Tata Corus

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“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

Transcript of Tata Corus

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“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

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Presented by:

Hemant BhatiaJignesh Prajapati

Karan JindalPramod Mehta

Saurabh Uniyal

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INDEX

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

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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

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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.

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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

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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

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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

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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

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Strategy

Necessity is mother of all inventions

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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

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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

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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

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Acquisition Chronology

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

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Acquisition Chronology

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

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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

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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.

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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

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TATA wins over Corus

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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

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TATA wins over Corus

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)

16.5

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Corus Acquisition Economics

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Funding the Corus acquisition

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Funding the Corus acquisition

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Funding the Corus acquisition

•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.

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Funding the Corus acquisition

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

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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

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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.”

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Open House!!!