Tata-Corus deal land mark take over

Document Sample
Tata-Corus deal land mark take over Powered By Docstoc
					              Date – 18th September, 2009




    TATA & CORUS




1
    Objectives of Research
     Introduction.

     Indian Steel Market.

     CORUS Steel Industry.

     The DEAL.

     TATA after Acquisition.

     Loss in the 1st Quarter of 2009

     Conclusion and Recommendation
2
    Indian Steel Market
     Tata steel industry was the first Indian steel industry
      established 1907.



     It holds an important place in the Indian business history.




     Tata started other business in India in a short span of 30
      years.

3
    Cont…
     Steel industry (heavy industry) is considered as a very
      influential factor in the modern economy.


     India is considered as a major exporter of steel on a world
      map.


     Due to this, antidumping actions has been taken by
      developed countries.


4
    Global Steel Market : Overview
     IISI forecasts the global steel demand would be 1.32 billion
      tones by 2010.

     Much of these demand generated from India and China


     China highest Steel producing country




5
    Global Steel ranking
      Company              Capacity(in million tonnes)

      Arcelor - Mittal     110

      Nippon Steel         32

      Posco                30.5

      JEF Steel            30

      Tata Steel - Corus   27.5

      Bao steel China      23

      US Steel             19



6
      Corus Steel Industry
 Formed on 6th Oct 1999, through merger of 2 companies : British
    Steel and Koninklijke Hoogovens.
   Consist of four divisions : Strip products, Long products,
    Aluminum and Distribution, Building system
   Operates as an International company
   Core business in Manufacturing, Development and Allocation of
    Aluminum and Steel products and services
   Wide variety of products and services
   Largest steel producer in UK with £10,142 million annual revenue
    and work force of 50,000 employees

7
       Objectives of Acquisition
     Higher profitability
     TATA current EBITDA is 13% production tonnes
     Global No. 6 company
     By 2012, EBITDA expected is 25%, production of 40 million
      tonnes giving it the position of Global number 2.
     To gain access to global steel market and expand production
      capacity to keep pace with growing demand for steel
     Jim Leng, Chairman of Corus“This offer from Tata Steel reflects
      the substantial value created for Corus shareholders


8
    Objectives of Acquisition
     TATA looking for mature market in Europe for its finished
      products
     Corus holds a number of patients and R & D facility.
     Cost of Acquisition lower than setting up a green field plant
      and marketing and distribution channel.
     Corus wanted to reduce its employees cost and TATA is well
      known for handling its labours efficiently.




9
     Consolidation Synergy
      As part of its integration process being done at two levels,
       the steel makers expects to cross the $450 million target by
       the end of 2010.

      Synergy targets to be achieved included areas of
       manufacturing procurement research and development, I.T.,
       Finance and capital projects




10
                 Mr. B. Muthuraman (M.D. Tata Steel)

      We will make the steel business into an EVA positive one by 2007
       – 08 through new initiatives, to be called ASPIRE, in all relevant
       areas of our business.
      We will continue to be the lowest cost producer of steel in the
       world by continuous improvement, benchmarking and up
       gradation.
      We will strengthen our partnerships with our customers and
       suppliers, and create mutually value creating opportunities.
      Unleash people’s potential and create more leaders. This Company
       has had and has many outstanding leaders.
11
         The DEAL..

      Officially announced on April 2nd 2007.

      TATA’s motive is to capture the market value.

      Total value of this acquisition was $12 Billion (608 pence per share

       except 603 per share).

      Corus gained profitable opportunity to exit and a buyer for some

       time.
12
     Ups and down
  Sep 20, 06 : CORUS uses the strategy to work with low cost producer.
  Oct 06, 06 : Initial offer by TATA is considered to be too low.
  Oct 17, 06: TATA kept its offer to 455 pence per share.
  Oct 20, 06 : CORUS accepts the offer of £4.3 billion.
  Oct 23, 06 : Brazilian Steel Group CSN counter-offer to TATA’s offer.
  Oct 27, 06 : CORUS criticized by JCB for acceptance of TATA’s offer.
  Nov 18, 06 : The CSN approaches Corus With an offer of 475 pence per share
  Nov 27, 06 : Board of Corus decides to give more time for shareholders to decide
   whether it issue forward a formal offer.
  Dec 18,06 : Tata increases its original bid for Corus 500 pence per share, then CSN
   made its counter bid at 515 pence per share in cash
  Jan 31, 07 : Tata had agreed to offer Corus investors 608 pence per share in cash
  Apr 02, 07 : Tata steel manages to win acquisition to CSN and has the full voting
   support from Corus shareholders
13
        TATA After Acquisition
      Seven member team for this DEAL.

      TATA has to pay $12 billion, where 2/3rd was being financed.

      After the bidding conflict with CSN, TATA ended up paying more

       to CORUS.

      Still TATA earned operating profits of $840 million on sales of

       5.3 million tonnes of steel, while CORUS earned $860 million
       on sales of 18.6 million tones of steel.

14
       SWOT Analysis for TATA
  Strength
      Lowest cost producer in world.
      Experience of TATA group in doing global activity.
      Stable balance sheet (Low Debt to Equity Ratio).




  Weakness
      Corus was triple the size of TATA steel in terms of production.




15
     Swot Analysis
      Opportunity
        Consolidation trend in Steel Industry
        CSN’s lost image after failure of 2002 negotiations
        To get exposed to global steel market


      Threat
        Brazil company CSN
        Russian company Severstal
        No committed financers to support the possible deal




16
Loss in quarter 1 of 2009 - 2010
 TATA Steel posted a consolidated net loss (including Corus) of Rs
  2,209 crore ($461 million).
 Incurred a profit of Rs 3,901 crore ($814 million ) in the April-
  June quarter of FY’09.
 Sales volume of Indian operations was higher by 22 percent but sales
  from its European operations (Corus) fell heavily.
 Group consolidated turnover was Rs.23,292 crores as compared to
  Rs. 43,496 crores.



17
       Formulating a Research Design
                        Descriptive Study
  Fact finding investigation with adequate interpretation.

  Identifies various characteristics of organization.

  Prediction is used outside the boundary of research.

  Provides facts for planning action program.

  Useful in Verifying Focal concepts through empirical

18
     observation
       Reasons for Failure
  Global Economic downturn.

  Increase in iron ore and coal prices.

  Contraction in demand from the building and automotive sectors.

  Bidding Disturbance from CSN to TATA Steel

      455 pence per share is pushed to 608 pence per share of Corus.

      Main Competitors are CSN and SEVERSTAL

  Arcelor Mittal, reported an 85% drop in core profit & Nippon

19
     Steel, ranked No 2, booked a second consecutive quarterly loss.
     Defining The Problem
     Lower chance of success
      Size of target company Corus
      Other bidding companies like CSN etc.
      Higher price per share
      Less opportunity to build relationship with the target’s
       management
      Local Market reaction
      Arranging funds as it was an all cash deal



20
     Alternates
      Global Expansion
        Taking the TATA trust globally
        Joint Ventures with other steel manufacturers
        Could have searched for reserves in India, Singapore etc.


      Profitability
        Could have diversified its investment




21
     Alternatives
      Expansion – If TATA steel were to create, from scratch, 19
       million tonnes of steel making capacity comparable in quality
       to what Corus possesses, It would end up investing 70% to
       85% more than it is paying now.

      Besides, setting up a new factory, a 3 to 5 years project if
       everything goes well, has great execution risk.




22
     Contingency Plan
      The Contingency plan could have been a joint venture with
       mittal steels as it is allready into process of setting up a big
       steel unit in Orrisa, TATA could have provided them with
       iron ore reserves and would have expected share in its profits




23
     Conclusion

     “ I believe this will be the first step in showing that Indian
        industry can step outside the shores of India in an
        international market place and acquit itself as a global
        player”

                                                  - Ratan Tata




24
25