Case study of Tata Steel acqusition

The board of managers of Anglo-Dutch steelworker Corus has accepted a $ 7.6 billion coup d’etat command from Tata Steel.

The trade is the largest Indian coup d’etat of a foreign company and will make the universe ‘s fifth-largest steel group.

In 2005, Tata Steel was merely the universe ‘s 56th biggest steel manufacturer and its coup d’etat of Corus represents its first enlargement outside Asia.

Tata Group president Ratan Tata has consent that it has agreed to get the European steel company at 455 pence per portion, seting the endeavor value of Corus at approximately $ 10 billion.

“This proposed acquisition was a defining minute for Tata Steel and is wholly consistent with our scheme of growing through international enlargement.

The trade comes at the “right clip and at the right price” and expressed hope that stockholders every bit good as trade brotherhoods has a positively response to the offer.

Ratan Tata, president of Tata Steel, was quoted in an AFX study as stating that the two companies have compatible civilizations of committedness to stakeholders and complimentary strengths in engineering, efficiency, merchandise mix and geographical spread.

As per the understanding, 75 per cent of Corus stockholders would hold to tender their portions for the acquisition to be complete.

After completion, this was the largest coup d’etat by an Indian company overseas. The trade would besides catapult the combined entity to among the universe ‘s largest steel companies with a entire capacity of about 24 million metric tons per twelvemonth.

The new, combined entity of Tata Steel-Corus would hold a capacity of 40 million metric ton by 2011-12.

“The combined entity will hold a turnover of $ 32 billion by 2011-12 with an EBIDTA border of 25 % .

There was six-pronged scheme outlined by Tata Steel in 2003 where the mark was to increase capacity from 4 million metric ton so to 30 million metric ton by 2015.

The “offer” was the right offer, and was it was non “appropriate” to state anything more on the issue.

The dealing has been based on an endeavor value of $ 10.26 billion. Out of this Tata Steel will fund $ 3.5 billion, and the staying would be raised through the SPV floated for the intent.

And there will be no alteration in Corus direction. Tata steel are non traveling to halt with here. Corus will finish its ain programs, and there will be no alteration in Corus direction.

An integrating commission will be put in topographic point, and the bargain will open new markets for the company.

Tata-Corus among top 5 trades

The $ 8 billion Tata Steel-Corus trade would be at No 5 among the top trades witnessed by the steel industry over the last twosome of old ages.

All about Corus

The London-based Corus Group is one of the universe ‘s largest manufacturers of steel and aluminum. Corus was formed in 1999 following the amalgamation of Dutch group Koninklijke Hoogovens N.V. with the UK ‘s British Steel Plc on October 6, 1999. It employs 47,300 people worldwide and 24,000 people in the United Kingdom.

It is listed on the London Stock Exchange, Euronext Amsterdam and the New York Stock Exchange.

Corus has four divisions: strip merchandises division, long merchandises division, distribution and edifice systems division, and aluminium division. Corus has an one-year turnover of $ 18 billion.

After the Arcelor-Mittal Steel amalgamation, the bombilation was that Corus excessively would shortly be a portion of the following unit of ammunition of consolidation in the planetary steel industry, and likely spouses could include, among others, Tata Steel.

On October 5 2006, Tata Steel announced that it was looking at assorted acquisition chances, including Corus Group. The proclamation was followed by another on October 17, 2006 saying that Tata was is in treatments with the Board and Management of Corus Group and that it has made an declarative non-binding offer to get 100 per cent equity in Corus Group at 455 pence per portion.

Tata Steel produced more than five million metric tons in the twelvemonth stoping March 2006 and reached 7.5 million tones by 2008. It has $ 3.8 billion in one-year turnover.

Q & A ; A: Tata coup d’etat of Corus

Indian company Tata Steel has won the conflict to purchase its Anglo-Dutch challenger Corus.

Tata Steel ‘s 608p per portion offer, which values Corus at ?5.75bn ( $ 11.3bn ) , beat that of its coup d’etat challenger Brazilian house CSN.

The trade is the largest Indian coup d’etat of a foreign company, and creates the universe ‘s fifth-biggest steel company.

Why did Tata desire Corus?

There is a acknowledgment that for the Indian economic system to go on its growing, its companies must look to vie on a planetary graduated table.

Tata is presently merely the 56th biggest steel manufacturer globally.

Buying Corus leapfrogs it to fifth topographic point in the universe steel-making rankings.

The coup d’etat besides gives it entree to Corus engineering every bit good as its production sites.

The Indian house says it will be able to do nest eggs on costs, from marketing to purchasing stuffs.

Why was Corus keen to be taken over?

In order to last, Corus needs to widen its planetary range merely every bit much as Tata does.

A tie-up with Tata gives it, among other things, entree to markets in India – one of the fastest-growing economic systems in the universe – every bit good as entree to low-priced stuffs.

What impact will this trade hold on UK occupations?

Unions have expressed concern over possible occupation cuts at Corus. Of its 47,300 employees worldwide, 24,000 people work in the UK at sites including Port Talbot, Scunthorpe and Rotherham.

Tata has said there will be no occupation cuts in the early phases.

What about pensions?

The Corus pension fund has 166,000 members in the UK – including former British Steel workers. It is non severely off at present – with one brotherhood functionary depicting it as in excess and in a “robust” place.

Tata has pledged to increase parts to the British Steel fund from 10 % to 12 % by 2009.

It will besides be doing a one-off payment of ?126m to the Corus Engineering Steels Pension Scheme.

Is the purchase of a company from a developing state a mark of the hereafter?

There has been turning grounds of a displacement in planetary concern power, with foreign investing from developing states now it is a major factor in the universe economic system.

The Tata trade is a farther mark that India ‘s economic system is a force to reckoned with. Analysts expect a moving ridge of coup d’etats by Indian houses to result around the universe.

Previous Indian trades in Europe include the coup d’etat of German group Betapharm by pharmaceutical house Dr Reddy for $ 570m, every bit good as energy company Sulzon ‘s acquisition of Belgian house Eve Holding for $ 526m.

What does the purchase of a large European house by a little Indian steel house say about UK fabrication?

Corus main executive Jim Leng said that merely as British Steel and Dutch group Hoogovens merged in 1999 because they felt they could non merely be national companies, Corus now felt it was no longer sufficient to be European.

It ‘s non approximately large companies and little companies, it ‘s a affair of being globally commercial.

The most dramatic alteration in Indian concern in the past decennary has been the rush in aspiration.

It is, nevertheless, the largest of all time attempted by an Indian company and, when completed, may merely do the conference tabular array of Top 30 all-cash minutess globally. Stockholders in his company do n’t rather see it that manner.

Tata Steel raised its offer to 608 pence a portion, from 455 pence ab initio. CSN bid 603 pence. The leveraged trade, they say, may hold put the 100-year-old Indian company ‘s fundss at hazard.

For Ratan Tata, who came to the helm of the salt-to-software pudding stone in 1991, this wo n’t be the first clip the markets have thought he was being foolhardy. In fact, the tolerance degree for what investors considered imprudent corporate adventurism used to be much lower.

On Jan. 15, 1998, Tata unveiled to a crowd in New Delhi the first illustration of a little auto put together by the truck-making division of his group.

The fiscal imperativeness was dismissive of Tata ‘s dare. About $ 450 million was put on a auto designed and built in India merely when the protected car market had opened up and the big-bulge Nipponese, U.S. and South Korean car manufacturers had either already arrived or were merely about to come in.

Investors were panicked.

Within yearss of the auto being displayed at the car show, portions of Tata Motors, in those yearss known as Tata Engineering & A ; Locomotive, had fallen to their cheapest degree in four-and-a- half old ages. A few months subsequently, after India had spooked the universe by proving atomic bombs, you could hold had the stock for less than a seventh of what they cost in 1995.

What ‘s the state of affairs today?

Tata controls about one-sixth of the aggressive Indian passenger-car market. Person who bought Tata Motors portions in October 1998 has earned an annualized 30 percent return in U.S. dollar footings.

Can Tata turn out his critics incorrect once more with Corus?

If Tata Steel were to make, from abrasion, 19 million dozenss of steelmaking capacity comparable in quality to what Corus possesses, it would stop up puting 70 per centum to 85 per centum more than it is paying now. Or at least that ‘s what Tata ‘s ain computations show.

Besides, puting up a new mill, a three- to five-year undertaking if everything goes good, has great executing hazard.

Even in a underdeveloped state such as India – which you would presume would welcome the occupations associated with a new steel works – it is n’t easy to do such investings.

Constantly, the Fe ore exists in topographic points where the poorest of the hapless live. And they are nervous about supplanting. In January last twelvemonth, Tata Steel tried to raise a boundary wall at the site of its proposed 6 million-ton works in the eastern province of Orissa. A crowd turned violent. Thirteen people were killed.

Geting Corus will besides give Tata entree to European clients of steel, particularly in the car and aerospace industries.

Corus will profit from entree to Indian iron-ore militias every bit good as a virgin market for steel. India ‘s per capita steel ingestion is still about 35 kgs, or 77 lbs, a twelvemonth, or about one-tenth of developed-country degrees.

Steel is still far less planetary than the industries that use it. The clip when states set up workss to make employment and to demo the universe that they were self-sufficient has caused disconnected pockets of demand and supply, irrational duty walls and exaggerated boom-and-bust rhythms.

Further consolidation, particularly in China, which has several thousand steelworkers, is bound to cut inefficiencies, better productiveness and do steel a genuinely planetary concern.

The Tata-Corus combination will be the universe ‘s fifth- biggest steel manufacturer. What Ratan Tata is purchasing for $ 12 billion is the chance to be among the planetary leaders in a concern that will likely go more profitable and less volatile in the old ages to come. The cost of non purchasing this leading place when it could be had could hold proved fatal.

“The market is looking at it on a short-run footing, ” Tata said on a call with journalists yesterday. “Hopefully, in the hereafter person will look back and say we did the right thing.”

Analysts took several old ages to acknowledge that Tata ‘s auto undertaking came from vision, non despair or hubris. The delay may be a batch shorter this clip.