MERGER OF TATA STEEL’S WITH

CORUS

INTRODUCTION

On jan31st 2007,Tata steel ltd.one of the leading steel producers in

india,acquired the Anglo Dutch steel producer Corus group plc (Corus)
for US$ 12.11 billion (€ 8.5 billion). The process of acquisition
concluded only after nine rounds of bidding against the other bidder for
Corus - the Brazil based Companhia Siderurgica Nacional (CSN).
This acquisition was the biggest overseas acquisition by an Indian
co.Tata steel emerged as the fifth largest steel producer in the world after
the acquisition.The acquisition gave tata steel access to corus strong
distribution network in Europe.
Since the acquisition was done through on all cash deal, then it would be
a financial burden for tata steel.

Source of information-www.scribd.com, mergers and acquisitions by j.fred

CHRONOLOGY OF THE EVENT

Sept. 20,06 - CORUS uses the strategy to work with low cost producer.
Oct 06,06 –initial offer by tata is considered to be too low.
Oct 17,06 – tata kept its offer to 455 pence per share.
Oct 20 , 06- corus accepts the offer of 4.3 billion pounds.
Oct.27,06 – corus criticized by JCB for acceptance of tata’s offer.
Jan 31,07 – tata ad agreed to offer corus investors 608 pence per share in
cash.
April 02,07 – tata steel manages to win the acquisition to CSN and has
the full voting support from the corus shareholders.

Source of information-www.scribd.com
SYNERGIES FOR CORUS

1. Global reach
2. Total debt of corus as on the date of acquisition –GBP 1.6
billion.
3. Corus needed supply of raw materials at lower cost.
4. Though corus had revenues of $18.06bn,its profit was a mere
$626mn compared to tata’s revenue of $4.84bn and profit of
$824mn.
5. Production facilities of corus were relatively old with high cost
production.
6. Employee cost is 15%(tata 9%).

SYNERGIES FOR TATA

1. Tata has been looking to manufacture finished products in mature

markets like Europe.
2. diversified product mix
-reduces risks
-higher end products will add to bottom line
3. corus holds a no. of patents and R&D facilities and immediate access
to advanced technology.
4. greenfield plant
-cost
-time
5. will make it difficult for other companies to make a hostile bid for TS.

Source of information- www.authorstream.com

Profile pre merger

Tata steel
. 102 yrs in steel bazaar
. world’s 56th largest
. capacity of 30 million
. founder:J.N tata
. presence in 26 nations

CORUS

. world’s 6th largest

. 2nd in Europe , 1st in UK
. 371st rank in fortune list

Source of information-www.tatasteel.com

. presence in 50 nations
. 40,000 people worldwide.
ADVANTAGES

1.world’s top five steel makers

2.biggest steel maker with an output of 27.7 mn tones per
annum.
3.lowest cost steel producer.
4.its added size to his group.
5.maintain premier position in Indian steel industry.
6.most modern production technique used.
7.entry and strong distribution network in Europe.

Source of information- www.managementparadise.com

www.thehindubusinessline.com

STRATEGIES BEHIND THIS MERGER

1. Growth through international expansion.

 2.Capture the European customers in the automobile and aerospace
industries.
3.Capture the Indian automobile market by supplying high grades of
steel.
4.Add more high technology products.

Source of information- www.mahalo.com/tata-corus-merger

www.indianmba.com

TAXATION AND ACCOUNTANCY

CONSIDERATIONS

1. Tension between acquisition/sale of shares or assets

2. Due diligence.
3. Tricky areas
 4. Accounting issues.
5. Accounting for goodwill.
6. Accounting policies of the target.
7. Fair value accounting.
8. Earnings per share.
9. Other matters
.

LEGAL DOCUMENTATION
1.the shares being sold .
2.the price.
3. restrictive agreements

Source of information- en.wikipedia.org/wiki/Tata_Corus_acquisition

4.warranties.

5.conditions to the deal.

6.transferring tangible assests.
7.transferring intangible assests.
8.transferring liabilities.
9. transferring employees.
FINANCING THE DEAL
1. Tata – corus deal - $12 billion
2. Equity contribution from tata steel - $ 3.88 billion.
3. Credit Suisse leaded,joined by ABN AMRO and deutsche bank in
the consortium.
4. Of the $8.12 billion of financing, credit Suisse provided 45% and
ABN AMRO and deutsche provided 27.5% each.

WHY CASH DEAL????

1.tata steel’s security credit rating was investment grade whereas

tata steel uk had a lower security credit rating.
2.”share swap”deal less attractive to the corus shareholders.
3.”share swap”would have diluted tata steel’s equity base.

Developing a post acquisition strategy

1.The first 100 days.
a. Time factor
b. Leadership style differences.
c. Who’s in charge?
d. Organic vs bureaucratic cultures.
e. Open vs. closed communication.
f. Decision making speed & style.
 g. Structures that don’t match.

Source of information- www.businessweek.com

www.business-standard.com/india/...tata-corus-deal/

1.In house systems synergy

a.product leadership(best product)
b.operational excellence ( low cost producer)
c.customer intimacy ( best total solution)

Rationale of the corus deal

1. Augmented its crude steel capacity to 27 mtpa.

2. The combined entity forms the 6 largest steel co.
th

3. The merged entity has brought tata steel to the world

platform.
4. Provided tata steel access to new markets and presence
across the steel value chain.
5. Much broader distribution network.
Source of information- www.cpiml.org/liberation/year_2006/.../tata_corus_deal

CULTURAL INTEGRATION

TATA STEEL

1.Continuous improvement programme- “ASPIRE”

2. Core values
a.trusteeship
 b.integrity
c.respect for the individual.
d. credibility.
e.excellenc
3.world class governance

CORUS
1.continuous improvement programme-“the corus way”
2.core values- code of ethics
a.integrity
b. creating value in steel
c. customer focus
d.selective growth
e.respect for our people.
3.world class governance.

FULFILLMENT OF FIVE CONDITIONS

OF MERGER
Accounting Standard (AS) 14 of the Institute of Chartered Accountants
of India, titled `Accounting for Amalgamations,' specifies five
conditions for `amalgamation in the nature of merger', all of which need
to be satisfied.
CONDITION NO. 1
"all the assets and liabilities of the transferor company become, after
amalgamation, the assets and liabilities of the transferee company." For
example, a merger of Corus into Tata Steel would mean the transfer of
all assets and liabilities of Corus to Tata Steel.

Source of information-- www.corusgroup.com

CONDITION NO. 2
shareholders holding not less than 90 per cent of the face value of the
equity shares of Corus become equity shareholders of Tata. In which
case, all that cash lined up for the deal may not be needed?
CONDITION NO. 3
consideration for the amalgamation receivable by Corus' equity
shareholders is discharged by Tata `wholly by the issue of equity shares
in the transferee company except that cash may be paid in respect of any
fractional shares
CONDITION NO. 4
Fourth condition in AS-14 is that the business of Corus `is intended to be
carried on, after the amalgamation' by Tata
CONDITION NO. 5
no adjustment is intended to be made to the book values of the assets
and liabilities' of Corus when they are incorporated in the financial
statements of Tata `except to ensure uniformity of accounting policies.'

When these conditions are not met .the amalgamation will be in the
nature of purchase.

Source of information- www.corusgroup.com

CHALLENGES
1.Maintaining its low-cost advantages by securing captive raw materials
as it expands capacity is one;
2. tempering its bet on the current high steel prices with the prospect that
they could soften over time.
3.Imminent consolidation in China, the rise of new rivals as a result of
consolidation, and
4.cartelization among the top producers are transforming the global steel
business.
Ref.knowledge.wharton.upenn.edu/india/article.
TATA CORUS DEAL WILL BENEFIT TATA
STEEL
Corus' s strength is the production of high-end steel-used in construction
automobile and aircraft as well as its research and development will
complement Tata Steel. The merger will also give it access to the
important markets of Europe. This will benefit Corus in the management
expertise of the Tatas and their cost advantage in producing steel. This
will bring down the production cost of Corus. Tata Steel expects to earn
$300 million per year through cost savings.

Market has not responded well to this deal as the price of the stocks fell.
Investors are worried about cash outflow . Of the total cash to be paid in
the deal $4.1 billion will be forked by Tata steel, rest of the money will
be as debts and will be returned from Corus cash flows.

No merger is riddle free and almost every has a bit of it. Tata steel needs
to concentrate on bringing down the production cost, which is high now.
They need to use the best of their management skills.The share holders
need to keep their faith intact in the group and this will pay as it has
before.
Source of information-tata.com, www.corusgroup.com, www.business-standard.com

CONCLUSION

– 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 of close to 56 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.