TATA STEEL-CORUS DEAL AND

TAX IMPLICATIONS

Group Members:
Shweta Baidya
Tarun Daga
Noshin Mamsa
Uma Balakrishnan
Vineet Sekhani
 AGENDA
• Synopsis Of The Deal
•
• Acquisition or Merger?
•
• The Route Adopted
•
• Allocation of Funds
•
• Tax Implications
§ Singapore-India Agreements
§ Impact on Tata Steel Shareholders
 SYNOPSIS OF THE DEAL
• Tata Steel UK Ltd purchased 20.66% shares in
Corus on Jan 30, ’07 and 2.18% in Feb ’07
•
• Bidding by CSN (Brazil) and Tata Steel ended
with Tata offering 608 pence per share
•
• Corus was hence valued at £6.2 b (or US$12.04
b)
•
• Tata Steel is now the 5th largest global steel-
maker
•
• Combined capacity of Tata-Corus is in excess of
 ACQUISITION OR MERGER?
• Name of entity is retained as Corus plc after
the amalgamation
•
• Rs. 11,522.97 cr is reflected in 2006-07
balance sheet as investment in Corus plc
•
• Corus makes four times more steel than
Tata Steel. Tata Steel went in for a
leveraged buyout.


 Hence, the move by Tata Steel is called a

reverse takeover
THE ROUTE ADOPTED
Pa re n t C o m p a n y

H o ld in g C o . fo r a ll
fo re ig n a cq u isitio n s

W h o lly o w n e d
S u b sid ia ry to e a se
a cq u isitio n fu n d in g
( SPV )

Ta rg e t C o m p a n y
a cq u ire d
 ALLOCATION OF FUNDS
• Equity contribution by Tata Steel to Tata Steel
UK via Singapore of $4.1 b
§ Internal generation- $1.267 b
§ External commercial borrowings- $0.5 b
§ Proceeds from rights issue- $1.888 b
§ Foreign equity offering- $0.445 b
•
• Non-recourse debt financing by bank
consortium (at Tata Steel UK) of $6.143 b
§ Five-year amortizing loan of $3.236 b
§ Seven-year minimally amortizing term loan of
$2.907 b
•
• Bridge financing in Tata Steel Asia Holdings
 TAX IMPLICATIONS
• Interest cost of $640 m on debt of $8
b at a rate of 8%
§ Existing debt of Corus- $400 m
§ UK allows 30% tax break on interest
paid (as allowable expense)
§ Interest outflow becomes $725 m
§ Interest outgo to be paid by Corus
(EBITDA of 41.45 b)
•
• UK allows 125% deduction on R&D
expenses prior to April 1, ‘08 and
 SINGAPORE-INDIA AGREEMENTS
• Extensive double tax treaty network
• Mutual investment protection agreements
• India taxes foreign dividends at 34%
• Companies in Singapore can avail exemption on foreign
dividends, if corporate tax rate of country from which
income is sourced, is at least 15% and has been
subjected to tax in that country
Withholding Tax Comparison:
Particulars India Singapore
Withholding Tax Comparison:
Interest 20% 15%
Royalty 10% 10%
Technical Service 10% If non-resident company provides in
Singapore-18%. If provided remotely- no
withholding tax
Other services 40% of net income If non-resident company provides in
Singapore-18%. If provided remotely- no
withholding tax
 IMPACT ON TATA STEEL
SHAREHOLDERS
• Tata Steel raised funds via rights issue and
not private placement
§ Increase in value to existing shareholders
•

• Earnings per share and market

capitalization of Tata Steel shareholders
will get diluted immediately after the
takeover due to high debt-equity ratio
•

• Fall in share prices will allow Tata to pick up

its own shares from the market at lower
prices, fending off a takeover
 IMPACT ON TATA STEEL
SHAREHOLDERS
• Section 35 DD- The taxpayer being
an Indian company has incurred
expenses for amalgamation
§
§ This can be amortized over five
successive years in equal
installments
COMPARISON OF FINANCIALS
PRE- AND POST-MERGER
O p e ra tin g Pro fit a s a
p e rce n ta g e o f R e ve n u e
( pre -Corus )= 25 . 10 %

O p e ra tin g Pro fit a s a
p e rce n ta g e o f R e ve n u e
( post -Corus )= 10 . 48 %
PA T a s a p e rce n ta g e o f
R e ve n u e ( p re -C o ru s)=
1 6 .2 8 %

PA T a s a p e rce n ta g e o f
R e ve n u e ( p o st-
C o ru s)= 9 . 3 4 %
THANK YOU