1. Project on Acquisition
of Corus by Tata Steel
A Presentation by GROUP 5

2. TATA STEEL
CORUS
ABOUT THE MERGER
TIMELINE
WHY THIS MERGER BENEFICIAL FOR TATA STEEL?
ANALYSIS: WHO GAINED MORE?
COMMENTS OF GROUP FIVE ON THIS ANALYSIS
REFERENCES
GROUP MEMBER
TOPICS

3. 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.
Vision : To be the world’s steel industry benchmark through the excellence of its people, its innovative
approach and overall conduct. Underpinning this vision is a performance culture committed to aspiration
targets, safety and social responsibility, continuous improvement, openness and transparency.
TATA STEEL

4. 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
CORUS

5. Date: 20 October 2006
Amount: $7.6 billion takeover bid
Bidder : Tata Steel
Target : Corus
Share 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.
ABOUT THE MERGER

6. TIMELINE
•Corus Steel has decided to acquire a strategic partnership with a Company that is a
low cost producer
September 20, 2006
•The Indian steel giant, Tata Steel wants to fulfill its ambition to Expand its business
further
October 5, 2006
• The initial offer from Tata Steel is considered to be too low both by Corus and
analysts
October 6, 2006
•Tata Steel has kept its offer to 455p per share.October 17, 2006
•Tata still doesn’t react to Corus and its bid price remains the same.October 18, 2006
•Corus accepts terms of £ 4.3 billion takeover bid from Tata SteelOctober 20, 2006
•Brazilian Steel Group CSN recruits a leading investment bank to offer advice on
possible counter-offer to Tata Steel’s bid
October 23, 2006
•Corus is criticized by the chairman of JCB, Sir Anthony Bamford, for its decision to
accept an offer from Tata.
October 27, 2006
•The Russian steel giant Severstal announces officially that it will not make a bid for
Corus
November 3, 2006
•The battle over Corus intensifies when Brazillian steel company CSN launched a
counter offer for Corus at 475 pence per share, valuing it at $8.4 Billion.
November 19, 2006
•Tata preemptively upped the offer to 500 pence (the “Revised Tata Acquisition”).
Other than the increased offer price, the Revised Tata Acquisition was subject to
the same terms and conditions as set out in the original offer.
December 10, 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
December 18, 2006
•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
January 31, 2007
•Tata Steel manages to win the acquisition to CSN and has the full voting support
from Corus’ shareholders
April 2, 2007

7.  Between the two companies there exists a high degree of cultural
compatibility which would facilitate an effective integration of the
businesses over time.
 Enhanced scale will position the combined group as the fifth largest
steel company in the world by production, with a meaningful presence
in both Europe and Asia.
 Powerful combination of low cost upstream production in India with
the high-end downstream processing facilities of Corus will improve the
competitiveness of the European operations of Corus significantly.
 Facilitates cross-fertilization of research and development capabilities
in the automotive, packaging and construction sectors and there will be
a transfer, from Europe to India, of technology, best practices and
expertise of senior Corus management.
WHY THIS MERGER BENEFICIAL FOR TATA STEEL?

8.  Leading the enlarged group with a combined management team and
Manufacturing will be organized so as to produce slabs / primary steel
in low-cost facilities and produce high-end products in proximity to
client base - in both Europe and India.
 Strong market position by acquisition of Corus and vertical integration .
 Increased demand for steel specially in developing countries for
growing sectors like Infrastructure, construction, automobiles and
consumer durables.
 The Investment demand was strong and rising with subsequent rises in
the in steel prices. (In August 2009, the index for basic metals has
recorded growth rate of 8.5% and the production has grown
7.6% compared to last year’s 6.6)
 Increased Chinese production and resultant sluggish steel prices with
falling net realizations to adversely impact profitability.
WHY THIS MERGER BENEFICIAL FOR TATA STEEL?

9. Strength
Lowest cost producer in
world.
Experience of TATA
group in doing global
activity.
Stable balance sheet
(Low Debt to Equity
Ratio).
Weakness
Corus was triple the size of
TATA steel in terms of
production.
Opportunity
Consolidation trend in
Steel Industry
CSN’s lost image after
failure of 2002
negotiations
To get exposed to global
steel market
Threat
Brazil company CSN
Russian company
Severstal
No committed financers to
support the possible deal
WHY THIS MERGER BENEFICIAL FOR TATA STEEL?

10.  To be funded through Tata Steel’s own cash resources and loans raised
by Tata Steel and its subsidiary companies formed for the purpose of
this acquisition.
 Surprised the credit default swap segment of the derivative markets by
deciding to raise $6.17bn of debt for the deal through a new subsidiary
of Corus called 'Tata Steel UK', rather than by raising the debt itself.
 Tata's security credit rating is investment grade, whereas the new
subsidiary may not be. The higher risk associated with raising debt
through a subsidiary with a lower credit rating prompted Fitch
Ratings to downgrade its rating of the credit swap risks in the takeover
to 'negative'. Fitch also stated that Corus' responsibility for the debt
may lead to Corus' own unsecured debt rating being downgraded. This
does not affect the rating of bonds issued by Corus which are secured
debt.
ANALYSIS: WHO GAINED MORE?

11. 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.
ANALYSIS: WHO GAINED MORE?

12.  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.
ANALYSIS: WHO GAINED MORE?

13.  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
COMMENTS OF GROUP ON THIS ANALYSIS

14. Tata Steel Stock Price Post Merger in Indian Stock Market
COMMENTS OF GROUP ON THIS ANALYSIS

15. Tata Steel Stock Price Post Merger in European Stock Market
COMMENTS OF GROUP ON THIS ANALYSIS

16. http://www.scribd.com/Valuation-of-Tata-Steel-After-Corus-Acquisition
http://www.tata.in
Debarshi Das
Sourav Biswas
Prattoy Chatterjee
Priyanka Dey
Goutam Shit
Soumendra Nath Mullick
REFERENCES
GROUP MEMBERS