Tata corus by Rishi Chourasia

Prof Rishi ChourasiaFounder & Director Management Vikalp

Tata Acquisition to Corus

1 www.managementvikalp.co.in

“I believe this will be the first step in showing that Indian industry can in fact step outside the shores of India in an international marketplace and acquit itself as a global player.” -- Ratan Tata , Chairman of Tata Steel


INDEX

Introduction Strategic Choice Acquisition Chronology Legal & HR Issues Final Destination Funding for the Acquisition Post Merger Scenario


Introduction – Steel Industry

Since the World War II, the steel industry has experienced three distinct phases

– Growth (1950-73) Annual growth rate of 5.8%

– Stagnation (1974-2001) Annual growth rate of 0.6%, overcapacity by

25%– Boom (2002-2006)

Annual growth rate of 7%-8% and emergence of China


Introduction – Tata Steel

One of the world’s lowest-cost producers of steel High level of vertical integration and process

improvisation, Excellent product mix and good product quality. Imported about 35% of its total coking coal

requirement, effected by contract price movements.

With a low cost structure and strong balance sheet, the company can foray into the Asian markets through acquisitions.


Formed on 6th October, 1999 through the merger of British Steel and Koninklijke Hoogovens

Ranked 9th in the World & 2nd in Europe High value product manufacturer Employee strength on 47,300 in 2005 Fighting to keep its productions costs under

control (operating profit fall by 37% in 2006) and was on the look out for sources of iron ore

Introduction – Corus


Complimentary assets & skills– Corus' revenue - $17.03 billion in 2005.– Annual production capacity of 18 million tones

against Tata steel’s 5 million tonnes, 50 % share of the UK carbon steels market and 11 % of the European market.

– Tata had a strong retail and distribution network in India and SE Asia

– After Merger the combined entity would become 5th largest steel manufacturer in the world

Introduction – Tata Steel & Corus


Introduction – Comparisons

Particulars Corus (in Rs bns) Tata (In Rs bns)

Year 2006 2005 2004 2006 2005 2004

Assets 582.7 533.9 487.8 205.5 117.0 147.9

Debt 98.1 105 96 45.9 42 39.9

Liabilities 231.3 178.4 155.5 30.5 33.1 32.7

Revenue 760.5 699.9 596.5 202.4 159.9 111.2

Net Income 33.9 33.5 -22.9 37.2 36.03 17.8


Strategy for Growth and Survival

Need for Growth for TATA Steel , and market constraints for Organic growth made TATA’s think Inorganically.

Looming Take Over Threat from L.N.Mittal, coupled with low Promoter holding in TATA steel made them more Vulnerable.

CORUS was Best Fit In this Scenerio. To sustain the Growth in Europe, it wanted to secure

access to Low Cost , Higher Growth Regions. Cultural Fit – Continuous improvement and ethics


Strategy

Necessity is mother of all inventions


Synergies

Tata – One of the lowest cost steel producers in the world and had self sufficiency in raw material.

Corus – Fighting to keep its productions costs under control and was on the look out for sources of iron ore.

Tata – Strong retail & distribution network in India and SE Asia. – Major supplier to the Indian auto industry

Corus – Inroad into the emerging Asian markets, a powerful combination of high quality developed and low cost high growth markets


Technology transfer and cross-fertilization of R&D capabilities between the two companies that specialized in different areas of the value chain

A strong culture fit between the two organizations both of which highly emphasized on continuous improvement and ethics

Synergies


Acquisition Chronology

Oct 5, 2006 - Tatas confirm interest in acquiring Corus

Oct 17 - Tatas propose a $7.6 billion bid for Corus at 455 pence a share in cash

Oct 20 - Corus Board approves Tata bid Nov 17 - CSN makes indicative bid of 475 pence a

share Nov 27 - Corus adjourns extraordinary

shareholders' meeting from Dec 4 to Dec 20 to allow CSN more time



Dec 10 - Tata Steel raises bid to $9.2 billion Dec 10 - Tata Steel raises bid to $9.2 billion at 500

pence per Corus share; Corus Board recommends offer Dec 11 - CSN makes formal bid of $9.6 billion at 515

pence a share in cash; Corus Board recommends offer Dec 19 - UK Takeover Panel watchdog sets a January

30 deadline for Tata Steel and CSN to make revised offers

Dec 22 - Tata Steel wins approval from the European Commission to buy Corus



2007 Jan 26 - Takeover Panel says it will launch an

auction on January 30 Jan 29 - EU clears CSN bid for Corus Jan 30 - Auction for Corus starts Jan 31 - Tatas outbid CSN with 608 pence a share

offer; says expects to close transaction by middle of March 2007.

Tata Steel wins Corus with $11.3 billion offer


Legal issues

According to the rules, a resolution pertaining to the bid would have to garner support from 50 per cent of shareholders and 75 per cent of shares at the EGM

CSN's Corus play faces EU anti-trust probe-Advantage Tata


HR issues

The labor union of Corus Supported TATA takeover as it was more like minded to the Current Management. TATA was clear and forthwith with the Union on the discussion of future Pension Benefits. Corus will become more competitive, which will

increase job security.


THE D DAY- January 30, 2007

Tata Steel board meets ahead of Corus auction Nine-round auction called by the UK Takeover

Panel to decide the winner between the two suitors began at 2200 hrs Indian time (1630 hrs GMT)

Tata Sons represented by Director Arun Gandhi along with IB’s and advisers

Tata Steel bid from the offices of its lawyers Herbert Smith in London

Herbert Smith's London office had been video-linked to the Tata headquarters


TATA wins over Corus



Corus buy is moment of fulfillment: Tata Corus expensive, but worth it: Tata We would not go beyond a point... we did not

reach that point... had we reached, we would have walked away" :Tata

Tata offers best value for shareholders: Corus Chairman Jim Leng



With a bid of 608 pence a share, Indian corporate giant Tata Steel outsmarted CSN's 603 pence a share offer during the night-long auction process.

Rank Co. Name Mm tn/yr

1 Arcelor-Mittal (Lux)

110

2 Nippon Steel (Japan)

32

3 Posco (South Korea)

30.5

4 JFE (Japan) 29.9

5 Tata-Corus (India)

23.8

6 Baosteel (China) 22.7

7 US Steel (USA) 19.3

8 Nucor (USA) 18.4

9 Riva (Italy) 17.5

10 ThyssenKrupp (Ger)

16.521 www.managementvikalp.co.in

Corus Acquisition Economics


Acquirer

SPV

Target

100% Equity

LenderLoan

Leveraged Buy-out

India

Offshore Jurisdictions

LBO

23www.managementvikalp.co.in

Funding the Corus acquisition


Use of Offshore entities - Singapore

US Corporation

IndianCompany Shareholders

United States

India

Singapore

Singapore

Equity

Equity / CCD

Singapore Limitation on Benefit (LoB)

Clauses Capital gains tax

exemption tagged to Mauritius Treaty

Income characterization issues

Interest taxed at 15%





•Tata Steel UK would arrange a loan of £1.6 b ($3056m), a revolving credit facility

•A bridge loan and the rest would come from Tata Steel (to the SPV).Tata Steel appointed Credit Suisse, ABN Amro and Deutsche Bank to arrange bridge financing.

•Of the £3.3 billion of financing being raised at the SPV level, Credit Suisse would provide 45% and ABN AMRO and Deutsche 27.5% each.

•The $1.8 billion bridge debt being raised at the Tata Steel level in India would be shared between Standard Chartered and ABN AMRO.27 www.managementvikalp.co.in


Financing India's largest leveraged buyout comprised of a $3.88 billion equity contribution from Tata Steel, a fully underwritten non-recourse debt package of $5.63 billion, a revolving credit facility of $669 million.

As per the acquisition plan a special purpose vehicle, a wholly owned subsidiary, called Tata Steel UK would be set up by Tata Steel


Post Merger Scenario

Tata Rejigs Corus Senior Team Jan 2009, Tata owned Corus to shed 3500

jobs Tata Steel loses Corus chairman to Rio Tinto


Ratan Tata – Chairman of Tata Steel

“This proposed acquisition represents a defining moment for Tata Steel and is entirely consistent with our strategy of growth through international expansion. Corus and Tata Steel are companies with long, proud histories. We have compatible cultures of commitment to stakeholders and complementary strengths in technology, efficiency, product mix and geographical spread. Together we will be even better equipped to remain at the leading edge of the fast changing steel industry.”


Thank you


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Tata corus by Rishi Chourasia