20219848 tata corus acqusition
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PresentedBy:-
AnkurKeshari
Ashish Lal
Priyanka Jain
TATA & CORUS
Presented To:-
Ms. ParulNagar
Date 18th September,2009
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Objectives of Research
Introduction.
Indian Steel Market.
CORUS Steel Industry.
The DEAL.
TATA after Acquisition.
Loss in the 1st Quarter of
2009
Conclusion and
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Indian Steel Market Tata steel industry was the first Indian steel
industry established 1907.
It holds an important place in the Indianbusiness history.
Tata started other business in India in a shortspan of 30 years.
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Cont
Steel industry (heavy industry) is considered as avery influential factor in the modern economy.
India is considered as a major exporter of steelon a world map.
Due to this, antidumping actions has been takenby developed countries.
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Global Steel Market : Overview
IISI forecasts the global steel demand would be1.32 billion tones by 2010.
Much of these demand generated from India andChina
China highest Steel producing country
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Global Steel ranking
Company Capacity(in million tonnes)
Arcelor - Mittal 110
Nippon Steel 32Posco 30.5
JEF Steel 30
Tata Steel - Corus 27.5
Bao steel China 23
US Steel 19
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Corus Steel Industry Formed on 6th Oct 1999, through merger of 2
companies : British Steel and Koninklijke Hoogovens.
Consist of four divisions : Strip products, Longproducts, Aluminum and Distribution, Building system
Operates as an International company
Core business in Manufacturing, Development andAllocation of Aluminum and Steel products and
services Wide variety of products and services
Largest steel producer in UK with 10,142 millionannual revenue and work force of 50,000 employees
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Objectives of Acquisition Higher profitability
TATA current EBITDA is 13% production tonnes
Global No. 6 company
By 2012, EBITDA expected is 25%, production of 40million tonnes giving it the position of Global number2.
To gain access to global steel market and expand
production capacity to keep pace with growingdemand for steel
Jim Leng, Chairman of CorusThis offer from Tata
Steel reflects the substantial value created for Corus
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Objectives of Acquisition TATA looking for mature market in Europe for its
finished products
Corus holds a number of patients and R & Dfacility.
Cost of Acquisition lower than setting up a greenfield plant and marketing and distribution channel.
Corus wanted to reduce its employees cost and
TATA is well known for handling its laboursefficiently.
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Consolidation Synergy As part of its integration process being done at
two levels, the steel makers expects to cross the$450 million target by the end of 2010.
Synergy targets to be achieved included areas ofmanufacturing procurement research anddevelopment, I.T., Finance and capital projects
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Mr. B. Muthuraman (M.D. Tata Steel)
We will make the steel business into an EVA positiveone by 2007 08 through new initiatives, to be calledASPIRE, in all relevant areas of our business.
We will continue to be the lowest cost producer ofsteel in the world by continuous improvement,benchmarking and up gradation.
We will strengthen our partnerships with ourcustomers and suppliers, and create mutually valuecreating opportunities.
Unleash peoples potential and create more leaders.
This Company has had and has many outstanding11
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The DEAL..
Officially announced on April 2nd 2007.
TATAs motive is to capture the market value.
Total value of this acquisition was $12 Billion (608
pence per share except 603 per share).
Corus gained profitable opportunity to exit and a
buyer for some time.
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Ups and down Sep 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.
Oct 23, 06 : Brazilian Steel Group CSNcounter-offer to TATAs offer. Oct 27, 06 :CORUS criticized by JCB for acceptance of TATAs
offer.
Nov 18, 06 : The CSN approaches Corus With an offer of 475 penceper share
Nov 27, 06 : Board of Corus decides to give more time forshareholders to decide whether it issue forward a formal offer.
Dec 18,06 : Tata increases its original bid for Corus 500 pence pershare, then CSN made its counter bid at 515 pence per share in
cash Jan 31, 07 : Tata had agreed to offer Corus investors 608 pence per
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TATA After Acquisition
Seven member team for this DEAL.
TATA has to pay $12 billion, where 2/3rd was being
financed. After the bidding conflict with CSN, TATA ended up
paying more to CORUS.
Still TATA earned operating profits of $840 million on
sales of 5.3 million tonnes of steel, while CORUS
earned $860 million on sales of 18.6 million tones of14
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SWOT Analysis for TATA Strength
Lowest cost producer in world.
Experience of TATA group in doing global activity.
Stable balance sheet (Low Debt to Equity Ratio).
Weakness
Corus was triple the size of TATA steel in terms of
production.
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Swot Analysis Opportunity
Consolidation trend in Steel Industry
CSNs lost image after failure of 2002 negotiations
To get exposed to global steel market
Threat Brazil company CSN
Russian company Severstal No committed financers to support the possible deal
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Loss in quarter 1 of 2009 - 2010
TATA Steel posted a consolidated net loss (includingCorus) of Rs 2,209 crore ($461 million).
Incurred a profit of Rs 3,901 crore ($814 million ) in theApril-June quarter of FY09.
Sales volume of Indian operations was higher by 22percent but sales from its European operations (Corus)fell heavily.
Group consolidated turnover was Rs.23,292 crores ascompared to Rs. 43,496 crores.
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Formulating a Research Design
Descriptive Study
Fact finding investigation with adequate
interpretation.
Identifies various characteristics of organization.
Prediction is used outside the boundary of
research.
Provides facts for planning action program.18
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Reasons for Failure
Global Economic downturn.
Increase in iron ore and coal prices.
Contraction in demand from the building andautomotive sectors.
Bidding Disturbance from CSN to TATA Steel
455 pence per share is pushed to 608 pence per share
of Corus.
Main Competitors are CSN and SEVERSTAL19
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Defining The Problem
Lower chance of success Size of target company Corus
Other bidding companies like CSN etc.
Higher price per share Less opportunity to build relationship with the
targets management
Local Market reaction
Arranging funds as it was an all cash deal
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Alternates Global Expansion
Taking the TATA trust globally
Joint Ventures with other steel manufacturers
Could have searched for reserves in India,
Singapore etc.
Profitability
Could have diversified its investment
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Alternatives Expansion If TATA steel were to create, from
scratch, 19 million tonnes of steel makingcapacity comparable in quality to what Coruspossesses, It would end up investing 70% to 85%
more than it is paying now.
Besides, setting up a new factory, a 3 to 5 yearsproject if everything goes well, has greatexecution risk.
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Contingency Plan The Contingency plan could have been a joint
venture with mittal steels as it is allready intoprocess of setting up a big steel unit in Orrisa,TATA could have provided them with iron ore
reserves and would have expected share in itsprofits
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Conclusion
I believe this will be the first step in showingthat Indian industry can step outside the
shores of India in an international marketplace and acquit itself as a globalplayer
-Ratan Tata
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