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SUBMITTED BY:
MANISH SINGH
PGPM/0911/043
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TATA-CORUS DEAL
INTRODUCTION:
On 20 October 2006 the board of directors of Anglo-Dutch steelmaker Corus
accepted a $7.6 billion takeover bid from Tata Steel, the Indian steel company. The following
months saw a lot of negotiations from both sides of the deal. Tata Steel's bid to acquire Corus
Group was challenged by CSN, the Brazilian steel maker. Finally, on January 30, 2007, Tata
Steel purchased a 100% stake in the Corus Group at 608 pence per share in an all cash deal,
cumulatively valued at USD 12.04 Billion. The deal is the largest Indian takeover of a
foreign company and made Tata Steel the world's fifth-largest steel group.
Corus was formed from the merger of Koninklijke Hoogovens N.V. with British Steel
Plc on 6 October 1999. It has major integrated steel plants at Port Talbot, South Wales;
Scunthorpe, North Lincolnshire; Teesside, Cleveland (all in the United Kingdom) and
IJmuiden in the Netherlands. It also has rolling mills situated at Shotton, North Wales (which
manufactures Colorcoat products), Trostre in Llanelli, Llanwern in Newport, South Wales,
Rotherham and Stocksbridge, South Yorkshire, England, Motherwell, North Lanarkshire,
Scotland, Hayange, France, and Bergen, Norway. In addition it has tube mills located at
Corby, Stockton and Hartlepool in England and Oosterhout, Arnhem, Zwijndrecht and
Maastricht in the Netherlands. Group turnover for the year to 31 December 2005 was
£10.142 billion. Profits were £580 million before tax and £451 million after tax.
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• 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
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Objections that occur during the deal:
Market has not responded well to this deal as the price of the stocks fell. Investors are
worried about cash outflow and the resultant strain on company's balance sheet. 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.
Apart from that many analysts have opined that the deal had occurred at wrong time.
They believe that the deal had occurred when the market was at its peak. But as soon as the
deal was finalized the market crashed by a huge margin thereby causes an increase in debt of
the company.
Also there was much difficulty in integrating Chinese and French management. Some
of this surely stemmed from language considerations. To an extent, the Indians' greater
command of the world's lingua franca will lubricate the inevitably-difficult integration
process.