Date 1st April, 2010

TATA & CORUS

Presented By:-

Under guidance of :
Dr. Subhash Chander

Ranjit Jakhu
Deepak Chaudhary Vishal Trehan Gursewak Goyal Satish Kumar

Tata Steel Swot Analysis Corus Swot Analysis Reasons behind the Deal

Financing of the Deal

Synergies and Integration Efforts Pitfall and Road Ahead Critical Analysis

 There are not many opportunities for producers in emerging low cost market to gain access to the market of Europe other than by acquiring a company like Corus - John Quigley ( Editor, Industry Publication Steel Week ) Tata acquired Corus which is 3 times larger than its size and largest Steel producer in UK. The deal which creates worlds 5th largest steel maker is Indias largest foreign takeover worth US $ 12.11 billion. Previous best being US $ 1 bn by ONGC.

VISION TATA S TEEL

We aspire to be the global steel industry benchmark for Value Creation and Corporate Citizenship

TATA S TEEL B ACKGROUND

Tata Steel a part of the Tata group, one of the largest diversified business conglomerates in India. Founded in 1907,by Jamshedji Nusserwanji Tata. Started with a production capacity of 1,00,000 tones, has transformed into a global giant 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 Singapore based 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. The companys profit before tax in the same year was Rs. 64.14 billion while its profit after tax was Rs. 42.22 billion.

SWOT A NALYSIS OF TATA S TEEL

- Quality of Steel was not of International standards. -Non availability of latest R&D facility

-Low Cost production. -Easy access to raw material. - Low Debt Equity Ratio.

SWOT

- To become a World leader in low cost and high quality steel products.

- To Compete with other big global players

R EASONS

FOR

TATA S TEEL TO B ID

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. Technology Benefit. Economic of scale. Corus holds number of patents and R&D facilities.

C ORUS B ACKGROUND

Corus Group plc was formed on 6th October 1999, through the merger of two companies, British Steel and Koninklijke Hoogovens, Company had four divisions: Strip product , Long product , Aluminium and Distribution and Building system. Corus has manufacturing operations in many countries with major plants located in the UK, The Netherlands, Germany, France, Norway and Belgium Supplier to many of the most demanding markets worldwide including construction, automotive, packaging, engineering

SWOT A NALYSIS
Worlds ninth largest and Europes second largest steel producer.

- Wide range of products of high technology.

- High operational Cost. - Lack of Access to raw material

SWOT
- To merge with a company to eliminate duplication and remove overlaps in marketing, accounting etc. - To get access to raw material and growth markets through merger. - Increasing losses resulting to winding up of company -

REASONS FOR CORUS FOR 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.

ABOUT THE DEAL

TATA Acquired CORUS on 2nd April 2007 .

The deal price was US $ 12.11 Billion.

On 17 Oct, 2006 TATAs bidded 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.

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. This SPV raised US $ 6.14 billion through a mix of high yield mezzanine and long term debt funding. For immediate financing Tata Steel UK raised US $ 2.66 bn through bridge loans.

WHY CASH DEAL????

Immediate takeover was required. Share Swap deal would have been less attractive to the Corus shareholders. Share Swap would have meant FDI and that brings a lot of regulatory hassles which might not have been accepted by Corus shareholders. Share Swap would have diluted Tata Steels Equity base which was not in favour of Tata shareholders. And moreover cost of equity at around 15% is higher than that of debt of around 8%, so paying in cash brings down the cost of acquisition.

INTEGRATION EFFORTS
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. As the core values of the two companies were same so Tata used Light Handed Integration Approach. Top management of the company remained same.

Tata was one of the lowest cost steel producers & Corus was fighting to keep its productions costs under control . Tata had a strong retail and distribution network in India and SE Asia. Hence there would be a powerful combination of high quality developed and low cost high growth markets Technology transfer and cross-fertilization of R&D capabilities . There was a strong culture fit between the two organizations both of which highly emphasized on continuous improvement and Ethics. Economies of Scale. Increase in profitability. Backward integration for Corus and Forward integration for Tata Steel.

High value paid. Approximately 7.7 times its Enterprise Value. Corus EBITDA was at 8% which was much lower as compared to Tata Steels 30%. Debt of US $ 6.14 was raised against the cash flows of Corus. It was a risky proposition. Tatas debt equity ratio was adversely affected to 2.74:1 from 1.1 which it was maintaining earlier. Fast consumption of Tata Steels 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.

Integration has to be fast and efficient. Increasing reach to joint entity to 4 continents and 45 countries including high value market of Europe. Increasing the EBITDA to 25% for joint entity by executing Tata steels brownfield and greenfield projects well in time.

Increasing the capacity of the company beyond 50 million tons by 2015 so as to become one of 3 top steel producers in the world.

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.

Opportunities : To become global player in steel industry. Takeover more companies successfully. Increase in production capacity beyond 56 mn tons by 2015 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.

If TATA steel were to create, from scratch, 19 million tonnes of steel making capacity comparable in quality to what Corus possesses, It would end up investing 70% to 85% more than it is paying now. Besides, setting up a new factory, a 3 to 5 years project if everything goes well, has great execution risk. 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 beyond 50 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.

 I believe this will be the first step in showing that Indian industry can step outside the shores of India in an international market place and acquit itself as a global player

- Ratan Tata