Presented by: Neha Parwani

Merger & Acquisition

Mergers- A merger is a combination of two

companies into one larger company

Acquisition - When one company takes over another

and clearly established itself as the new owner, the purchase is called an acquisition

Types of Mergers
Horizontal merger - Two companies that are in

direct competition and share the same product lines and markets Vertical merger - A customer and company or a supplier and company Conglomeration - Two companies that have no common business areas

 Market-Extension Merger -

Two companies that sell the same products in different markets Product-extension Merger - Two companies selling different but related products in the same market

Tata Steel
Tata Steel a part of the Tata group, one of the largest

diversified business in India Founded in 1907, by Jamshed Ji Nusserwanji Tata One of the worlds lowest-cost producers of steel High level of vertical integration and process improvisation Excellent product mix and good product quality

Tata Steel
Imported about 35% of its total coking coal

requirement, effected by contract price movements

In Feb 2005 acquired Singapore based NatSteel Ltd

In Dec 2005 acquired Thailand Millennium steel

Contribution of Countries to Global Steel Industry

Global Steel Ranking

Company Arcelor - Mittal Capacity(in million tons) 110

Nippon Steel
Posco JEF Steel Tata Steel - Corus Bao steel China US Steel

32
30.5 30 27.5 23 19

Corus Steel Industry

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

 Consist of four divisions : Strip products, Long

products, Aluminum and Distribution, Building system

Core business in Manufacturing, Development and

Allocation of Aluminum and Steel products and services

To restore the competitiveness of the company
10

Acquisition The Deal

Tata acquired Corus, which is four times larger than its size and the largest steel producer in the U.K. The deal, which creates the world's fifthlargest steelmaker
Tata acquired Corus on the 2nd of April 2007 for a price of $12 billion. The price per share was 608 pence, which is 33.6% higher than the first offer which was 455 pence TATAs motive is to capture the market value

Objectives of Acquisition
Higher profitability Global No. 5 company By 2012, expected production of 40 million tons 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 To adopt deintegrated method, break up the supply chain and produce parts most economically Jim Leng, Chairman of Corus This offer from Tata Steel reflects the substantial value created for Corus shareholders

Reasons for Bid

To tap European mature market 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 and low cost high growth markets
Cost of acquisition is lower than setting up green field

plant and marketing and distribution channel

Reasons for Bid

Tata manufactures low value long and fast steel products

while Corus produced high value stripped products 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
Acquisition would help Tata to feature in top 10 players in

the world

Economies of scale

Reasons for Bid

Technology transfer and cross-fertilization of R&D

capabilities between the two companies that specialized in different areas of the value chain
Corus held a number of patents and R&D facilities A strong culture fit between the two organizations

both of which highly emphasized on continuous improvement and ethics

Risks
Demand will reduce incase of global recession
High cost would lead to significant financial

constraints, adversely affect capital expenditure

Corus has existing losses, to make it profitable, has to

turn around drastically

Investment Vehicle
A holding company was setup by Tata in Singapore to

acquire Corus Idea was to have all foreign acquisitions under one holding company Singapore has a favorable Tax jurisdiction and gave Tata Steel an easy avenue for raising global resources and funds The funding was for 60:40 debt equity Group was expected to pump in $4.1 billion as equity into SPV BALANCE $8 billion to be raised through debt

Investment Vehicle
Corus Group Ltd. (UK)

Tata Steel UK (SPV)

Tata Steel Holdings Asia (Singapore)

Tata Steel India

Process of Acquisition
Appointing Advisors
Negotiating Terms Due Diligence

Exchange of contracts
Completion

Market Reaction
Acquirer tends to lose value in a merger

announcement
Tata lost billion dollars in market capitalization 12%

drop in value
Whereas, CSNs market value had risen by $1.6 billion

after losing the Corus bid

TATA After Acquisition

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 tons of steel, while CORUS earned $860 million on sales of 18.6 million tones of steel
Tata has paid premium for consolidated capacities

Merger Success or Failure?

TATA Steel Group rose to 5th position from 56th Big boost to the Indian economy, as TATA was acquiring a company 3 times its size
The production capacity increased from 4million tons

to 28million tons by 2011

Standard & Poors Rating cut it credit Rating to BB

from BBB and removed them from the negative watch list

Verdict
Acquisition - A SUCCESS
The payoff may not be immediate, as the merger may take 5-7years to realize its full potential

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