PRESENTATION ON

Presented to:-Prof . PRASADSubject:-Accounts

Presented By:-Pragati KedarSandesh BhiradeAniket SalviManisha MoreRachit Jajoo

AN ACQUISITION FOR US $ 13 BILLOIN

TATA CORUS DEAL

ROLL NO. NAME OF MEMBERS

TOPIC NAME

101 PRAGATI KEDAR INTRODUCTION ON ACQUISITION

121 ANIKET SALVI INTRODUCTION ON TATA STEEL AND CORUS STEEL

98 MANISHA MORE ACQUISITIONREASONS FOR ACQUISIONS

128 SANDESHBHIRADE

AN ANALYSIS

124 RACHIT JAJOO WHAT HAPPENED AFTER THE DEALCOMPARATIVE BALANCE SHEET

4 P’s of marketing, Amul is going globally,Conclusion

ACQUISITION

A corporate action in which a company buys most, if not all, of the target company's ownership stakes in order to assume control of the target firm. Acquisitions are often made as part of a company's growth strategy whereby it is more beneficial to take over an existing firm's operations and niche compared to expanding on its own. Acquisitions are often paid in cash, the acquiring company's stock or a combination of both.

VIEW ON THE DEAL

TATA steel acquisition of CORUS was a bold and smart move. Complementarities in scale, market geography, financials, technology and raw materials offered a strong rationale for the deal.

The acquisition of CORUS has been timely. Given the rising momentum of consolidation in the industry and rising valuations of steel companies, had TATA steel not acted when it did, the opportunity could have been lost forever.

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

TATA STEEL

The Tata Group of Companies: Collaborative growth Vision of becoming India's as well as world's most respected and

successful business conglomerates. Six continents with diverse cultures. Products include steel bearing rings, forgings, flanges, steel tubes, cold

rolled strips, seamless tubes and metallurgical machinery.  Tata Steel: After acquisition of Corus, Among the top ten steel manufacturers in the

world. An annual crude steel capacity of over 28 million tons per annum (mtpa). Established in 1907. Most geographically-diversified steel producers, with operations in 26

countries and a commercial presence in over 50 countries. Turnover of US$ 26.13 billion in FY 2011- 2012. Over 81,000 employees across five continents Fortune 500 company.

REVENUE TRENDS

FY 02 FY 03 FY 04 FY 05 FY 06100

120

140

160

180

200

220

240

260

280

300

TATA Steel Revenue Corus Revenue

CORUS HISTORY

Founded:- 1999 Formation:- Merger of British steel corp. &

koninklijke N.V.

Type:- Subsidiary Industry :- Steel Parent:- Tata steel,Tata Group.

CORUS STEEL

CORUS : Europe's second largest steel producer Revenues in 2005 : GBP 9.2 billion, and crude steel production of 18.2 million tones Primarily in the UK and Netherlands. Manufacturer of semi-finished and finished carbon steel products.

Strip products ( coated and uncoated strip, welded tubes, sold both as coil and sheet)

Long products (including sections, plates, wire rod, narrow strip and engineering steels)

The distribution and building systems division, which operates as a link between Corus's manufacturing operation and its customers.

Formation: Merger of British Steel Corporation & Koninklijke Hoogovens N.V.

Headquarter: London, England, UK

ABOUT THE ACQUISION

Date: 20 October 2006Amount: $7.6 billion takeover bidBidder : Tata SteelTarget : CorusShare capital of Corus Group: At a price of 455 pence in cash for each share valuing Corus at GBP 4.3 billion.

Governing & Regulating Act: Section 425 of the (English) Companies Act 1985, subject to High Court of Justice in England and Wales and Corus' shareholders' approvals being obtained.

At par with Tata Steel's stated objective of growth and globalization.

Why Did TATA STEEL Bid For Corus

There is recognition that for indian economy to continue its growth, its companies must look to compete on a global scale.

Globally Tata steel was only 56 th largest steel producer.

Buying Corus will leapfrogs it to fifth largest steel producer 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 project & marketing & distribution channel

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$18.06 billion & N.P.only $626 million. Employee cost of Corus was 15% & Tata only

9%. Loan of Corus was £ 1.6 billion.

ANALYSIS: WHO GAINED MORE

Assumptions for Valuations According to data monitor report, April 2009, CAGR 18.6%

growth forecasted for Europe for the steel industry. Therefore, we have assumed peak growth in 2013. After that the growth slows down linearly till it hits 6% in 2025 (GDP growth rate in a mature economy). We have assumed terminal growth rate to be 4% due to rising costs and competitive factors.

For 2009-10, Tata Steel posted a 49.5% fall in consolidated profits. Sales and profits tumbled because of the global economic crisis (contraction in demand from the automotive and construction sectors). This is reflected in the NEGATIVE COI in 2009-10. We are assuming that with slow down, Tata Steel will decrease its Net working capital by increasing liabilities

.

Of the $ 8.12 billion of financing , Credit Suisse provided 45% and ABN AMRO and Deutsche provided 27.5% each.

Funding was for 60:40 debt equity. Equity Contribution from Tata Steel - $ 3.88 billion.

Share Swap deal less attractive to shareholders as Share Swap means FDI and brings regulatory hassles which are unfavorable to Corus shareholders. Share Swap would have diluted Tata Steel’s Equity base which was not in favor of Tata shareholders

Cost of equity - 15% is higher than that of debt of around 8%, so paying in cash brings down the cost of acquisition

High value paid. Approximately 7.7 times its Enterprise Value. Corus’ EBITDA was at 8% which was much lower as compared to

Tata Steel’s 30%. Debt of US $ 6.14 was raised against the cash flows of Corus

(LBO). It was a risky proposition. Tata’s debt equity ratio was adversely affected to 2.74:1 from 1.1

which it was maintaining earlier. Fast consumption of Tata Steel’s captive iron ore reserves as

production capacity increased from 5.3 million ( estimated for 50 years at this capacity) to 27 million tons of steel per annum.

.

TATA Steel Group rose to 5th position from 56th

The production capacity increased from 4million tones to 28million tones by 2011

Standard & Poor’s Rating cut it credit Rating to BB from BBB and removed them from the negative watch list

Big boost to the Indian economy as TATA acquired a company 3 times its size.

The R&D Unit of Corus complements that of TATA’s Help from financing institutions as $8 billion was raised

through debt

What Happened After Deal

There were a lot of apparent synergies between Tata Steel which was a low cost steel producer in fast developing region of the world and Corus which was a high value product manufacturer in the region of the world demanding value products. Some of the prominent synergies 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. Corus was fighting to keep its productions costs under control and 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 manufacturer an in-road into the emerging Asian markets.

Powerful combination of high quality developed and low cost high growth markets

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

There was a strong culture fit between the two organizations both of which highly emphasized on continuous improvement and ethics. Tata steel's Continuous Improvement Program ‘Aspire’with the core values :Trusteeship,integrity,respect for individual, credibility and excellence. Corus's Continuous Improvement Program ‘The Corus Way’ with the core values : code of ethics, integrity, creating value in steel, customer focus, selective growth and respect for our people.

Tata Steel Revenue & share Price Volatility after Deal

Tata Steel’s performance after acquisition

FY 06-07 FY 07-08 FY 08-090

0.5

1

1.5

2

2.5

3

0.710000000000001

1.99

1.65

2.45

1.871.78

Debt to Equity Current ratio

Balance Sheet as at 31st March, 2007 (IN CRORES)

2007 2006 SHARE CAPITAL 727.73 553.67 RESERVES AND SURPLUS 13368.42 9201.63 TOTAL SHAREHOLDERS' FUNDS 14096.15 9755.30

LOANS 9645.33 2516.15 DEFERRED TAX LIABILITY NET 748.94 957.00 PROVISION FOR EMPLOYEE SEPARATION COMPENSATION 1107.08 1388.71 TOTAL FUNDS EMPLOYED 25597.50 14617.16 FIXED ASSETS 11040.56 9865.05 INVESTMENTS 6106.18 4069.96 NET CURRENT ASSETS .......................................... 8248.23 428.88 MISCELLANEOUS EXPENDITURE 202.53 253.27 APPLICATION OF FUNDS : 25597.50

14617.16