Tata Acquisition to Corus
Tata Steel acquired Corus, a UK-based steel company, in 2007 for $11.3 billion. There were strategic synergies as Corus sought to reduce costs while Tata wanted to expand globally. After outbidding a Brazilian firm, Tata financed the deal through equity, debt facilities, and bridge loans. Post-acquisition, Tata restructured Corus management and later cut 3,500 jobs. The deal established Tata as a global steel producer.
1. Tata Acquisition to Corus
Prof Rishi Chourasia
Founder & Director
Management Vikalp
1 www.managementvikalp.co.in
2. “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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3. INDEX
Introduction
Strategic Choice
Acquisition Chronology
Legal & HR Issues
Final Destination
Funding for the Acquisition
Post Merger Scenario
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4. 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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5. 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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6. Introduction – Corus
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
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7. Introduction – Tata Steel &
Corus
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
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9. 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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10. Strategy
Necessity is mother of all inventions
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11. 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
11 and low cost high growth marketswww.managementvikalp.co.in
12. Synergies
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
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13. 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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14. 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
14 European Commission to buy Corus www.managementvikalp.co.in
15. 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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16. 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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17. 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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18. 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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20. 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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21. TATA wins over Corus
With a bid of 608 pence
Rank Co. Name Mm tn/yr
1 Arcelor-Mittal (Lux) 110
a share, Indian
2 Nippon Steel 32
corporate giant Tata (Japan)
Steel outsmarted CSN's 3 Posco (South 30.5
603 pence a share Korea)
offer during the night- 4 JFE (Japan) 29.9
long auction process. 5 Tata-Corus 23.8
(India)
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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25. Use of Offshore entities - Singapore
US Corporation
United States
Singapore
Equity Singapore
Limitation on Benefit (LoB)
Clauses
Singapore
Capital gains tax
exemption tagged to
Mauritius Treaty
Equity / CCD
Income characterization
issues
Interest taxed at 15%
India
Indian
Company Shareholders
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27. 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
27 and ABN AMRO. www.managementvikalp.co.in
28. 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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29. 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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30. 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.”
30 www.managementvikalp.co.in