Tata-Corus Deal

Tata steel, India’s largest private sector steel company was established in the 1907.

The Tata steel which falls under the umbrella of Tata sons has strong pockets and strong financials to support acquisitions.

Tata steel is the 55th in production of steel in world. The company has committed itself to attain global scale operations.

The Corus was created by the merger of British Steel and Dutch steel company, Hoogovens. Corus was Europe’s second largest steel producer with a production of 18.2 million tonnes and revenue of GBP 9.2 billion (in 2005). The product mix consisted of Strip steel products, Long products, Distribution and building system and Aluminum. With the merger of British Steel and Hoogovens there were two assets the British plant asset which was older and less productive and the Dutch plant asset which was regarded as the crown jewel by every one in the industry.

Reasons for decision:Total debt of Corus is 1.6bn GBPCorus needs supply of raw material at

lower costThough Corus has revenues of $18.06bn,

its profit was just $626mn (Tata’s revenue was $4.84 bn & profit $ 824mn)

Corus facilities were relatively old with high cost of production

Employee cost is 15%( Tata steel- 9%)

Reasons for decision: Tata is looking to manufacture finished products in

mature markets of Europe At present manufactures low value long and flat steel

products while Corus produces high value stripped products

A diversified product mix will reduce risks while higher end products will add to bottom line.

Corus holds a number of patents and R & D facility. Cost of acquisition is lower than setting up a green

field plant and marketing and distribution channels Tata is known for efficient handling of labour and it

aims at reducing employee cost and improving productivity at Corus

It had already expanded its capacities in India. It will move from 55th in world to 5th in production of

steel globally.

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 a in-road into the emerging Asian markets. Tata was a major supplier to the Indian auto industry and the demand for value added steel products was growing in this market. Hence there would be a 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 Acquired CORUS on 2nd April 2007 which is 4 times larger than its size.

The deal price was $ 12 Billion. TATA Steel, the winner of the auction for

CORUS declares a bid of 608 Pence per share.

In 2005 when the deal was started the price per share was 455 pence.

TATA Surpassed the final bid from Brazilian steel maker CSN of 603 pence per share.

The combined entity has become the world’s fifth largest steelmaker after the deal.

For this deal TATA has finance only 4 Billion $ from internal company resources.

TATA Have secured funding commitments from its advisors.

These advisors were Deutshe bank, ABN Amro and Standard Chartered.

Parent Company

Holding Co. for all foreign acquisitions

Wholly owned Subsidiary to ease acquisition funding (SPV)

Target Company acquired

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 (Singapore) of $2.662 b

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

•Operating Profit as a percentage of Revenue (pre-Corus)= 25.10%

•Operating Profit as a percentage of Revenue (post-Corus)=10.48%

•PAT as a percentage of Revenue (pre-Corus)= 16.28%

•PAT as a percentage of Revenue (post-Corus)=9.34%