(Tata Steel'S Acquisition of Corus) : (Business Policy and Strategic Management)

[TATA STEELS ACQUISITION OF CORUS]
[BUSINESS POLICY AND STRATEGIC MANAGEMENT]

ABINAYA.R ANNAPOORNA.S PAVITHRA.P.V AJAY KARTHIK.R PRETHESH.S RAMESH ARAVIND.A
Introduction:
On April 2, 2007, TATA Steel Ltd completed its acquisition of Corus, which is four times larger than its size and the largest steel producer in the U.K. Actually this deals ends with US$ 12.1 billion. The deal, which creates the world's fifthlargest steelmaker, is India's largest ever foreign takeover and follows Mittal Steel's $31 billion acquisition of rival Arcelor in the same year.
TATA Steel Before Acquisition:

Tata Steel, formerly known as TISCO (Tata Iron and Steel Company Limited), was the world's 56th largest and India's 2nd largest steel company with an annual crude steel capacity of 3.8 million tones. It is based in Jamshedpur, Jharkhand, India. It is part of the Tata Group of companies. Post Corus merger, Tata Steel is India's second-largest and second-most profitable company in private sector with consolidated revenues of Rs 1,32,110 crore and net profit of over Rs 12,350 crore during the year ended March 31, 2008. The company was also recognized as the world's best steel producer by World Steel Dynamics in 2005. The company is listed on BSE and NSE; and employs about 82,700 people (as of 2007).
CORUS Before Acquisition By TATA:

Corus was formed from the merger of Koninklijke Hoogovens N.V. with British Steel Plc on 6 October 1999.It was the world's 6th largest and 2nd in EUROPE and 1st in UK. It was the largest steel company with an annual crude steel capacity of 3.8 million tones. It has major integrated steel plants at Port Talbot, South Wales; Scunthorpe, North Lincolnshire; Teesside, Cleveland (all in the United Kingdom) and IJmuiden in the Netherlands. It also has rolling mills situated at Shotton, North Wales, England, Motherwell, North Lanarkshire, Scotland, Hayange, France, and Bergen, Norway. In addition it has tube mills located at Corby, Stockton in England and in the Netherlands. Group turnover for the year to 31 December 2005 was 10.142 billion. Profits were 580 million before tax and 451 million after tax. It has the presence in 50 nations. The company listed on 371st rank in fortune list.
Acquisition Of Tata Steel :

On January 31, 2007, Tata Steel Limited (Tata Steel), one of the leading steel producers in India, acquired the Anglo Dutch steel producer Corus Group Plc (Corus) for US$ 12.11 billion ( 8.5 billion). In 2005 itself, The Indian steel giant, Tata Steel wants to fulfill its ambition to expand its business further. Then they approached Corus. The process of acquisition concluded only after nine rounds of bidding against the other bidder for Corus - the Brazil based Companhia Siderurgica Nacional (CSN). This acquisition was the biggest overseas acquisition by an Indian company. Tata Steel emerged as the fifth largest steel producer in the world after the acquisition. After this acquisition top management of Corus was retained as TATA steel believed that a high degree of cultural compatibility existed between the two companies this was expected to facilitate an effective integration of business over a period of time. Tata was a major supplier to the Indian auto industry and the demand for value added steel products was growing in this market. Corus' expertise in making the grades of steel used in automobiles and in aerospace could be used to boost Tata Steel's supplies to the Indian automobile market. The acquisition gave Tata Steel access to Corus' strong distribution network in Europe.
Benefits Of This Acquisition:

Actually the acquisition of Corus would lead to cross fertilization of the research and development capabilities. Tata steel has the chance to gain best practices and expertise of senior Corus management.
i.
Acquire technology :
Tata was one of the lowest cost steel producers in the world and had self sufficiency in raw material. Tata steel was expected to retain access to cost raw materials and exposure to high growth in emerging market and to achieve prize stability in developed markets. Corus expertise in making the grades of steel used in automobiles and in aerospace could be used to boost Tata Steel's supplies to the Indian automobile market.
Corus in turn was expected to benefit from Tata Steel's expertise in low cost manufacturing of steel. As well as Tata steel expected to produce high grades of steel with low cost. Hence there would be a powerful combination of high quality developed and low cost high growth markets.
ii.
crude steel capacity :

Tata steel crude steel production capacity increased from 3.8million tonnes to 27million tonnes. So it becomes the 5th largest steel producer in the world.
iii.
world platform:
The merged entity has brought Tata Steel to the world platform. This acquisition Provided Tata Steel access to new markets and presence across the steel value chain and it provides much broader distribution network.
iv.
Cultural compatibility:
After this acquisition top management of Corus was retained as TATA steel believed that a high degree of cultural compatibility existed between the two companies this was expected to facilitate an effective integration of business over a period of time. This was expected to facilitate effective integration of business over the period of time.
v.
Return on investment:
Tata steel also planned at the time to sell low profit Corus assets and aimed to increase its return on invested capital tour 30%.
vi.
vii.
Tata steel's Continuous Improvement Program Aspire values: Trusteeship, integrity, respect for individual, excellence. Corus's Continuous Improvement Program The Corus core values: code of ethics, integrity, creating value in focus, selective growth and respect for our people.
with the core credibility and Way with the steel, customer
Limitations Of Tata Steel Acquisition:

i. EBITDA:
Corus had been facing tough times and had reported a substantial decline in profit after tax in the year 2006. At the financial year 2006-2007, the EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization) of Corus is 8% and the EBITDA of Tata steel is 30%.
ii.
Enterprise Value:
Some financial analysts at the year of 2007 were of the opinion that Corus was overvalued by Tata steel at approximately 7.7times the EV (Enterprise Value). However, they claimed that the price paid by Tata Steel (608 pence per share of Corus) for the acquisition was too high.
iii.
Equity dilution:
Analysts expressed concerns that the Corus acquisition would result in significant equity dilution of Tata steel.
iv.
High leveraged:
Tata steel would also become highly leveraged due to the significant increase in debt in its capital structure. The US$ 6.14 billion debt that was raised to finance the acquisition had been secured by the assets of Corus and would be serviced by the cash flows generated by Corus. Financial experts pointed to the risk taken by Tata steel as it passed the debt burden on to Corus. There was danger that if the business performance of Corus declined the companys cash inflows would reduce.
SWOT ANALYSIS
Strengths of Tata Steel:
Tata Steel is the pioneer of steel business in India and thus enjoys brand equity. Tata Steel has a multiple companies under the same banner, which gives it an advantage of value-chain efficiency, whereby the company can utilize products made in its sister companies to process raw materials and increase efficiency. It also capable to produce steels in low price.
Weaknesses of Tata Steel:

The biggest weakness of Tata Steel is its increasing debt-to-equity ratio. Most of its assets are financed by debt, which can be dangerous in the long-run. Tata
Steel largely depends on domestic and a few international markets for generating business. This over-dependence can prove to be fatal in times of economic crisis.
Opportunities for Tata Steel:

Tata Steel is branching out to overseas market. The company has recently signed a deal with Corus group, which provides access to European markets. Tata Steel will now be in a position to utilize the R&D facility and the patents owned by the Corus group. Exposure to new technologies and markets is a big advantage for the company.
Threats to Tata Steel:

In the current scenario, the biggest threat for Tata Steel is to maintain the Co2 emission standards when it starts its operations in Europe. The sudden overseas exposure along with a possible economic slowdown is the biggest challenge faced by Tata Steel in the present circumstances.
Conclusion:
Apart from the limitations the Tata steel merger had so many advantages in manufacturing, access to global customers, technology, opening India to Corus or Leveraging research and development for Tata Steels Greenfield projects. It hopes these will save costs up to $350 million per year. 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 tonnes per annum, if all the planned Greenfield capacities go on stream by then.

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[TATA STEELS ACQUISITION OF CORUS]

[BUSINESS POLICY AND STRATEGIC MANAGEMENT]

TATA Steel Before Acquisition:

CORUS Before Acquisition By TATA:

Acquisition Of Tata Steel :

Benefits Of This Acquisition:

crude steel capacity :

Limitations Of Tata Steel Acquisition:

Weaknesses of Tata Steel:

Opportunities for Tata Steel:

Threats to Tata Steel:

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