Tata Steel's Acquisition of Corus
| Case Code: FINC049 Case Length: 27 Pages Period: 2006-2007 Pub Date: 2008 Teaching Note: Available |
Price: Rs.500 Organization: Tata Steel Limited, Corus Group Plc Industry: Iron & Steel Countries: India, Netherlands Themes: Financing Acquisition |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Tata Steel Vs CSN: The Bidding War
There was a heavy speculation surrounding Tata Steel's proposed takeover of Corus ever since Ratan Tata had met Leng in Dubai, in July 2006. On October 17, 2006, Tata Steel made an offer of 455 pence a share in cash valuing the acquisition deal at US$ 7.6 billion. Corus responded positively to the offer on October 20, 2006.
Agreeing to the takeover, Leng said, "This combination with Tata, for Corus shareholders and employees alike, represents the right partner at the right time at the right price and on the right terms." In the first week of November 2006, there were reports in media that Tata was joining hands with Corus to acquire the Brazilian steel giant CSN which was itself keen on acquiring Corus. On November 17, 2006, CSN formally entered the foray for acquiring Corus with a bid of 475 pence per share. In the light of CSN's offer, Corus announced that it would defer its extraordinary meeting of shareholders to December 20, 2006 from December 04, 2006, in order to allow counter offers from Tata Steel and CSN...
Financing the Acquisition
By the first week of April 2007, the final draft of the financing structure of the acquisition was worked out and was presented to the Corus' Pension Trusties and the Works Council by the senior management of Tata Steel. The enterprise value of Corus including debt and other costs was estimated at US$ 13.7 billion...
The Integration Efforts
Industry experts felt that Tata Steel should adopt a 'light handed integration'approach, which meant that Ratan Tata should bring in some changes in Corus but not attempt a complete overhaul of Corus'systems. N Venkiteswaran, Professor, Indian Institute of Management, Ahmedabad said, "If the target company is managed well, there is no need for a heavy-handed integration. It makes sense for the Tatas to allow the existing management to continue as before......
The Synergies
Most experts were of the opinion that the acquisition did make strategic sense for Tata Steel. After successfully acquiring Corus, Tata Steel became the fifth largest producer of steel in the world, up from fifty-sixth position.
There were many likely synergies between Tata Steel, the lowest-cost producer of steel in the world, and Corus, a large player with a significant presence in value-added steel segment and a strong distribution network in Europe. Among the benefits to Tata Steel was the fact that it would be able to supply semi-finished steel to Corus for finishing at its plants, which were located closer to the high-value markets...
The Pitfalls
Though the potential benefits of the Corus deal were widely appreciated, some analysts had doubts about the outcome and effects on Tata Steel's performance. They pointed out that Corus' EBITDA (earnings before interest, tax, depreciation and amortization) at 8 percent was much lower than that of Tata Steel which was at 30 percent in the financial year 2006-07.....
The Road Ahead
Before the acquisition, the major market for Tata Steel was India. The Indian market accounted for sixty nine percent of the company's total sales. Almost half of Corus' production of steel was sold in Europe (excluding UK). The UK consumed twenty nine percent of its production. After the acquisition, the European market (including UK) would consume 59 percent of the merged entity's total production (Refer Table III for the spread of Tata-Corus markets before and after the acquisition)...
Exhibits
Exhibit I: Top Ten Players in the Global Steel Industry
Exhibit II: Tata Steel - Consolidated Income Statement (2003-07)
Exhibit III: Tata Steel - Consolidated Balance Sheet (2003-07)
Exhibit IV: Corus - Consolidated Income Statement (2004-06)
Exhibit V: Corus - Consolidated Balance Sheet
Exhibit VI: Takeover Regulations in the UK
Exhibit VII: Auction Rules that Governed the Acquisition of Corus
Exhibit VIII: Corus - Stock Price Chart (September 2002 - March 2007)
Exhibit IX: Tata Steel - Stock Price Chart (September 2002 - June 2007)
Exhibit X: Fitch Ratings
Exhibit XI: Tata-Corus - Profile
Exhibit XII: Tata Corus - Consolidated Financial Performance
Exhibit XIII: A Note on EV, EBITDA and EV/EBITDA
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