MERGERS & ACQUISITION

By
Hemanth S.J Harleen Singh Gorani Dhaval Gayathri Diana Ritu

Mergers- A merger is a combination of two companies into one larger company, which involves stock swap or cash payment to the target. Acquisition - When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition. From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded.

Types of mergers.
Horizontal merger Vertical merger Conglomeration Market-extension merger Product-extension merger Product extension merger

WHY?
Gain market share Economies of scale Enter new markets Acquire technology Utilization of surplus funds Managerial Effectiveness Strategic Objective Vertical integration

Why not?
Grasping for a company simply because its on the market , or because a competitor wants to buy it. Overpayment or misguided purchase. Inability to integrate well Diverse Business ;Unmanageable. Leaping without looking at the value.

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PROFILE PRE MERGER

TATA STEEL CORUS

102 years in steel bazaar Worlds 56th largest Capacity of 30 Million Founder:J.N. Tata Presence in 26 nations

Worlds 6th largest 2nd in Europe,1st in UK 371st rank in fortune list Presence in 50 nations 40,000 people worldwide.

Major Acquisitions Big Deals

Target

Buyer

Value($bn)

Year

Arcelor NKK Corp LNM Holdings Tata Krupp AG Dofasco Intl Steel

Mittal Steel Kawasaki Steel Ispat Intl Corus Thyssen Arcelor Mittal Steel

31 14.1 13.3 12 8.0 5.2 4.8

2006 2001 2004 2006 1997 2005 2005

Acquisition
Structure Asset Purchase Business Purchase Share Purchase A Mixture Apportionment of Risk No Hidden matters Remedy warranty Indemnity

Acquisition
TATA-CORUS Tata acquired Corus, which is four times larger than its size and the largest steel producer in the U.K. The deal, which creates the world's fifth-largest steelmaker, is India's largest ever foreign takeover and follows Mittal Steel's $31 billion acquisition of rival Arcelor in the same year. Tata acquired Corus on the 2nd of April 2007 for a price of $12 billion. The price per share was 608 pence(rs 484), which is 33.6% higher than the first offer which was 455 pence.

Acquisition Process
Particulars Corus Currency: Rupee Millions 2006 2005 2004 2006 TATA Steel Ltd Currency: Rupee Millions 2005 2004

Year

ASSETS

582750.00

533925.00

467775.00

205,450.70

177,033.10

147,988.70

DEBTS

98100.00

105525.00

96000.00

45,932.70

42,073.10

39,982.90

LIABILITIES

231300.00

178425.00

155475.00

30492.10

33146.80

32665.90

REVENUE

760500.00

699900.00

596475.00

202,444.30

159,986.10

111,294.40

NET INCOME

33900.00

33450.00

-22875.00

37,346.20

36,032.60

17,887.80

Process of Acquisition
Finding A Target Business Appointing Advisers Negotiating terms Due Diligence Exchange of Contracts Completion

Finding A Target Business

Synergy of Operations Help the Organizations to Achieve Strategic Objectives Enter new markets Vertical Integration

Appointing Advisers
The Right Chemistry The Right Experience Size is not Everything Talk Your Language
CORUS J P MORGAN CAZENOVE HSBC TATA ABN AMRO DEUTSCHE BANK STANDARD CHARTERED

Negotiating Terms
The nature of the fit Commonality of client base Financial strength Strategic intent Sharing of resources Applicable Benefits

Negotiation By Tata
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 6, 2006 : The initial offer from Tata Steel is considered to be too low both by Corus and analysts. October 17, 2006 : Tata Steel has kept its offer to 455p per share. October 18, 2006 : Tata still doesnt react to Corus and its bid price remains the same. 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 Steels bid.

October 27, 2006 : Corus is criticized by the chairman of JCB, Sir Anthony Bamford, for its decision to accept an offer from Tata. November 3, 2006 : The Russian steel giant Severstal announces officially that it will not make a bid for Corus November 18, 2006 : The battle over Corus intensifies when Brazilian group CSN approached the board of the company with a bid of 475p per share 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. January 31, 2007 : Britain's Takeover Panel announces in an e-mailed statement that after an auction Tata Steel had agreed to offer Corus investors 608 pence per share in cash April 2, 2007 : Tata Steel manages to win the acquisition to CSN and has the full voting support from Corus shareholders

Taxation and Accountancy Considerations

Tension between Acquisition / sale of shares or assets. Due Diligence Tricky areas Accounting issues Accounting policies of the Target Accounting for Goodwill Fair value accounting Earnings per share Other Matters

Legal Documentation
Share sale Agreement The shares being sold The Price Restrictive Agreements Warranties Conditions to the Deal Transferring tangible assets Transferring Intangible assets Transferring Liabilities Transferring Employees

Legal Documentation
The Tax Deed The Disclosure Letter

Financing the Deal

TATA- CORUS Deal - $12 billion Equity Contribution from Tata Steel- $3.88 billion Credit Suisse leaded, joined by ABN AMRO and Deutsche Bank in the consortium. Of the $ 8.12 billion of financing , Credit Suisse provided 45% and ABN AMRO and Deutsche provided 27.5% each.

WHY CASH DEAL?

Tata Steel's security credit rating was investment grade whereas Tata Steel UK had a lower security credit rating. 'share swap' deal less attractive to the Corus shareholders. 'share swap' would have diluted Tata Steel's equity base.

DEVELOPING A POST-ACQUISITION STRATEGY:

1. 2.

The first 100 days In-house systems synergy

First 100 Days: Conflict Points

1. 2. 3. 4. 5. 6. 7.

Time Factor Leadership style differences Whos in charge? (Who won?) Organic vs. bureaucratic cultures Open vs. closed communication Decision making speed & style Structures that dont match

In-house systems synergy

Product Leadership (best product)

Operational Excellence (low cost producer)

Customer Intimacy (best total solution)

Strategy: Disciplines, Priorities

Operational Excellence Competitive price Error free, reliable Fast (on demand) Simple Responsive Consistent information for all 'Once and Done' Product Leadership New products or services Risk takers Meet volatile customer needs Never satisfied obsolete own and competitors' products Learning organization Customer Intimacy Easy to do business with Have it your way (customization) Market segments of one Proactive, flexible Relationship and consultative selling Cross selling

Business Resources Structure Culture Leadership Person M&A Strategy Objective

Global Steel Ranking:

(Ranking of Tata steel before deal- 55)

Company

Capacity (in million tonnes) 110.0 32.0 30.5 30.0 27.7

Arcelor - Mittal Nippon Steel Posco JEF Steel Tata Steel Corus Bao Steel China US Steel Nucor Riva Thyssen Krupp

23.0 19.0 18.5 17.5 16.5

Rationale of the Corus deal

augmented its crude steel capacity to 27 mtpa the combined entity forms the 6th largest Steel company The merged entity has brought Tata Steel to the world platform Provided Tata Steel access to new markets and presence across the steel value chain Much broader distribution network

Conclusion
With Corus in its fold, Tata Steel can confidently target becoming one of the top-3 steel makers globally by 2015. The company would have an aggregate capacity of close to 56 million tones per annum, if all the planned Greenfield capacities go on stream by then. We can conclude that if the acquisitions well planned , Executed and the necessary precautions taken for the deal a company can achieve its strategic objectives and thus ensure its growth through Acquisition.

THANK YOU