as part of the deal's
terms, simpl y allow the acquired firm to proclaim that the action is a
merger of equals, even if it is technicall y an acquisition. Being bought out
often carries negative connotations, th erefore, by describing the deal
euphemisticall y as a merger, deal makers and top managers try to make
the takeover more palatable. An example of this would be the takeover of
Chrysler by Daimler-Benz in 1999 which was widel y referred to in the
time, and is still now, as a merger of the two corporations.

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 A purchase deal will also be called a merger when both CEOs agree
that joining together is in the best interest of both of their companies. But
when the deal is unfriendl y - that is, when the target company does not
want to be purchased - it is always r egarded as an acquisition.

Whether a purchase is considered a merger or an acquisition reall y

depends on whether the purchase is friendl y or hostile and how it is
announced. In other words, the real difference lies in how the purchase is
communicated to and received by the target company's board of directors,
employees and shareholders. It is quite normal though for M&A deal
communications to take place in a so called 'confidentiality bubble'
whereby information flows are restricted due to confidentialit y
agreements (Harwood, 2005).

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Business Valuation
The five most common ways to evaluate a business are
 ASSET VALUATION,
 HISTOR ICAL EARNINGS VALUATION ,
 FUTURE MAINTAINABLE EAR NINGS VALUATION,
 RELATIVE VALUATION (comparable company & comparable
transactions),
 DISCOUNTED CASH FLOW (DCF) VALUATION

Professionals who valuate businesses generall y do not use just one of

these methods but a combination of some of them, as well as possibl y
others that are not mentioned above, in order to obtain a more accurate
value. These values are determined for the most part by looking at a
company's balance sheet and/or income statement and withdrawing the
appropriate information. The information in the balance sheet or income
statement is obtained by one of three accounting measures: a Notice to
Reader, a Review Engagement or an Audit.

Accurate business valuation is one of the most important aspects of

M&A as valuations like these will have a major impact on the price th at a
business will be sold for. Most often this information is expressed in a
Letter of Opinion of Value (LOV) when the business is being valuated for
interest's sake. There are other, more detailed ways of expressing the
value of a business. These reports generall y get more detailed and
expensive as the size of a company increases; however, this is not always
the case as there are many complicated industries which require more
attention to detail, regardless of size.

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Financing M&A
Mergers are generally differentiated from acquisitions partl y by the
way in which they are financed and partl y by the relative size of the
companies. Various methods of financing an M&A deal exist:

Use of cash balance

Payment by cash. Such transactions are usuall y termed acquisitions
rather than mergers because the shareholders of the target company are
removed from the picture and the target comes under the (indirect) control
of the bidder's shareholders alone.
A cash deal would make more sense during a downward trend in the
interest rates. Another advantage of using cash for an acquisition is that it
tends to lessen chances of EPS dilution for the acquiring company. But a
caveat in using cash is that it places constraints on the cash flow of the
company.

Use of loan from banks

Financing capital may be borrowed from a bank, or raised by an
issue of bonds. Alternativel y, the acquirer's stock may be offered as
consideration. Acquisitions financed through debt are known as leveraged
buyouts if they take the target private, and the debt will often be moved
down onto the balance sheet of the acquired company. The organization
can also opt for issuing of fresh capital in the market to raise the funds.

Use of a combination of cash, stock& loans

An acquisition can involve a combination of cash and debt or of
cash and stock of the purchasing entit y.

Factoring
Factoring can provide the extra to make a merger or sale work.
Hybrid can work as ad e -denit.

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Specialist M&A advisory firms
Although at present the majorit y of M&A advice is provided by
full-service investment banks, recent years have seen a rise in the
prominence of specialist M&A advisers, who onl y provide M&A advice
(and not financing). These companies are sometimes referred to as
Transition companies , assisting businesses often referred to as "companies
in transition." To perform these services in the US, an advisor must be a
licensed broker dealer, and subject to SEC (FINRA) regulation. More
information on M&A advisory firms is provided at corporate advisory.

Motives behind M&A

The dominant rationale used to explain M&A activit y is that
acquiring firms seek imp roved financial performance. The following
motives are considered to improve financial performance:

Economy of scale :
This refers to the fact that the combined company ca n often reduce
its fixed costs by removing duplicate departments or operations, lowering
the costs of the company relative to the same revenue stream, thus
increasing profit margins.

Economy of scope :
This refers to the efficiencies primaril y associated with demand -
side changes, such as increasing or decreasing the scope of marketing and
distribution, of different t ypes of products.

Increased revenue or market share :

This assumes that the buyer will be absorbing a major competitor
and thus increase its market power (by capturing inc reased market share)
to set prices.

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Cross-selling:
For example, a bank buying a stock broker could then sell its
banking products to the stock broker's customers, while the broker can
sign up the bank's customers for brokerage accounts. Or, a manufacturer
can acquire and sell complementary produc ts.
Synergy:
For example, managerial economies such as the increased
opportunit y of managerial specialization. Another example is purchasing
economies due to increased order size and associa ted bulk-buying
discounts.

Taxation:
A profitable company can buy a loss maker to use the target's loss
as their advantage by reducing their tax liabilit y. In the United States and
many other coun tries, rules are in place to limit the abilit y of profitable
companies to "shop" for loss making companies, limiting the tax motive
of an acquiring company.

Geographical or other diversification :

This is designed to smooth the earnings results of a compa ny, which
over the long term smoothens the stock price of a company, giving
conservative investors more confidence in investing in the company.
However, this does not always deliver v alue to shareholders .

Resource transfer :
Resources are unevenl y distrib uted across firms (Barney, 1991) and
the interaction of target and acquiring firm resources can create value
through either overcoming information asymmetry or by combining scarce
resources.

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Vertical integration:
Vertical integration occurs when an upstream and downstream firm
merges (or one acquires the other). There are several reasons for this to
occur. One reason is to internalize an externalit y problem. A common
example is of such an externalit y is double marginalization. Double
marginalization occurs when both the upstream and downstream firms
have monopol y power; each firm reduces output from the competitive
level to the monopoly level, creating two deadweight losses. By merging
the verticall y integrated firm can collect one deadweight loss by setting
the upstream firm's output to the competitive level. This increases profits
and consumer surplus. A merger that creates a verticall y integrated firm
can be profitable.

However, on average and across the most commonl y studied

variables, acquiring firms' financial performance does not positivel y
change as a function of their acquisition activit y. Therefore, additional
motives for merger and acquisition that may not add shareholder value
include:

Diversification:
While this may hedge a company agai nst a downturn in an
individual industry it fails to deliver value, since it is possible for
individual shareholders to achieve the same hedge by diversifying their
portfolios at a much lower cost than those associated with a merger.

Manager's hubris:
Manager's overconfidence about expected synergies from M&A
which results in overpayment for the target company.

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Empire-building:
Managers have larger companies to manage and hence more power.

Manager's compensation :
In the past, certain executive management teams had their payout
based on the total amount of profit of the company, instead of the profit
per share, which would give the team a perverse incentive to bu y
companies to increase the total profit while decreasing the profit per share
(which hurts the owners of the company, the shareholders); although some
empirical studies show th at compensation is linked to profitabilit y rather
than mere profits of the company.

Effects on management
A study published in the Jul y/August 2008 issue of the Journal of
Business Strategy suggests that mergers and acquisitions destroy
leadership continu ity in target companies‘ top management teams for at
least a decade following a deal. The study found that target companies
lose 21 percent of their executives each year for at least 10 years
following an acquisition – more than double the turnover experie nced in
non-merged firms.

M&A marketplace difficulties

In many states, no marketplace currentl y exists for the mergers and
acquisitions of privatel y owned small to mid -sized companies. Market
participants often wish to maintain a level of secrecy about their efforts to
buy or sell such companies. Their concern for secrecy usuall y arises from
the possible negative reactions a company's employees, bankers,
suppliers, customers and others might h ave if the effort or interest to seek
a transaction were to become known. This need for secrecy has thus far
thwarted the emergence of a public forum or marketplace to serve as a

13
clearinghouse for this large volume of business. In some states, a Multiple
Listing Service (MLS) of small businesses for sale is maintained by
organizations such as Business Brokers of Florida (BBF). Another MLS is
maintained by International Business Brokers Association (IBBA).

A transaction t ypicall y requires six to nine months and involves

many steps. Locating parties with whom to conduct a transaction forms
one step in the overall process and perhaps the most difficult one.
Qualified and interested buyers of multimillion dollar corporations are
hard to find. Even more difficul ties attend bringing a number of potential
buyers forward simultaneousl y during negotiations. Potential acquirers in
an industry simpl y cannot effectivel y "monitor" the econom y at large for
acquisition opportunities even though some may fit well within the ir
company's operations or plans.

An industry of professional "middlemen" (known variousl y as

intermediaries, business brokers, and investment bankers) exists to
facilitate M&A transactions. These professionals do not provide their
services cheapl y and generall y resort to previousl y -established personal
contacts, direct -calling campaigns, and placing advertisements in various
media. In servicing their clients they attempt to create a one-time market
for a one-time transaction. Stock purchase or merger transactions involve
securities and require that these "middlemen" be licensed broker dealers
under FINRA (SEC) in order to be compensated as a % of the deal.
Generall y speaking, an unlicensed middleman may be compensated on an
asset purchase without being licensed. Many, but not all, transactions use
intermediaries on one or both sides. Despite best intentions,
intermediaries can operate inefficientl y because of the slow and limi ting
nature of having to rel y heavil y on telephone communications. Many
phone calls fail to contact with the intended part y. Busy executives tend
to be impatient when dealing with sales calls concerning opportunities in

14
which they have no interest. These marketing problems t ypify any private
negotiated markets. Due to these problems and other problems like these,
brokers who deal with small to mid -sized companies often deal with much
more strenuous conditions than other business brokers. Mid -sized business
brokers have an average life -span of onl y 12–18 months and usuall y never
grow beyond 1 or 2 employees. Exceptions to this are few and far
between. Some of these exceptions include The Sundial Group, Geneva
Business Services, Corporate Finance Associates and Robbinex.

The market inefficiencies can prove detrimental for this important

sector of the econom y. Beyond the intermediaries' high fees, the current
process for mergers and acquisitions has the effect of causing private
companies to initially sell their shares at a significant discount relative to
what the same company might sell for were it already publicly traded. An
important and large sector of the entire econom y is held back by the
difficult y in conducting corporate M&A (and also in raising equit y or debt
capital). Furthermore, it is likel y that since privatel y held companies are
so difficult to sell they are not sold as often as they might or should be.

Previous attempts to streamline the M&A process through

computers have failed to succeed on a large scale because they have
provided mere "bulletin boards" - static information that advertises one
firm's opportunities. Users must still seek other sources for opportunities
just as if the bulletin board were not electronic. A multiple listings
service concept was previousl y not used due to the need for
confidentialit y but there are currentl y several in operations . The most
significant of these are run by the California Association of Business
Brokers (CABB) and the International Business Brokers Association
(IBBA) These organizations have effectivel y created a t ype of virtual
market without compromising the confidentialit y of parties involved and
without the unauthorized release of information.

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 One part of the M &A process which can be improved significantl y
using networked computers is the improved access to " data rooms " during
the due diligence process however onl y for larger transactions. For the
purposes of small -medium sized business, these data rooms serve no
purpose and are generall y not used.

M&A failure
Reasons for frequent failure of M&A were anal yzed by Thomas
Straub in "Reasons for frequent failure in mergers and acquisitions - a
comprehensive anal ysis", DUV Gabler Edition, 2007. Despite the goal of
performance improvement, results from merg ers and acquisitions (M&A)
are often disappointing. Numerous empirical studies show high failure
rates of M&A deals. The effect of M&A evolution in a transition
econom y, especiall y where the presence of rent -seeking and relationship -
based transactions is s ignificant, may cause destructive entrepreneurship.
From socio-economic and cultural views , the degree of positive impacts it
may result in for domestic entrepreneurship will perhaps be the single
most important indicator. Studies are mostl y focused on ind ividual
determinants. The literature therefore lacks a more comprehensive
framework that includes different perspectives. Using four statistical
methods, Thomas Straub shows that M&A performance is a multi -
dimensional function. For a successful deal, the f ollowing key success
factors should be taken into account:

Strategic logic which is reflected by six determinants: market

similarities, market complementarities, operational similarities,
operational complementarities, market power, and purchasing power ...

Organizational integration which is reflected by three determinants:

acquisition experience, relative size, cultural compatibilit y.

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Financial / price perspective which is reflected by three determinants:
acquisition premium, bidding process, and due dil igence.

Post-M&A performance is measured by synergy realization, relative

performance (compared to competition), and absolute performance.

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The Great Merger Movement
The Great Merger Movement was a predominantl y U.S. business
phenomenon that happened from 1895 to 1905. During this time, small
firms with little market share consolidated with similar firms to form
large, powerful institutions that dominated their markets. It is estimated
that more than 1,800 of these firms disappeared i nto consolidations, many
of which acquired substantial shares of the markets in which they
operated. The vehicle used was so-called trusts. To trul y understand how
large this movement was —in 1900 the value of firms acquired in mergers
was 20% of GDP. In 1990 the value was onl y 3% and from 1998 –2000 it
was around 10–11% of GDP. Organizations that commanded the greatest
share of the market in 1905 saw that command disintegrate by 1929 as
smaller competitors joined forces with each other. However, there were
companies that merged during this time such as DuPont, US Steel, and
General Electric that have been able t o keep their dominance in their
respected sectors today due to growing technological advances of their
products, patents, and brand recognition by their customers. The
companies that merged were mass producers of homogeneous goods that
could exploit the efficiencies of large volume production. However more
often than not mergers were "quick mergers". These "quick mergers"
involved mergers of companies with unrelated technology and different
management. As a result, the efficiency gains associated with merge rs
were not present. The new and bigger company would actually face higher
costs than competitors because of these technological and managerial
differences. Thus, the mergers were not done to see large efficiency gains;
they were in fact done because that was the trend at the time. Companies
which had specific fine products like fine writing paper, earned their
profits on high margin rather than volume and took no part in Great
Merger Movement.

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Short-run factors
One of the major short run factors that spa rked in The Great Merger
Movement was the desire to keep prices high. That is, with many firms in
a market, suppl y of the product remains high. During the panic of 1893,
the demand declined. When demand for the good falls, as illustrated by
the classic suppl y and demand model, prices are driven down. To avoid
this decline in prices, firms found it profitable to collude and manipulate
suppl y to counter any changes in demand for the good. This t ype of
cooperation led to widespread horizontal integration among st firms of the
era. Focusing on mass production allowed firms to reduce unit costs to a
much lower rate. These firms usuall y were capital -intensive and had high
fixed costs. Because new machines were mostl y financed through bonds,
interest payments on bon ds were high followed by the panic of 1893, yet
no firm was willing to accept quantit y reduction during that period.

Long-run factors
In the long run, due to the desire to keep costs low, it was
advantageous for firms to merge and reduce their transportat ion costs thus
producing and transporting from one location rather than various sites of
different companies as in the past. This resulted in shipment directl y to
market from this one location. In addition, technological changes prior to
the merger movement within companies increased the efficient size of
plants with capital intensive assembl y lines allowing for economies of
scale. Thus improved technology and transportation were forerunners to
the Great Merger Movement. In part due to competitors as mentio ned
above, and in part due to the government, however, many of these initiall y
successful mergers were eventuall y dismantled. The U.S. government
passed the Sherman Act in 1890, setting rules against price fixing and
monopolies. Starting in the 1890s with such cases as U.S. versus Addyston
Pipe and Steel Co., the courts attacked large companies for strategizin g
with others or within their own companies to maximize profits. Price

19
fixing with competitors created a greater incentive for companies to unite
and merge under one name so that they were not competitors anymore and
technicall y not price fixing.

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Merger waves
The economic history has been divided into Merger Waves based on
the merger activities in the business World as:

Period Name Facet

First
1889- 1904 Horizontal mergers
Wave

Second
1916- 1929 Vertical mergers
Wave

Third
1965 - 1989 Diversified conglomerate mergers
Wave

Fourth Co generic mergers; Hostile takeovers; Corporate

1992 - 1998
Wave Raiding

Fifth
2000 - Cross-border mergers
Wave

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Cross-border M&A
In a study conducted in 2000 by Lehman Brothers , it was found
that, on average, large M&A deals cause the domestic currency of the
target corporation t o appreciate by 1% relative to the acquirers.

The rise of globalization has exponentially increased the market for

cross border M&A. In 1997 alone there were over 2333 cross bor der
transactions worth a total of approximatel y $298 billion. This rapid
increase has taken many M&A firms by surprise because the majorit y of
them never had to consider acquiring Due to the complicated nature of
cross border M&A, the vast majorit y of cros s border actions have
unsuccessful companies seek to expand their global footprint and become
more agile at creating high -performing businesses and cultures across
national boundaries .

Even mergers of companies with headquarters in the same country

are very much of this t ype (cross -border Mergers). After all, when Boeing
acquires McDonnell Douglas, the two American companies must integrate
operations in dozens of countries around the World. This is just as true
for other supposedly "single country" mergers , such as the $29 billion
dollar merger of Swiss drug makers Sandoz and Ciba -Geigy (now
Novartis).

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Major M&A in the 1990s
Top 10 M&A deals Worldwide by value (in mil. USD) from 1990 to 1999:

Transaction value
Rank Year Purchaser Purchased
(in mil. USD)

Vodafone Air touch

1 1999 Mannesmann 183,000
PLC

2 1999 Pfizer Warner-Lambert 90,000

3 1998 Exxon Mobil 77,200

4 1998 Citicorp Travelers Group 73,000

SBC Ameritech
5 1999 63,000
Communications Corporation

AirTouch
6 1999 Vodafone Group 60,000
Communications

7 1998 Bell Atlantic GTE 53,360

8 1998 BP Amoco 53,000

Qwest
9 1999 US WEST 48,000
Communications

MCI
10 1997 WorldCom 42,000
Communications

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Major M&A in the 2000s
Top 10 M&A deals Worldwide by value (in mil. USD) from 2000 to 2009:

Transaction
Rank Year Purchaser Purchased value (in mil.
USD)

Fusion: America
1 2000 Time Warner 164,747
Online Inc. (AOL)

SmithKline
2 2000 Glaxo Wellcome Plc. 75,961
Beecham Plc.

Royal Dutch Shell Transport &

3 2004 74,559
Petroleum Co. Trading Co

BellSouth
4 2006 AT&T Inc. 72,671
Corporation

AT&T Broadband &

5 2001 Comcast Corporation 72,041
Internet Svcs

Sanofi-S ynthelabo
6 2004 Aventis SA 60,243
SA

Spin-off: Nortel
7 2000 Networks 59,974
Corporation

Pharmacia
8 2002 Pfizer Inc. 59,515
Corporation

JP Morgan Chas e &

9 2004 Bank One Corp 58,761
Co

Anheuser-Busch
10 2008 Inbev Inc. 52,000
Companies, Inc

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 TATA & CORUS ACQUISITION

“There are not many opportunities for producer s in emerging low -cost
markets to gain access to the markets of Europe other than by acquiring a
company like Corus,”
John Quigley (Editor, Industry Publication Steel week)

Thousands of Indians didn‘t offer prayers for Tata Steel to clinch

the deal for the Anglo -Dutch steel maker Corus, as they have for the
recovery of hospitalized Boll ywood superstars. Nor did they erect 40 -foot
billboards of a smiling Ratan Tata, chairman of Tata Steel, after he won
Corus. And the stock markets were clearl y concerned about the Tata
Steel‘s new debt load. But despite all this, euphoria gripped the nation.
Finance minister P. Chidambaram offered unspecified help, if needed, to
close the deal; fellow steel magnate Lakshmi Niwas Mittal cheered the
acquisition, and excited TV newsreaders gushed. India‘s first Fortune 500
MNC was born.

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 Ind ia's largest ever foreign takeover and
follows Mittal Steel's $31 billion acquisition of rival Arcelor in the same
year. Over the past five years, Indian companies had made global
acquisitions for over $10 billion. The Tata bid almost equals this amount.
Most of them have averaged $100 to 200 million.

Until the 1990s, not many Indian companies had contemplated

spreading their wings abroad. An Indian corporate or group company
acquiring a business in Europe or the U.K. seemed possible onl y in the
realm of fantasy. Recent reports of United Nations Conference on Trade

25
and Development (UNCTAD) and other organizations have recorded the
fact that nowadays Foreign Direct Investment (FDI) is more likel y to flow
in through cross border mergers (and not through Green field Projects).
Though Corus is four times bigger than Tata but in the year 2006 the
operating profit for Tata was $840million, whereas in case of Corus it was
$860 million. There are some major inputs, which leads Tata towards this
huge profit. Tata acquired Corus on the 2nd of April 2007 for a price of
$12 billion making the Indian company the World‘s fifth largest steel
producer. This acquisition process has started long back in the year 2005.
However, Corus was involved in a considerable number of Merg er&
Acquisition (M&A) deals and joint ventures (JVs) before Tata. This
process started in the year 2000 and with Tata it came to an end. In a
period of seven years Corus was involved in 14 deals apart from Tata. In
2005, when the deal was started the price per share was 455 pence. But
during the time of acquisition held in 2007, the price per share was 608
pence, which is33.6% higher than the first offer. For this deal Tata has
financed onl y $4 billion, although the total price of this deal was
$12billion. Here the important point is how Tata could manage to get such
a huge amount for this deal? Did Tata Steel overheat in its zeal to win
Corus? However as stated by Muthuraman (the Managing Director of Tata
Steel), the bid made to Corus was unanimousl y suppor ted by the
management of the company and recommended to its shareholders.

In an interview to CNBC India, B Muthuraman also said that they

are acquiring Corus for syne rgy and not for tonnage. "There are synergies
in operations, manufacturing, marketing etc ."

26
 THE DEAL

The deal (between Tata & Corus) was officiall y 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 entit y will be run by one of Tata‘s 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 approximatel y $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 opportunit y 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 603pence 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 entit y will have a pro forma
crude steel production of 27 million tons in 2007, with 84,000 employees
across four continents and a joint presence in 45 coun tries, which makes it
a serious rival to other steel giants.

27
Ch
COMPANY PROFILE
II

28
 TATA STEEL

“Backed by 100 glorious years of experience in steel making, Tata

Steel is among the top ten steel producers in the World with an existing
annual crude steel production capacit y of 30 Million Tonnes Per Annum
(MTPA). Established in 1907, it is the first integrated steel plant in Asia
and is now the World`s second most geographicall y diversified steel
producer and a Fortune 500 Company.

Tata Steel has a balanced global presence in over 50 developed

European and fast growing Asian markets, with manufacturing units in 26
countries.

It was the vision of the founder; Jamsed ji Nusserwanji Tata, that on

27th February, 1908, the first stake was driven into the soil of S akchi.
His vision helped Tata Steel overcome several periods of adversit y and
strive to improve against all odds.

Tata Steel`s Jamshedpur (India) Works has a crude steel production

capacit y of 6.8 MTPA which is slated to increase to 10 MTPA by 2010.
The Company also has proposed three Greenfield steel projects in the
states of Jharkhand, Orissa and Chhattisgarh in India with additional
capacit y of 23 MTPA and a Greenfield project in Vietnam.

Through investments in Corus, Millennium Steel (renamed Tata

Steel Thailand) and NatSteel Holdings, Singapore, Tata Steel has created
a manufacturing and marketing network in Europe, South East Asia and
the pacific-rim countries. Corus, which manufactured over 20 MTPA of
steel in 2008, has operations in the UK, the Ne therlands, Germany,
France, Norway and Belgium.

29
 Tata Steel Thailand is the largest producer of long steel products in
Thailand, with a manufacturing capacity of 1.7 MTPA. Tata Steel has
proposed a 0.5 MTPA mini blast furnace project in Thailand. NatSteel
Holdings produces about 2 MTPA of steel products across its regional
operations in seven countries.

Tata Steel, through its joint venture with Tata BlueScope Steel
Limited, has also entered the steel building and construction applications
market.

The iron ore mines and collieries in India give the Company a
distinct advantage in raw material sourcing. Tata Steel is also striving
towards raw materials securit y through joint ventures in Thailand,
Australia, Mozambique, Ivory Coast (West Africa) and Oman. Ta ta Steel
has signed an agreement with Steel Authorit y of India Limited to establish
a 50:50 joint venture company for coal mining in India. Also, Tata Steel
has bought 19.9% stake in New Millennium Capital Corporation, Canada
for iron ore mining.

Exploration of opportunities in titanium dioxide business in Tamil

Nadu, Ferro-chrome plant in South Africa and setting up of a deep -sea
port in coastal Orissa are integral to the Growth and Globalization
objective of Tata Steel

30
 CORUS
On October 06, 1999, H oogovens (38.3%) merged with British Steel Plc
(61.7%) to form Corus Group Plc.

History of British Steel

March 22nd 1967

The ‗Iron and Steel Act‘ brought into public ownership about 90%
of British Steel making. The country's non integrated steel making a nd re-
rolling companies, including half of the specialized steel production
facilities were left in the private sector with a number of small
companies.

July 28th 1967

BSC (British Steel Corporation) was formed from the UK's 14 main
steel producing compan ies. The formation enabled the reshaping of a vital
industry after years of insufficient capital investment.

The 1970's
The Government approved a 10 year development strategy with
expenditure of £3,000 million from 1973onwards, the objective of which
was to convert BSC from a large number of small scale works using
largel y obsolete equipment, to a far more compact organization with
highl y competitive plant. Steelmaking was to be concentrated in five main
areas: South Wales, Sheffield, Scunthorpe, Teesside and Scotland. It was
not until 1975 that a closure program me was agreed after a 14 month
review by Lord Beswick, the then Minister of State for Industry. By this
time BSC was plunging into loss and important parts of the investment
program me was held back. Despite this significant closures had taken
place by the end of the decade.

31
The 1980's
The start of the 1980s was heralded by a 13 week national steel
strike. The strike was the result of the Corporation's pressure for change
and a pay dispute. By the end of 1980, BSC had completed the closure of
a number of outdated an d loss making plants and reduced its workforce to
130,000 - compared with a total of 268,500 employees at the time of
nationalization . Even so, the prospects for steel sales in the markets
available to BSC were such that a corporate plan put forward in December
1980 proposed further significant improvements in cost and efficiency.
The aim was to regain a competitive position as a supplier to a World
market heavil y over -supplied with steel p roducts. By earl y 1984, BSC was
achieving better labour productivit y levels than most continental
steelmakers and by 1988/89, a figure of 4.7 man hours per tonne was
achieved - a threefold improvement since the end of the1970s.The
turnaround in British Ste el's fortunes since the earl y years of 1980s was
very substantial. The heavy losses of a few years before were replaced by
a pre-tax profit in1989/90 of £733 million.

1987
On the 3rd December 1987 the UK Government formall y announced
its intention to privatize the British Steel Corporation.

1988
The British Steel Act 1988 transferred the assets of the Corporation
to British Steel, a company registered under the Companies Act & on 5
December 1988, dealings in shares opened at The Stock Exchange.

32
The 1990's
The earl y 1990's saw reduced demand and it was not until1993 that
growth in the UK econom y graduall y gathered pace and was reflected in a
partial recovery in steel demand and price levels. The trend continued into
1994and helped by continuing efficie ncy and productivit y gains, British
Steel returned to profit.

1999
On October 6, 1999 the merger with Koninklijke Hoogovens to form
Corus came into effect.

33
History of Koninklijke Hoogovens

September 20th 1918

Koninklijke Nederlandsche Hoogovens was founded in The Hague
to enable Dutch industry to become less dependent on imports. The
geographical location of the Netherlands was ideal for the establishment
of an iron and steel company, with its exce llent access to the sea for the
suppl y of raw materials and the export of finished products. The business
was established at Ijmuiden, a town on the North Sea coast with good
access inland via the North Sea Canal.

1920 - 1941
The initial capital was raise d by companies, private investors, the
Dutch State and the cit y of Amsterdam. Construction began in 1920, and
in1924 the first blast furnace was commissioned and iron production
began. By the mid 1930's, Hoogovens had become the largest exporter of
pig iron in the World. In 1936, they began producing cast -iron pipes.
Steel production began in 1939, using open -hearth furnaces. In 1941,
Hoogovens acquired Van Leer's Walsbedrijven, a rolling mill that was
renamed Walserij Oost (East Rolling Mill).

The 1960's
In the mid-sixties Hoogovens decided to diversify, particularly into
aluminum and mining. In 1966, the Aldel primary aluminum smelter was
commissioned, after the acquisition a year earlier of Vaassen Aluminum.

34
The 1970's
In 1970, Hoogovens took a holdin g in Sidal, aluminium rolling and
extrusion company. On the7 Jul y 1972 Hoogovens and Hoesch of Germany
merged to form Estel.

The 1980's
After several years of 'manifest' crisis in the European steel
industry, the co -operative arrangement between Hoogovens and Hoesch
was dissolved in 1982. The European activities of Kaiser Aluminium were
acquired in 1987, making Hoogovens one of the four largest producers of
rolled and extruded aluminium in Europe.

The 1990's
In 1990, the Hoogovens group had five divisions; Steel, Aluminium,
Technical Services, Subcontracting , and the newl y formed Steel
Processing and Trading. In 1999, the trend towards greater rationalization
in the European steel industry led to the merger discussions with British
Steel. At that time, Kon inklijke Hoogovenshad 17 business units, around
22,000 employees, a turnover of 4.9 billion Euro, production of 6.7million
tonnes of crude steel and sales of 429,000tonnes of aluminium products.
On October 6, 1999, the merger with British Steel to form Cor us came
into effect.

35
Tata and Indian Steel Industry
Tata Steel has established by Indian Parsi Businessman Jamsedji
Tata in 1907, exactly in the year when British American Tobacco (BAT)
has started its first factory in India. But it started ope rating in the year
1912. Tata Steel holds a very vital place in Indian business history,
because it has introduced some of the unique concepts like 8 -hour
working days, leave with pay and pension system for the first time in
India and the first player to s tart rapid industrialization process. In the
later part the concepts invented and implemented by Tata became lawful
and compulsory practice for the Indian employees. From Tata Steel, Tata
has started investing in various other businesses like; Oil mills, A irlines
Publishing, Motors, Consultancy services etc in a short span of 30 years.
In the year 1945Tata entered into tea business by the name of Tata Tea,
which was called as Tata Finlay earlier. Tata also entered into exports as
Tata Exports, which is the most successful and the largest export house in
India. During the entire business in India Tata has seen many ups and
downs, in different fields of business. If we will look at the company‘s
financial status/condition, it will give some idea about the cond ition and
performance of the company across the years.

The Indian Steel industry is regarded as the most important

component for the development of nation, because steel industry (heavy
industry) is considered as a very important and influential parameter for
the development of any modern econom y. The finished steel production in
India has grown from 1.1 million tons in 1951 to 31.63million tones in
2001-02, which can be regarded as a remarkable example of India‘s
development in economic activities. Tata p layed a vital role in the
improvement of steel production also. For that reason in the development
of India‘s econom y, Tata played a significant role. As a result the
consumption level of steel from 1990 to 2002 was continuousl y in an
increasing order, but in 2003 it was not like earlier. In respect to the per

36
capita income and consumption of steel it is very less in India with
compare to other countries. India‘s major market for steel and steel items
include USA, Canada, Indonesia, Italy, West Asia, Nepal, Taiwan,
Thailand, Japan, Sri Lanka and Belgium. The major steel items of export
include HR coils, plates, CR and galvanized products, pipes, stainless
steel, wire rods and wires. With the fall in prices along with depressed
domestic demand, India has been increasing exports to overcome the
excess suppl y situation. This has resulted in antidumping actions being
taken by developed countries like USA, EU and Canada. The trade action
by some countries against Indian steel industry has, to some extent,
affected India‘s exports to these countries. The Government of India and
the Indian steel producers are trying to combat such actions despite such
efforts being very expensive and involving time -consuming procedures.

37
Corus and Steel Production in the U.K
Corus Group plc was formed on 6th October 1999, through the
merger of two companies, British Steel and Koninklijke Hoogovens,
following the privatization of many steelworks companies by the U.K.
government. The company consists of four divisions w hich include: Strip
Products, Long Products, Aluminum and Distribution and Building
Systems. With headquarters in London, Corus operates as an international
company, satisfying the demand of many steel customers Worldwide. Its
core business comprises of ma nufacturing, development and allocation of
steel and aluminum products and services. The company has a wide
variet y of products and services which comprise of the manufacturing of
electrical steel, narrow strip, plates, packaging steel, plated steel strip,
semi finished steel, tube products, wire rod and rail products and services.
However, the company is also engaged in providing a variety of services
including design, technology and consultancy services.

Corus‘ products and services are acquired by cust omers from

diverse fields such as commercial and military aerospace ventures, the
automotive, construction, engineering, defense and securit y, as well as the
rail and shipbuilding industry. In terms of performance, the company is
regarded as the largest st eel producer in the UK with £10,142 million of
annual revenue (for 2005) and a work force of 50 000 employees. In order
to sustain and run its global steelmaking, processing and distribution
operations the company makes annual investments of over £6 millio n for
the purchase of various goods and services, such as iron ore and coal,
alloys, refractory, rolls and paint. Looking at the financial status of the
company from 1996 -2005, a degree of fluctuation between the years can
be seen. But irrespective of all these factors Corus continue the business
as it was continuing.

38
Global Steel Industry
In global steel industry the consumption of steel has been decreased
drasticall y in 2007, in comparison to 2006. According to International
Iron and Steel Institute (IIS I) till 2010the average demand for steel would
be 4.9 per cent per year. But during 210 and 2015the growth is expected
to be 4.2 per cent. In fact IIS I forecasts the global steel demand would be
1.32 billion tones by 2010 and 1.62 billion tones by 2015. M uch of this
demand growth is expected to be generated from countries like China and
India. Among the major steel producing countries the production of steel
has increased from 2005 -2006 except Brazil. China is the highest steel
producing country in the World with a production of355.8 million tones in
2005 and 418.8 million tons in 2006. And for this increasing demand of
steel market it is not possible for a single company to capture the market
alone. In that production process Tata may play a vital role. Fo r that
reason IIS I is giving its opinion in favor of Tata.

For 2007, S&P projects GDP growth of 2.4%, versus GDP growth of
3.3% in 2006.Through April 2007, motor vehicle sales fell 3.0% while
motor vehicle production declined 5.5%. In 2006, motor vehicle sales fell
2.6%, while production was down 2.8%.As predicted, lower sales for all
of 2007 will lead to reduced demand from this key end market for steel.
Presumabl y, car manufacturers will be working to reduce unsold car
inventory and will be cutting prod uction, which will reduce demand for
steel. According to the numerical data, through May, 2007 the S&P Steel
Index increased 35.1%, compared to a 6.6% increase for the S&P 1500
Index and a 14.9% rise in the S&P Materials Index.

39
 In 2006, the S&P Steel Index increased 58.2%, versus a 13.3%
increase for the 1500 and a 16.6% increase in the S&P Materials Index. In
the long term, there is a strong possibility for the industry to benefit from
greater pricing power resulting from further expected consolidatio n, a
lower cost structure, and a continuation of the cyclical decline of the U.S.
dollar.

40
Ch
RESEARCH METHODOLOGY
III

41
RESEARCH METHODOLOGY
Research is a common language refers to a search of knowledge.
Research is scientific & systematic search for pertinent information on a
specific topic, infect research is an art of scientific investigation.
Research Methodology is a scientific way to solve research problem. It
may be understood as a science of studying ho w research is don‘t
scientificall y. In it we study various steps that are generall y adopted by
researchers in studying their research problem. It is necessary for
researchers to know not onl y know research method techniques but also
technology.

The scope of Research Methodology is wider than that of research

methods. The research problem consists of series of closel y related
activities. At times, the first step determines the native of the last step to
be undertaken. Why a research has been defined, what d ata has been
collected and what a particular methods have been adopted and a host of
similar other questions are usuall y answered when we talk of research
methodology concerning a research problem or study. The project is a
study where focus is on the foll owing points:

RESEARCH DESIGN:
A research design is defined, as the specification of methods and
procedures for acquiring the Information needed. It is a plant or
organizing framework for doing the study and collecting the data.
Designing a research plan requires decisions all the data sources, research
approaches, Research instruments, sampling plan a nd contact methods.

42
EXPLORATORY RESEARCH
The major purposes of exploratory studies are the identification of
problems, the more precise Formulation of problems and the formulations
of new alternative courses of action. The design of exploratory studies is
characterized by a great amount of flexibilit y and ad -hoc veracit y.

DATA COLLECTION METHOD

Generall y there are two sources of data collection viz. Pr imary

Sources and Secondary Sources. The need for data actuall y emanates from
the research objective. It is the research objective which guides the
researcher whether the kind of data required would be Primary or a
Secondary data will suffice.
The project is study based. The aim of the researcher was to
understand the milestone deal that happened in the history of Indian
Industry – Acquisition of CORUS, one of the largest steel manufacturers
in the World, by TATA STEEL, which is much smaller in size.
Given the practical limitations of undergoing a research project
which involves such big companies, getting Primary data was a difficult
task. Despite the best efforts put in by the researcher to interview the
management and finance team of TATA STEEL, there has been no result
till date.
The researcher has done extensive reading of the available text –
printed as well as on the internet. Whatever inferences have been drawn is
basicall y derived from the reports given by several research houses and
other experts.

43
Ch
IV FINDINGS AND DATA ANALYSIS

44
 The process started on September 20, 2006 and was completed on
April 2, 2007. In the process , both the companies have faced many ups
and downs. The details of this process have been 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 anal ysts.

October 17, 2006 : Tata Steel has kept its offer to 455p ence per share.

October 18, 2006: Tata still doesn‘t react to Corus and its b id 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.

October 27, 2006 : Corus is criticized by t he chairman of JCB, Sir

Anthony Bamford, for its decision to accept an offer from Tata.

November 3, 2006 : The Russian steel giant Severstal announces officiall y

that it will not make a bid for Corus .

45
November 18, 2006 : The battle over Corus intensifies wh en Brazilian
group CSN approached the board of the company with a bid of 475 pence
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 Tat a 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 C SN and has
the full voting support form Corus‘ shareholders

46
CALCULATION OF BOOK VALUE OF CORUS

BALANCE SHEET AS ON 30 SEP. 06

Total Asset £ m £ m
Non-current asset 3668
Current Asset 4412
8080
Total Liabilities
Non-current Asset 1798
Current Liabilities 2348
4146
NET ASSET 3934
(-) Minorit y Interest 4
3930
Share capital of Corus
945,555,438 ordinary share of 50p each 473
3,130,418,153 deferred share of 40p each 1252
Total 1725

Book value of one share of Corus as 3930/1725= 2.27£ or 227p

per balance sheet on 30.9.2006

Market value of one share of Corus 479p

on 17.10.2006

Fair value of one share of Corus (Book value + market value)/2

(227 + 479)/2 = 353p

Price paid by Tata steel per share of Corus was 608p

Almost double the fair value of one share of Corus.

Why did TATA STEEL pay an amount, w hich was double the Fair
Value ?

47
 On 18 t h November, 2006 Brazilian group CSN came into pic ture and
offered 475p per share for Corus. TATA STEEL‘s initial bid was
455p per share of CORUS.

 On 18 t h December, 2006 Tata increased its offer to 500p .

 Within an hour CSN counter ed it with an offer of 515p.

 TATA STEEL took some time and came back o n 31 s t January 2007
with a price of 608p per share and finall y acquired Corus.

48
Reasons for Tata Steel to Bid

 TATA was looking to manufacture finished products in a mature

market of Europe – U.K. undoubtedl y is the most mature market in
Europe.
 TATA STEEL manufactured low value long and flat steel products
while Corus produced high value striped product s.
 A diversified product mix would reduce risk while higher end
product would add to the bottom line.
 Corus held a number of patents and R&D facilit y.
 Cost of acquition was lower than setting up a green field plant and
marketing and distribution channel.
 TATA was and is known for efficien t handling of labour and it
aimed at reducing employee cost and improving productivit y at
Corus.
 It had already expanded its capacities in India.
 It would improve from 55 t h in World to 5 t h in production of steel
globall y.
 Technology benefits: Being among one of the biggest manufacturers
of steel the production facilit y of Corus was using better technology
as compared to Tata Steel. Moreover, Corus was into finished steel
production, a technology which was new for Tata Steels. Patents
were an added advantage which Corus provided to Tata Steel s.
 Economies of scale: Having acquired Corus, Tata Steels overall
production capacit y had increased manifold and provided Raw
Material at cheaper rates to the Corus Facilit y from its diverse
sources across the world.

49
Reasons for Corus to be sold:

 Total debt of Corus wa s 1.6 bn GBP.

 Corus needed suppl y of raw material s at lower cost.
 Though Corus had revenues of $18.06bn, its profit s were just
$626mn. (TATA‘s revenue was $4.84 bn & profit $824 mn.)
 Corus facilities were relativel y old with high cost of pr oduction
 Employee cost was 15 %( TATA steel – 9%)
 There was access to cheap high qualit y i ron ore from India.

50
A Financial take on the Acquisition .

1. Valuation
• TATA Steel Paid 7 Times EBITDA of Corus ‘ Enterprise Value
• Also, 9 times EBITDA for 12 Months ended 30th September 2006

Comparing with Arcelor - Mittal deal -

• Mittal Steel acquired Arcelor at an EBITDA of 4.5 times,
• The important point is Arcelor had much superior assets, wider market
reach and was financiall y stronger than Corus.
The price paid by Tata Steel looks almost obscenel y high.

2 . Interest charges
– New Debt of $ 8 bn @ 8% annual interest cost i.e. $ 640 mn
– Corus‘s existing interest debt amounts to $ 725 mn.

51
Post Acquisition Analysis
1) Aggregate crude st eel production capacity of around 41.2 million
tons.
Tata Steel on its own had a capacity of 23 million tones out of all its facilities.
With the acquisition of CORUS, which had a capacity of 18.2 million tones the overall
capacity catapulted to 41.2 million tones.

2) Global Player with a balanced presence in developed European

and fast growing Asian Markets.
Before acquisition of Corus, Tata steel was mostly present in Asian market but after
acquisition of Corus it gained 10% market in North America, 49% in Europe and 29% in
UK.

3) Greenfield and Brownfield developments.

 Tata Steel has lined up a series of Greenfield projects in India and outside which
includes

1. 6 million tones plant in Orissa (India)

2. 12 million tons in Jharkhand (India)
3. 5 million tons in Chhattisgarh (India)
4. 3-million tons plant in Iran
5. 2.4-million tons plant in Bangladesh
6. 5 million tons capacity expansion at Jamshedpur (India)

4) May 07 EBITDA of 13 %, 2 5 mn tons of production, Ranked 5th

5) 2012 EBITDA of 25 %, 40 mn tons of production, Ranked 2nd
6) The group is growing aggr essively and targets 50 mn tons capacity
by 2015.

 Source : Wikipedia

52
Movement in the share price of TAT A steel while process was goin g
on.

53
Movement in share price of Tata after acquition of Corus

54
 Total funding plan

US $ bn
Long term debt on Corus 6.14
Long term debt on TATA Singapore 1.41
Quasi-equit y on TATA Singapore 1.25
Total funding on Corus asset s 8.8
Total equit y contribution by TATA steel 4.1
Total enterprise value for Corus 12.9

55
SWOT ANALYSIS OF TATA STEEL

Strength
 Lowest cost producer in World
 Experience of TATA group in doing global acquisition
 Stable balance sheet (low debt to equit y rati o)

Weakness
 Corus was triple the size of TATA STEEL in terms of production

Opportunity
 Consolidation trend in steel industry
 CSN tarnished image after failure of 2002 negotiations
 To get exposed to the global steel market (will save time and
learning space for them)

Threat
 Brazil Company CSN
 Russian company S everstal
 No committed financers to support the possible deal

56
SWOT ANALYSIS OF CORUS GROUP

Strength
 World‘s ninth largest and Europe second largest steel producer .
 Wide range of products.
 Presence of operating facilities spread in whole EU .

Weakness
 Corus was bleeding because of high operational cost.
 Section 201 tariff imposed by bush in 2002 led to loss in Corus
clientele.

Opportunity
 Consolidation trend in steel industry .
 To get right price at a time when market is less volatile .

Threat
 Huge pension liability might have led to collapse of the deal .
 Disagreement of labour and government due to possibilit y of job
cut.

57
FINANCIAL POSITION OF CORUS AND TATA STEEL

Particular CORUS TATA STEEL Ltd

Currency:Rupee million Currency: Rupee million
Year 2006 2005 2004 2006 2005 2004
Asset 582750 533925 467775 205450.70 177033.70 147988.70
Debt 98100 105525 96000 45932.70 42073.10 39982.90
Liabilities 231300 178425 155475 30492.1 33146.80 32665.90
Revenue 760500 699900 596475 202444.30 159986.10 111294.40
Net 33900 33450 -22875 37346.20 36032.60 17887.80
income

58
 Access to new market
SOURCE: - Tata Steel Financial Year 2005 -06
Annual Report Corus 2005

59
Ch
CONCLUSION
V

60
 I. Tata Steel's acquisition of Corus was a bold and smart move.
Complementar y benefits in terms of scale, market geography,
financials, technology and raw materials offered a strong rationale
for the deal.

II. I believe that the acquisition of Corus has been timel y. Given the
rising momentum of consolidation in the industry and rising
valuations of steel companies, had Tata Steel not acted when it did,
the opportunit y could have been lost forever.

III. With Corus in its fold, T ata steel can confidentl y target becoming
one of the top 3 steel makers globall y by 2015 . The company would
have an aggregate capacit y of close to 56 million tons per annum, if
all the planned Greenfield capacities go on stream by then .

IV. We can conclude that if the acquisition is well planned, executed

and the necessary precautions taken for the deal a company can
achieve its strategic objectives and thus ensure its growth through
acquisitions.

V. It is notable that the collective earnings of TATA STEEL and

CORUS would be able to cater to this interest cost and still save
money from the first year of operations itself. The point to note
here is CORUS will get access to cheaper raw material which wil l
help in increasing profits and it was also expected that TATA will
bring in its superior labor management skills and save on labor cost
as well; thereby improving the profit margin.

61