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
Introduction
On January 31, 2007, India based Tata Steel Limited (Tata Steel) acquired the Anglo Dutch steel company, Corus Group Plc (Corus) for US$ 13.70 billion3. The merged entity, Tata-Corus, employed 84,000 people across 45 countries in the world. It had the capacity to produce 27 million tons of steel per annum, making it the fifth largest steel producer in the world as of early 2007 (Refer Exhibit I for the top ten players in the steel industry after the merger). Commenting on the acquisition, Ratan Tata, Chairman, Tata & Sons, said, "Together, we are a well balanced company, strategically well placed to compete at the leading edge of a rapidly changing global steel industry."
Tata Steel outbid the Brazilian steelmaker Companhia Siderurgica Nacional's (CSN) final offer of 603 pence per share by offering 608 pence per share to acquire Corus.
Tata Steel had first offered to pay 455 pence per share of Corus, to close the deal at US$ 7.6 billion on October 17, 2006. CSN then offered 475 pence per share of Corus on November 17, 2006.
Finally, an auction was initiated on January 31, 2007, and after nine rounds of bidding, Steel could finally clinch the deal with its final bid 608 pence per share, almost 34% higher than the first bid of 455 pence per share of Corus.
Many analysts and industry experts felt that the acquisition deal was rather expensive for Tata Steel and this move would overvalue the steel industry world over.
Commenting on the deal, Sajjan Jindal, Managing Director, Jindal South West Steel said, "The price paid is expensive...all steel companies may get re-rated now but it's a good deal for the industry." Despite the worries of the deal being expensive for Tata Steel, industry experts were optimistic that the deal would enhance India's position in the global steel industry with the world's largest and fifth largest steel producers having roots in the country. Stressing on the synergies that could arise from this acquisition, Phanish Puram, Professor of Strategic and International Management, London Business School said, "The Tata-Corus deal is different because it links low-cost Indian production and raw materials and growth markets to high-margin markets and high technology in the West.
The cost advantage of operating from India can be leveraged in Western markets, and differentiation based on better technology from Corus can work in the Asian markets."
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