Tata Corus Acquisition
Tata Corus Acquisition
Tata Corus Acquisition
Corus' expertise in making the grades of steel used in automobiles and in aerospace could
be used to boost Tata Steel's supplies to the Indian automobile market. Corus in turn was
expected to benefit from Tata Steel's expertise in low cost manufacturing of steel.
However, some financial experts claimed that the price paid by Tata Steel (608 pence per
share of Corus) for the acquisition was too high.
Corus had been facing tough times and had reported a substantial decline in profit after
tax in the year 2006. Analysts asked whether the deal would really bring any substantial
benefits to Tata Steel. Moreover, since the acquisition was done through an all cash deal,
analysts said that the acquisition would be a financial burden for Tata Steel.
Issues:
» Critically examine the rationale behind the acquisition of Corus by Tata Steel.
» Study the regulations governing mergers & acquisitions in the case of a cross-border
acquisition.
» Get insights into the consolidation trends in the Indian and global steel industries.
Contents:
Page No.
Introduction 1
Background Note 2
Tata Steel Vs CSN: The Bidding War 4
Financing the Acquisition 5
The Integration Efforts 7
The Synergies 8
The Pitfalls 9
The Road Ahead 10
Exhibits
"The financials for this deal [require] high performance levels, perfect post-deal
execution and sustained high steel prices. It is a risky game and will be okay for Tata as
long as the economy is growing and no major bumps occur. If [these bumps] do occur,
they can become a challenge, and I am reminded of the high leverage days of the mid-
1980s."1
"Indian steel companies are on a consolidation mode. The Tata-Corus deal has set many
records. So far, the only $1 billion-plus deal was done by ONGC, and it's the first
milestone for India Inc, with the Tata deal crossing $10 billion mark. It's a landmark
deal since an Indian company has taken over an international company three times its
size."2
Introduction
1] "Did Tata Steel Overheat in its Zeal to Win Corus?" Knowledge@Wharton, February 08, 2007.
2] "Tata Win Booster for Corporate India's Confidence," The Economic Times, February 01, 2007.
3] As on January 31, 2007, 1 US Dollar = 44.18 INR and 1 Pound = 86.73 INR.
4] "Tata Steel Completes Acquisition of European Steelmaker Corus," International Herald Tribune, April 03,
2007.
5] Since Tata Steel and CSN could not declare their final offer by January 31, 2007, an auction had to be initiated
by The Takeover Panel which oversees mergers and acquisitions in the UK.
Introduction Contd...
The cost advantage of operating from India can be leveraged in Western markets, and
differentiation based on better technology from Corus can work in the Asian markets."8
Background Note
Tata Steel
There was a heavy speculation surrounding Tata Steel's proposed takeover of Corus ever
since Ratan Tata had met Leng in Dubai, in July 2006. On October 17, 2006, Tata Steel
made an offer of 455 pence a share in cash valuing the acquisition deal at US$ 7.6 billion.
Corus responded positively to the offer on October 20, 2006.
By the first week of April 2007, the final draft of the financing structure of the
acquisition was worked out and was presented to the Corus' Pension Trusties and the
Works Council by the senior management of Tata Steel. The enterprise value of Corus
including debt and other costs was estimated at US$ 13.7 billion (Refer Table I for fund
raising mix for the Corus' acquisition)...
The Synergies
The Pitfalls
Though the potential benefits of the Corus deal were widely appreciated, some analysts
had doubts about the outcome and effects on Tata Steel's performance. They pointed out
that Corus' EBITDA (earnings before interest, tax, depreciation and amortization) at 8
percent was much lower than that of Tata Steel which was at 30 percent in the financial
year 2006-07...
Period : 2006-2007
The Synergies
Pub. Date : 2008
value-added steel
segment and a strong
For delivery in electronic format: Rs. 400;
distribution network in
Europe. Among the For delivery through courier (within India): Rs.
benefits to Tata Steel 400 + Rs. 25 for Shipping & Handling Charges
was the fact that it
would be able to supply
semi-finished steel to
Corus for finishing at its
plants, which were
located closer to the
high-value markets...
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The Pitfalls
Though the potential benefits of the Corus deal » Finance Case Studies
were widely appreciated, some analysts had » Short Case Studies
doubts about the outcome and effects on Tata
» View Detailed Pricing Info
Steel's performance. They pointed out that
Corus' EBITDA (earnings before interest, tax, » How To Order This Case
depreciation and amortization) at 8 percent was
» Business Case Studies
much lower than that of Tata Steel which was
at 30 percent in the financial year 2006-07... » Case Studies by Area
production.
This case study was compiled from published
After the acquisition,
the European market sources, and is intended to be used as a basis for
(including UK) would class discussion. It is not intended to illustrate either
consume 59 percent of
the merged entity's total effective or ineffective handling of a management
Exhibits
Welcome to Corus
Corus is a customer focused, innovative value-driven company, which manufactures,
processes and distributes steel products and services to customers worldwide.
Corus is Europe's second largest steel producer with annual revenues of around £12
billion and a crude steel production of over 20 million tonnes.
• With innovation and continuous improvement at the heart of its business
performance, Corus aims to create value by offering a differentiated product range
supported by unrivalled customer service.
• Corporate responsibility is integral to the way Corus does business and the
objective is to be world class.
• Corus is a subsidiary of Tata Steel.
• Corus supplies a variety of innovative solutions to a broad range of markets. We
have specific information for our key market sectors. Please select from the list
here.