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    Tata Corus Deal

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    shweta_46664
    Tata Steel acquired Corus, which was Europe's second largest steel producer, in 2007 for $12 billion. The acquisition made Tata Steel the world's fifth largest steelmaker. Tata Steel financed $4 billion of the acquisition internally and obtained funding commitments from Deutsche Bank, ABN Amro, and Standard Chartered for the remaining $8 billion. The acquisition was expected to provide synergies through access to Corus' high-value steel products and European markets, as well as opportunities for cost reductions. However, the acquisition significantly increased Tata Steel's debt levels and reduced its profit margins.

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    Tata Corus Deal

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    shweta_46664
    798 views16 pages
    Tata Steel acquired Corus, which was Europe's second largest steel producer, in 2007 for $12 billion. The acquisition made Tata Steel the world's fifth largest steelmaker. Tata Steel financed $4 billion of the acquisition internally and obtained funding commitments from Deutsche Bank, ABN Amro, and Standard Chartered for the remaining $8 billion. The acquisition was expected to provide synergies through access to Corus' high-value steel products and European markets, as well as opportunities for cost reductions. However, the acquisition significantly increased Tata Steel's debt levels and reduced its profit margins.

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    Tata Steel acquired Corus, which was Europe's second largest steel producer, in 2007 for $12 billion. The acquisition made Tata Steel the world's fifth largest steelmaker. Tata Steel financed $4 billion of the acquisition internally and obtained funding commitments from Deutsche Bank, ABN Amro, and Standard Chartered for the remaining $8 billion. The acquisition was expected to provide synergies through access to Corus' high-value steel products and European markets, as well as opportunities for cost reductions. However, the acquisition significantly increased Tata Steel's debt levels and reduced its profit margins.

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    798 views16 pages

    Tata Corus Deal

    Uploaded by

    shweta_46664
    Tata Steel acquired Corus, which was Europe's second largest steel producer, in 2007 for $12 billion. The acquisition made Tata Steel the world's fifth largest steelmaker. Tata Steel financed $4 billion of the acquisition internally and obtained funding commitments from Deutsche Bank, ABN Amro, and Standard Chartered for the remaining $8 billion. The acquisition was expected to provide synergies through access to Corus' high-value steel products and European markets, as well as opportunities for cost reductions. However, the acquisition significantly increased Tata Steel's debt levels and reduced its profit margins.

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    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 GBP
     Corus needs supply of raw material at lower cost
     Though 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%

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