TATA STEEL’S ACQUISITION OF CORUS

OUTLINE

TATA STEEL backgroundCORUS backgroundRationale for the acquisitionSynergies expected from the dealFunding structure of the dealLong-term implications of the deal

TATA STEEL BACKGROUND

A part of TATA Group of Company’s.Formerly known as TISCO and TATA IRON AND STEEL

COMPANY LIMITED.Located in Jamshedpur, Jharkhand, India.World’s 7th largest steel company.India’s 2nd largest and 2nd most profitable private sector company.Data as per March 31, 2008

Capacity = 31 million tonesRevenues = 132,110 croreNet profit = 12,350 crore

CORUS BACKGROUND

One of the largest steel companies in Europe.Came into being in 1999 with the merger of British Steel plc and

Dutch steelmaker.Also has a presence in The Netherlands, Germany, France,

Belgium, the United States, and Canada.The company manufactures, processes, and distributes metals

products to the construction, automotive, mechanical engineering, packaging, and other markets.

THE ACQUISITION AND THE RATIONALE BEHIND IT

Rationale

TATA CORUSTo tap mature European market.

Helped TATA to feature in Top 10 players in world.Technological benefits.Corus holds number of patents and R&D facilities.Cost of acquisition is lower than setting up of Green field plant & marketing and distribution channel.TATA manufactures Low Value, long and flat steel products ,while Corus produce High Value Stripped products.

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 and profit.

SYNERGIES EXPECTED FROM THE DEAL

Tata was one of the lowest cost steel producers & Corus was fighting to keep its productions costs under control.

Tata had a strong retail and distribution network in India and SE Asia. Hence there would be a powerful combination of high quality developed and low cost high growth markets

Technology transfer and cross-fertilization of R&D capabilities. There was a strong culture fit between the two organizations both

of which highly emphasized on continuous improvement and Ethics.

Economies of Scale.Increase in profitability.Backward integration for Corus and Forward integration for Tata

Steel.

FUNDING STRUCTURE

It was a CASH DEAL because- Immediate takeover was required. Share Swap deal would have been less attractive to the Corus shareholders. Share Swap would have meant FDI and that brings a lot of regulatory hassles

which might not have been accepted by Corus shareholders. Share Swap would have diluted Tata Steel’s Equity base which was not in

favor of Tata shareholders. And moreover cost of equity at around 15% is higher than that of debt of

around 8%, so paying in cash brings down the cost of acquisition.

Equity + Loan = Deal

$3.95 + ($3.654 + $2.233 + $2.233) = $12.07

LONG - TERM IMPLICATIONS

Integration has to be fast and efficient.Increasing reach to joint entity to 4 continents and 45 countries

including high value market of Europe.Increasing the EBITDA to 25% for joint entity by executing Tata

steel’s brownfield and greenfield projects well in time.Increasing the capacity of the company beyond 50 million tons

by 2015 so as to become one of 3 top steel producers in the world.