tata - corus final ppt
TRANSCRIPT
ABOUT CORUS
Corus Group Plc was formed on 6th October 1999,
through the merger of two companies : British Steel
Plc & Koninklijke Hoogovens
Corus comprised of 4 divisions with manufacturing
operations in many countries
Europe 2nd largest steel producer with revenues in
2005
SWOT Analysis of Corus
- High Operational Cost- Lack of Access to Raw Material
- To get access to Raw Material growth markets through mergers- To merge with a company to eliminated duplication & remove overlaps in marketing & accounting etc.
- Increasing losses resulting to winding up of the company.
SWOT
REASONS FOR CORUS FOR ACCEPTING THE BID
To extend its Global reach through TATA
To get access to Indian Ore reserves as well as virgin
market for steel
To get access to low cost materials
Saturated market of Europe
Decline in market share & profit
Total debt of Corus is 1.6bn
Corus needs supply of Raw Materials at lower cost
5 oct 06• Corus board announced that it has
received the proposal from Tata steel for 455 pences per share
28 oct 06 • Valuing Corus share at 4.3 billion pound
17 Nov 06• CSN approached Corus regarding the
proposal And made counter offer of 475 pence per share
Tata Steel Increased the bid to 500 pence per share• TATA then again made another offer of
500 pence per share
11 DEC 06• CSN increased the bid to 515 pence per
share
28 DEC 06• UK panel on takeovers and mergers
announced last date to bid 30 Jan 200726 jan 07
• UK takeover panel established an Auction procedure Commence at 4.30 Pm (London time) on January
31 jan 07
• After bidding tata win the offer by bidding at 608 pence per share Compared to CSN who bid at 603 pence per share
• Tata is the final winner of the deal
Funding pattern
US $ 13.90 BILLION
12.90 $ BILLION PAY TO SHAREHOLDRES
800 MILLION ON BALANCE SHEET
$ in billion
6.142.664.9
High yeild and long term debt fundingBank ABN Amro 27.5%Deutsche bank 27.5%Credit Suisse 45%Cash reserve $700 millionCommercial borrowing $500 million
Mobilizing fund
Issue of equity shares and warrants convertible fetched US $640 million.
Right issue of Tata Steel was 1:5 at 300 per share fetched US $860 million.
Right issue of convertible preference shares in ratio of 9:10 price 600 per share US $ 1.300 to 1.325 billion.
Equity issue as Foreign Currency Convertible alternative Securities for US $800 million.
Merits Tata Steel had planned well for funding. By issue of rights they were trusting shareholders and
increasing there share holding. The funding was in such a way that debt were restricted in
balance sheet of Tata steel. They used great way of equity and debt combination.
Demerits It was very risky for Tata steel as its most of funds were
from equity issue. It will take long time to pay the debts as they were huge. If some uncertainty happens Tata wont be able to pay to
there shareholders.
DO YOU THINK ACQUISITIONOF CORUS WAS A SOUND
BUSINESS STRATEGY
Strong market baseA jump from 56th to 5th global positionStrong distribution networkBetter bidding for raw material pricesResearch and development
To have the production capabilities in the export markets,
To take on multinational rivals, & thwart a possible hostile takeover threat
will be able to supply semi- finished steel to corus for converting into high value added products
negotiation on raw material prices Two alternatives
◦ manufacture primary steel in india and ship semi finished steel to corus’s finishing plant
◦To relocate some of the corus’s capacity to India
Tata Steel could leverage upon corus’s expertise in making high grade steel,
Corus had much better R&D capability than Tata Steel.
The Flip Side Corus EBITDA at 8% was much lower than Tata
Steel.Tata Steel paid 68.7 % premium, EPS for nine months was 37 pence per share,So P/E of approximately 16.5 higher than industry
average of 6 to 8.Corus enterprise value was overvalued.Combined entity has become highly leveraged due
to increase in debt in its capital structure.post acquisition Tata Steel would no longer remain
as the lowest- cost producer of steel.
The Road AheadAfter the acquisition , the European
market contribute to the sales of 59 % of the merged entity.
Tata steel got access to the developed market of Europe.
BCG MATRIX
ANSOFF’S GROWTH STRATEGY
MATRIX
Tata corus Tata corus
India 69% Europe 49% Europe 37%
Asia 23% UK 29% UK 24%
Rest of the world 8%
North America 10%
North America 22%
Asia 9% Asia 8%
Rest of the world 3%
Rest of the world 9%
Spread of Market before and after acquisition