Tata Wins Corus

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TATA WINS CORUS


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contents

Introduction

TATA & Indian Steel Industry

Global steel industry

TATA steel Background

Corus Background About the deal

Financing the deal

Why Tata Steel goes for cash deal?

Post acquisition strategies

Synergies from the deal SWOT analysis of Tata Corus

The end word of the deal


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Introduction

Tata acquired Corus- which is four time larger

than size and the largest steel producer in UK

The deal- creates the worlds fifth largeststeelmaker

Indias largest ever foreign takeover

Over past five year, Indian companies made aglobal acquisitions for $10 billion.

Tata bid almost equals this amount


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Cont..

Tata acquired Corus on the 2nd of April 2007

This acquisition process has started long back

in the year 2005

Corus was involved in a considerable number

of Merger & Acquisition (M&A) deals and joint

ventures (JVs) before Tata


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Vision TATA STEEL

We aspire to be the global steel industryWe aspire to be the global steel industrybenchmark forbenchmark for

Value Creation and Corporate CitizenshipValue Creation and Corporate Citizenship


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Tata & Indian Steel Industry

Tata steel established by Jamesetji Tata in 1907,

exactly in the year when British American Tobacco (BAT)has started its first factory in India.

Started operating in the year 1912.

Unique concepts 8-hour working days

leave with pay and pension system

Later the concept implemented lawful and compulsorypractice for the Indian employees

From Tata steel they started various businesses like Oil mills, Airlines, Publishing, Motors, Consultancy services etc in

a short span of 30 years


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Cont..

Indian steel industry- most important componentfor the development of nation

The finished steel production has grown from 1.1

million tones in 1951 to 31.63 million tones in2001-02

Shows good economy development

Indias major market for steel and steel items

include USA, Canada, Indonesia, Italy, West Asia The major steel items of export include

HR coils, plates, CR and galvanized products, pipes,stainless steel, wire rods and wires


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Global steel industry

China is the highest steel producing country in theworld

Its production of 355.8 million tones in 2005 and 418.8

million tones in 2006 According to International Iron and Steel Institute (IISI)

till 2010 the average demand for steel would be 4.9 percent per year

during 2010 and 2015 the growth is expected to be 4.2per cent

IISI forecasts the global steel demand would be 1.32billion tones by 2010 and 1.62 billion tones by 2015


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Tata steel background

In the mid- 1990s, Tata steel emerged as Asias first and

Indias largest integrated steel producer in the private

sector.

In February 2005, Tata steel acquired the Singaporebased steel manufacturer NatSteel, that let the company

gain access to major Asian markets and Australia.

Tata steel acquired the Thailand based Millennium Steel

in December 2005. Tata Steel generated net sales of Rs.175 billion in the

financial year 2006-07.


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SWOT analysis of Tata Steel

-Low Cost production.

-Easy access to raw material.

- Low Debt Equity Ratio.

- Quality of Steel was not ofInternational standards.

-Non availability of latestR&D facility

- To become a World leaderin low cost and high quality

steel products.

- To Compete with other bigglobal players

SWOT


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Reasons for Tata Steel to bid

To tap European Mature Market.

Cost of acquisition is lower than setting up of Green field

plant & marketing and distribution channel.

TATA manufactures Low Value, long and flat steel products,

while Corus produce High Value Stripped products.

Helped TATA to feature in Top 10 players in world.

Economic of scale.

Corus holds number of patents and R&D facilities.


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Corus background

Corus Group plc was formed on 6th October 1999,through the merger of two companies, British Steel andKoninklijke Hoogovens,

Company had four divisions:

Strip product , Long product , Aluminium andDistribution and Building system.

Corus major plants operates UK, Netherlands, Germany, France, Norway and Belgium

Supplier to many of the demanding marketsworldwide construction, automotive, packaging, engineering


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SWOT analysis of Corus

Worlds ninth largest and Europessecond largest steel producer.

- Wide range of products of high

technology.

- High operational Cost.

- Lack of Access to raw material

- To merge with a company toeliminate duplication and remove

overlaps in marketing, accounting etc.

- To get access to raw material andgrowth markets through merger.

- Increasing losses resulting to windingup of company

-

SWOT


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Reasons for Corus accepting bids

To extend its Global reach through TATA.

To get access to Indian Ore reserves, as well as virgin

market for steel.

To get access to low cost materials.

Saturated market of Europe.

Decline in market share and profit.


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About the deal

TATA Acquired CORUS on 2nd April 2007 .

The deal price was US $ 12.11 Billion.

On 17 Oct, 2006 TATAs bided at 455 pence per share and price per share

was 390 pence at that time.

TATA Steel, the winner of the auction for CORUS declares a bid of 608

Pence per share.

TATA Surpassed the final bid from Brazilian steel maker COMPANHIA

SIDERURGICA NACIONAL (CSN) of 603 pence per share.

The combined entity has become the worlds fifth largest steelmaker after

the deal.


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Financing the deal

Total Tata Corus deal - US $13.7 billion

Equity component US $ 7.56 billion.

Debt Component - US $ 6.14 billion.

Acquisition was completed through Tata Steels UK Special

Purpose vehicle(SPV) named Tata Steel UK.


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Why Tata Steel goes for cash deal?

Immediate takeover was required.

Share Swap deal would have been less attractive to the Corus

shareholders.

Share Swap would have meant FDI

Share Swap would have diluted Tata Steels Equity base which

was not in favor of Tata shareholders.


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Post acquisition strategies

Tata steel's Continuous Improvement Program Aspirewith the core values :Trusteeship, Integrity, respect forindividual, credibility and excellence.

Corus's Continuous Improvement Program The CorusWay with the core values : code of ethics, integrity,creating value in steel, customer focus, selectivegrowth and respect for our people.

Top management of the company remained same.


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Synergies from the deal

Tata was one of the lowest cost steel producers & Corus was fighting tokeep its productions costs under control .

Tata had a strong retail and distribution network in India and SE Asia.

Technology transfer and cross-fertilization of R&D capabilities .

There was a strong culture fit between the two organizations both ofwhich highly emphasized on continuous improvement and Ethics.

Economies of Scale.

Increase in profitability.

Backward integration for Corus and Forward integration for Tata Steel.


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SWOT analysis of Tata Corus

Strengths :

Easy Access to quality raw material.

New technology for producing high value products.

Reach in 4 continents and 45 countries. Economies of Scale and production.

Weakness :

Cost of production per unit bound to increase.

High Debt equity ratio.

High dependability on the growth of market.A lot of stress on the cash flows of combined entity.


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Cont..

Opportunities :

To become global player in steel industry.

Takeover more companies successfully.

Increase in production capacity beyond 56 mn tons by2015

Threats :

Cultural Diversifications are not easy to integrate.

Markets should continue to grow.

Rising cost of raw material.Rising terrorism and political unrest among nations.


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The end word on this deal

If TATA steel were to create, from scratch, 19million tonnes of steel making capacitycomparable in quality to what Corus possesses

Besides, setting up a new factory, a 3 to 5 yearsproject if everything goes well, has greatexecution risk.

With Corus in its fold, Tata steel can confidentlytarget becoming one of the top 3 steel makersglobally by 2015


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I believe this will be the first step in showingthat Indian industry can step outside the

shores of India in an international market

place and acquit itself as a global player

- Ratan

Tata


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Tata Wins Corus