tata_corus by rishi chourasia

8/8/2019 Tata_Corus by Rishi Chourasia

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I believe this will be the first step inshowing that Indian industry can infact step outside the shores of India inan international marketplace and

acquit itself as a global player. --Ratan Tata , Chairman of Tata Steel


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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 hasexperienced three distinct phases

Growth (1950-73)

Annual growth rate of 5.8%

Stagnation (1974-2001)

Annual growth rate of 0.6%, overcapacityby 25%

Boom (2002-2006)

Annual growth rate of 7%-8% andemergence of China


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Introduction Tata Steel

One of the worlds lowest-cost producers of steel

High level of vertical integration and processimprovisation,

Excellent product mix and good product quality.

Imported about 35% of its total coking coalrequirement, effected by contract price movements.

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


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Formed on 6th October, 1999 through the mergerof 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 undercontrol (operating profit fall by 37% in 2006) andwas 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 tonesagainst Tata steels 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 theworld

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 marketconstraints for Organic growth made TATAs think

Inorganically.

Looming Take Over Threat from L.N.Mittal, coupledwith low Promoter holding in TATA steel made themmore Vulnerable.

CORUS was Best Fit In this Scenerio.

To sustain the Growth in Europe, it wanted to secureaccess 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 inthe world and had self sufficiency in raw material.

Corus Fighting to keep its productions costsunder control and was on the look out for sourcesof iron ore.

Tata Strong retail & distribution network inIndia 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 ofR&D capabilities between the two companies thatspecialized in different areas of the value chain

A strong culture fit between the two organizationsboth of which highly emphasized on continuous

improvement and ethics

Synergies


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Acquisition Chronology

Oct 5, 2006 - Tatas confirm interest in acquiringCorus

Oct 17 - Tatas propose a $7.6 billion bid forCorus 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 toallow CSN more time


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Dec 10 - Tata Steel raises bid to $9.2 billion

Dec 10 - Tata Steel raises bid to $9.2 billion at500 pence per Corus share; Corus Boardrecommends offer

Dec 11 - CSN makes formal bid of $9.6 billion at515 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 tomake revised offers

Dec 22 - Tata Steel wins approval from the

European Commission to buy Corus


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2007

Jan 26 - Takeover Panel says it will launch anauction 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 bymiddle 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 tothe bid would have to garner support from 50 percent of shareholders and 75 per cent of shares atthe 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 theCurrent Management.

TATA was clear and forthwith with the Union

on the discussion of future Pension Benefits.

Corus will become more competitive, which willincrease 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 TakeoverPanel to decide the winner between the twosuitors began at 2200 hrs Indian time (1630 hrsGMT)

Tata Sons represented by Director Arun Gandhialong with IBs and advisers

Tata Steel bid from the offices of its lawyersHerbert 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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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 wouldhave walked away" :Tata

Tata offers best value for shareholders: Corus

Chairman Jim Leng


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With a bid of608 pencea share, Indian

corporate giant TataSteel outsmarted CSN's603 pence a shareoffer 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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Acquirer

SPV

Target

100%

Equity

Lender

Loan

LeveragedBuy-out

India

Offshore Jurisdictions

LBO

22


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Funding the Corus acquisition


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Use of Offshore entities - Singapore

US Corporation

Indian

Company Shareholders

United States

India

Singapore

Singapore

Equity

Equity / CCD

Singapore

Limitation on Benefit (LoB)

Clauses

Capital gains taxexemption tagged toMauritius Treaty

Income characterization

issues Interest taxed at 15%


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

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

Of the 3.3 billion of financing being raised at the SPVlevel, Credit Suisse would provide 45% and ABN AMRO and

Deutsche 27.5% each.

The $1.8 billion bridge debt being raised at the Tata Steellevel in India would be shared between Standard Chartered

and ABN AMRO.


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Financing India's largest leveraged buyoutcomprised of a $3.88 billion equitycontribution from Tata Steel, a fullyunderwritten non-recourse debt package of$5.63 billion, a revolving credit facility of$669 million.

As per the acquisition plan a special purposevehicle, a wholly owned subsidiary, calledTata 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 3500jobs

Tata Steel loses Corus chairman to Rio Tinto


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Ratan Tata Chairman of Tata

Steel

This proposed acquisition represents a definingmoment for Tata Steel and is entirely consistent

with our strategy of growth through internationalexpansion. Corus and Tata Steel are companieswith long, proud histories. We have compatiblecultures of commitment to stakeholders andcomplementary strengths in technology,efficiency, product mix and geographical spread.Together we will be even better equipped toremain at the leading edge of the fast changingsteel industry.


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Thank you

Rishi ChourasiaMMS (finance) CRKIMR 09

[email protected]

+91 9819 151836

tata_corus by rishi chourasia

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