INVESTMENT PATTERN IN GLOBAL RECESSION by JEAY &VJ (MUDOMS)

Recessions may very well be the greatest investment opportunities of a person's lifetime.

Economists officially define a recession as two consecutive quarters of negative growth in gross domestic product (GDP).

The National Bureau of Economic Research cites "a significant decline in economic activity spread across the economy, lasting more than a few months" as the hallmark of a recession.

 A recession generally fat trimming for companies, from which they should emerge stronger, and that's good news for investors. 

companies performing well in a recession will also perform well in a recovery

RECESSION

Undervalued Securities Lower Home Prices for First-Time Buyers Consumer Bargains Lower Interest Rates Stimulus Opportunities Debt Forgiveness or Reduction Firing/layoffs of incompetents (better promotion

prospects)

7 OVERLOOKED BENEFITS OF THE RECESSION

Capital investment Lay off Dormant mode Merger & Acquisition

OPTIONS IN RECESSION

Improve liquidity position Search for new sources of income Bring immunity to business for a long-term survival

and growth

BEST STRATEGY TO COUNTER RECESSION

CASE OF TATA STEEL & CORUS

• Founded in 1907,by Jamshedji Nusserwanji Tata with a production capacity of 1,00,000 tones

• In the mid- 1990s, emerged as Asia’s first and India’s largest integrated steel producer in the private sector.

• Feb 2005 - Acquired Singapore steel manufacturer NatSteel - Access to major Asian markets and Australia.

• Dec 2005 - Acquired Thailand based Millennium Steel.• Financial year 2006-07 - Net sales Rs.175 billion.• Profit before tax - Rs. 64.14 billion• Profit after tax - Rs. 42.22 billion.

TATA STEEL PROFILE

THE TATA STEEL FACTOR!

WEAKNESS- Quality of Steel was not of International standards.-Non availability of latest R&D facility-Only captured Asian markets

OPPURTUNITY- To become a World leader in low cost and high quality steel products.

THREATS- To Compete with other big global players

SWOT

THE LONG TERM STRATEGY

• Formed on 6th October 1999, (Merger of two companies, British Steel and Koninklijke Hoogovens)

• Company had four divisions: Strip product , Long product , Aluminum and Distribution and Building system.

• Major plants in UK, Netherlands, Germany, France, Norway and Belgium.

• Supplies to the most demanding markets worldwide including construction, automotive, packaging, engineering.

CORUS

THE CORUS FACTOR!

WEAKNESS- High operational Cost.- Lack of Access to raw material

OPPURTUNITY- To merge with a company to eliminate duplication and remove overlaps in marketing, accounting etc.- To get access to raw material and growth markets through merger.

THREATS- Increasing losses resulting to winding up of company.

SWOT

Valuing the Acquisition: Method used Enterprise value multiple.

EV represents a company’s economic value, the minimum amount someone would have to pay to buy it outright.

EV = Market Capital + Preference Stocks + Minimum interest +long term debt – cash equivalent.

EV = 3.5 billion + 0 + 26 billion + 1308 million – 871 million

VALUATION

• Tata acquired Corus on 2nd April 2007 .

• The deal price was US $12.11 Billion.

• On 17 Oct, 2006 Tata’s bid was 455 pence per share (Normal

rate 390 pps).

• Tata Steel, the winner of the auction, declared a bid of 608 pps

surpassing the Brazilian steel maker CSN (603 pps).

• The combined entity became the world’s 5th largest steelmaker

of the world.

FINAL DEAL

• Tata was one of the lowest cost steel producers & Corus was fighting to keep its productions costs under control .

• Tata had a strong retail and distribution network in India and SE Asia. Hence this would bring a combination of high quality developed and low cost high growth markets.

• Technology transfer & cross-fertilization of R&D capabilities . • There was a strong culture fit between the 2 organizations which

highly emphasized on continuous improvement & Ethics.• Economies of Scale and Increase in profitability.• Backward integration for Corus and Forward integration for

Tata Steel.

SYNERGY

INCOME STATEMENT OF TATA STEAL

INCOME STATEMENT OF CORUS

OUTCOME

PROJECTED CAPACITY

GLOBAL RANKING

Acquisition is strong pattern of investment Recession facilitates Reverse Takeover phenomena Cost advantage of Bear market In long term, high yields and capital appreciation

occurs Synergy and Global Market entrance

CONCLUSION