TATA & CORUS: A

CASE OF ACQUISITION

Submitted To
Dr. R. Sahu

By:
Jitesh Maharwal (2004IPG29)
Nikhil Garg (2004IPG44)
Harendra Singh (2004IPG83)
Sunny Tyagi (2004IPG71)
Ratan Tata, Chairman of Tata
Steel
“This proposed acquisition represents a defining
moment for Tata Steel and is entirely consistent
with our strategy of growth through
international expansion. Corus and Tata Steel
are companies with long, proud histories. We
have compatible cultures of commitment to
stakeholders and complementary strengths in
technology, efficiency, product mix and
geographical spread. Together we will be even
better equipped to remain at the leading edge of
the fast changing steel industry.”
 Jim Leng, Chairman of
Corus
“This offer from Tata Steel reflects the substantial
value created for Corus shareholders since the placing
and open offer and launch of our “Restoring Success”
programme in 2003. In the middle of last year, my board
agreed a strategic way forward for Corus to seek access
to low cost production and high growth markets.
Consistent with this, the Company held talks with a
number of parties from Brazil, Russia and India. This
transaction represents the culmination of these talks.
This combination with Tata, for Corus shareholders and
employees alike, represents the right partner at the right
time at the right price and on the right terms. This
creates a well balanced company, strategically well
placed to compete in an increasingly competitive global
environment.”
 Objective
Tata
“ To gain access to global steel market and expand
production capacity to keep pace with growing
demand for steel.”
Corus
“To get a low cost partner to make company
profitable in the long run.”
SWOT Analysis of TaTa
Steel
SWOT Analysis of Corus
 Tradable - Tata Steel
Ø Advantage of Low cost of operations
Ø Pension plan debt in Corus
 Tata offered to pay it off
Ø Stability of balance sheet compared to other
bidders
 Despite raising massive funding for procurement
Ø Management efficiencies and reputation of Tata
group
 Tradable - Corus
International Operations
Wide range of products
 Almost 45 products
 Demand diversified among all of them

Higher profitability per tonne with the acquisition

Not localized production
 All over EU
Gave Tata scope for expansion
Could utilize existing infrastructure for expansion
plans
Mining Assets
 Strategic Barrier
Uncertainty over the size of the bargaining
range of the deal
CSN was concurrently competing for Corus bid
It may be enough for Tata to match the 475
pence per share price
 Has support of Corus board
Might result in outbreak of bidding wars
Highly unlikely since not as financially stable
Though there was always chance for one
 Psychological barrier
Indian companies had never previously
undertaken such a big merger
There was uncertainty around ability of Tata to
complete the deal
Corus management was diffident
 Security of the future of the company was at stake
The Special Purpose Vehicle (SPV) Tata Steel UK
will have their bridge loans maturing
 These will be repaid by other routes like GDR’s
In certain events resources raised through GDR’s
have to be approved
 Special Committee on Overseas Investments under RBI
considers this
 Then transferred to Ministry of Finance for examination
with recommendations of Special Committee
 Project Report/Feasibility Report also has to be submitted

In the course of this process the risk of approval not

being granted existed
BATNA
 Negotiation Evaluation
Offer did not fully reflect the value of the
company's position in a consolidating market
The quality of the steel company's earnings was
likely to improve due to less volatile market
conditions
The synergy benefits of the merger are not
factored into the bid
Tata's bid multiple was at least 10 percent below
average recent deals in the sector
 Chronology
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 17, 2006 - Tata Steel has kept its offer to
455p per share.
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.
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 pre-conditions 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 Tata Steel‘s Offer
April 2, 2007 - Tata Steel manages to win the acquisition
to CSN and has the full voting support form Corus’
shareholders.
Post Acquisition Tata Steel
Tata Steel has formed a seven-member
integration committee to spearhead its union
with Corus group. While Ratan Tata, chairman
of the Tata group, heads the committee, three of
the members are from Tata Steel and the other
three are from Corus group.
Tata’s new debt amounting to $8 billion due to
the acquisition, financed with Corus’ cash flows,
is expected to generate up to $640 million in
annual interest charges (8% annual interest cost).
 “I believe this will be the first step in showing that
Indian industry can in fact step outside the shores of
India in an international marketplace and acquit
itself as a global player.” -- Ratan Tata , Chairman
of TaTa Steel
Tata Steel - Corus : Projected
capacity (in million tones per
annum)
Corus Group (in UK and The Netherlands) - 19
Tata Steel – Jamshedpur - 10
Tata Steel – Jharkhand - 12
Tata Steel – Orissa - 6
Tata Steel – Chattisgarh - 5
NatSteel – Singapore - 2
Millennium Steel – Thailand - 1.7
Aggregate projected capacity - 55.7
Thank You