tata corus merger

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Transcript of tata corus merger

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MERGERS & ACQUISITION

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By

Hemanth S.J Harleen Singh Gorani Dhaval Gayathri Diana Ritu

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Mergers- A merger is a combination of two companies into one larger company, which involves stock swap or cash payment to the target.

Acquisition - When one company takes over another and clearly established itself as the new owner, the purchase is called an acquisition.

From a legal point of view, the target company ceases to exist, the buyer "swallows" the business and the buyer's stock continues to be traded.

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Types of mergers. Horizontal merger Vertical merger Conglomeration Market-extension merger Product-extension merger Product extension merger

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WHY? Gain market share Economies of scale Enter new markets Acquire technology Utilization of surplus funds Managerial Effectiveness Strategic Objective Vertical integration

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Why not?

Grasping for a company simply because its on the market , or because a competitor wants to buy it.

Overpayment or misguided purchase. Inability to integrate well Diverse Business ;Unmanageable. Leaping without looking at the value.

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xxxxxxx

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PROFILE PRE MERGER

102 years in steel bazaar

World’s 56th largest Capacity of 30 Million Founder:J.N. Tata Presence in 26

nations

World’s 6th largest 2nd in Europe,1st in UK 371st rank in fortune

list Presence in 50

nations 40,000 people

worldwide.

TATA STEEL CORUS

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Major Acquisitions – Big Deals

Target Buyer Value($bn)

Year

Arcelor Mittal Steel 31 2006

NKK Corp Kawasaki Steel 14.1 2001

LNM Holdings Ispat Intl 13.3 2004

Tata Corus 12 2006

Krupp AG Thyssen 8.0 1997

Dofasco Arcelor 5.2 2005

Intl Steel Mittal Steel 4.8 2005

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Acquisition

Structure Asset Purchase Business Purchase Share Purchase A Mixture Apportionment of Risk No Hidden matters Remedy – warranty Indemnity

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Acquisition

TATA-CORUS Tata acquired Corus, which is four times

larger than its size and the largest steel producer in the U.K. The deal, which creates the world's fifth-largest steelmaker, is India's largest ever foreign takeover and follows Mittal Steel's $31 billion acquisition of rival Arcelor in the same year.

Tata acquired Corus on the 2nd of April 2007 for a price of $12 billion. The price per share was 608 pence(rs 484), which is 33.6% higher than the first offer which was 455 pence.

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Acquisition Process

Particulars Corus Currency: Rupee Millions

TATA Steel LtdCurrency: Rupee Millions

Year 2006 2005 2004 2006 2005 2004

ASSETS 582750.00 533925.00 467775.00 205,450.70

177,033.10 147,988.70

DEBTS 98100.00 105525.00 96000.00 45,932.70 42,073.10 39,982.90

LIABILITIES 231300.00 178425.00 155475.00 30492.10 33146.80 32665.90

REVENUE 760500.00 699900.00 596475.00202,444.30

159,986.10 111,294.40

NET INCOME 33900.00 33450.00 -22875.00 37,346.20

36,032.60 17,887.80

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Process of Acquisition

Finding A Target Business Appointing Advisers Negotiating terms Due Diligence Exchange of Contracts Completion

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Finding A Target Business

Synergy of Operations Help the Organizations to Achieve

Strategic Objectives Enter new markets Vertical Integration

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Appointing Advisers

The Right Chemistry The Right Experience Size is not Everything Talk Your Language

CORUS TATA

J P MORGAN ABN AMRO

CAZENOVE DEUTSCHE BANK

HSBC STANDARD CHARTERED

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Negotiating Terms

The nature of the fit Commonality of client base Financial strength Strategic intent Sharing of resources Applicable Benefits

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Negotiation By Tata

September 20, 2006 : Corus Steel has decided to acquire a strategic partnership with a Company that is a low cost producer

October 5, 2006 : The Indian steel giant, Tata Steel wants to fulfill its ambition to Expand its business further.

October 6, 2006 : The initial offer from Tata Steel is considered to be too low both by Corus and analysts.

October 17, 2006 : Tata Steel has kept its offer to 455p per share.

October 18, 2006 : Tata still doesn’t react to Corus and its bid price remains the same.

October 20, 2006 : Corus accepts terms of £ 4.3 billion takeover bid from Tata Steel

October 23, 2006 : The Brazilian Steel Group CSN recruits a leading investment bank to offer advice on possible counter-offer to Tata Steel’s bid.

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October 27, 2006 : Corus is criticized by the chairman of JCB, Sir Anthony Bamford, for its decision to accept an offer from Tata.

November 3, 2006 : The Russian steel giant Severstal announces officially that it will not make a bid for Corus

November 18, 2006 : The battle over Corus intensifies when Brazilian group CSN approached the board of the company with a bid of 475p per share

December 18, 2006 : Within hours of Tata Steel increasing its original bid for Corus to 500 pence per share, Brazil's CSN made its formal counter bid for Corus at 515 pence per share in cash, 3% more than Tata Steel's

Offer. January 31, 2007 : Britain's Takeover Panel announces in an e-

mailed statement that after an auction Tata Steel had agreed to offer Corus investors 608 pence per share in cash

April 2, 2007 : Tata Steel manages to win the acquisition to CSN and has the full voting support from Corus’ shareholders

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Taxation and Accountancy Considerations Tension between Acquisition / sale of shares

or assets. Due Diligence Tricky areas Accounting issues Accounting policies of the Target Accounting for Goodwill Fair value accounting Earnings per share Other Matters

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Legal DocumentationShare sale Agreement

The shares being sold The Price Restrictive Agreements Warranties Conditions to the Deal Transferring tangible assets Transferring Intangible assets Transferring Liabilities Transferring Employees

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Legal Documentation

The Tax Deed

The Disclosure Letter

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Financing the Deal

TATA- CORUS Deal - $12 billion

Equity Contribution from Tata Steel- $3.88 billion

Credit Suisse leaded, joined by ABN AMRO and Deutsche Bank in the consortium.

Of the $ 8.12 billion of financing , Credit Suisse provided 45% and ABN AMRO and Deutsche provided 27.5% each.

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WHY CASH DEAL?

Tata Steel's security credit rating was investment grade whereas Tata Steel UK had a lower security credit rating.

'share swap' deal less attractive to the Corus shareholders.

'share swap' would have diluted Tata Steel's equity base.

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DEVELOPING A POST-ACQUISITION STRATEGY:

1. The first 100 days2. In-house systems synergy

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First 100 Days: Conflict Points

1. Time Factor2. Leadership style differences3. Who’s in charge? (Who won?)4. Organic vs. bureaucratic cultures5. Open vs. closed communication6. Decision making speed & style7. Structures that don’t match

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In-house systems synergy

Operational Excellence(low cost producer)

Product Leadership(best product)

Customer Intimacy(best total solution)

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Strategy: Disciplines, Priorities

Operational Excellence

Competitive price Error free, reliable Fast (on demand) Simple Responsive Consistent

information for all 'Once and Done'

Operational Excellence

Competitive price Error free, reliable Fast (on demand) Simple Responsive Consistent

information for all 'Once and Done'

Product Leadership

• New products or services

• Risk takers

• Meet volatile customer needs

• Never satisfied - obsolete own and competitors' products

• Learning organization

Product Leadership

• New products or services

• Risk takers

• Meet volatile customer needs

• Never satisfied - obsolete own and competitors' products

• Learning organization

Customer Intimacy

• Easy to do business with

• Have it your way (customization)

• Market segments of one

• Proactive, flexible

• Relationship and consultative selling

• Cross selling

Customer Intimacy

• Easy to do business with

• Have it your way (customization)

• Market segments of one

• Proactive, flexible

• Relationship and consultative selling

• Cross selling

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Culture

M&A Strategy

ResourcesBusiness

ObjectiveStructure

Leadership

Person

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Global Steel Ranking: (Ranking of Tata steel before deal- 55)

Company Capacity (in million tonnes)

Arcelor - Mittal 110.0

Nippon Steel 32.0

Posco 30.5

JEF Steel 30.0

Tata Steel - Corus

27.7

Bao Steel China 23.0

US Steel 19.0

Nucor 18.5

Riva 17.5

Thyssen Krupp 16.5

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Rationale of the Corus deal

augmented its crude steel capacity to 27 mtpa

the combined entity forms the 6th largest Steel company

The merged entity has brought Tata Steel to the world platform

Provided Tata Steel access to new markets and presence across the steel value chain

Much broader distribution network

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Conclusion

With Corus in its fold, Tata Steel can confidently target becoming one of the top-3 steel makers globally by 2015. The company would have an aggregate capacity of close to 56 million tones per annum, if all the planned Greenfield capacities go on stream by then.

We can conclude that if the acquisitions well

planned , Executed and the necessary precautions taken for the deal a company can achieve its strategic objectives and thus ensure its growth through Acquisition.

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THANK YOU