session iii - tata-corus
TRANSCRIPT
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 1/132
Small Fish
Swallowsthe Big Fish
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 2/132
Acquisition
ofCorus
by
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 3/132
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 4/132
Tata Steel
“We think we started on sound andstraightforward business principles,considering the interests of theshareholders our own and the health andwelfare of the employees, the surefoundation of our success.”
-Jamsetji Nuservanji Tata, Founder
“The welfare of the labouring class mustbe one of the first cares of the employer.”– Sir Dorab Tata
It was the first time that the raw
materials of India did not go out andreturn as finished articles to be sold in thecountry. Above all, it was purely Swadeshienterprise financed by Swadeshi moneyand managed by Swadeshi brains.”
- Sir Dorab Tata describing the first shareissue in 1907
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 5/132
Tata SteelPerformanceHighlights 2006-07
Consolidated Turnover (excluding Corus) up by 23%at USD 6,311 million
• Consolidated EBITDA (excluding Corus) up by 20% at USD1,815 million
• Consolidated Profit After Tax (excluding Corus) up by 12% atUSD 961 million
• Highest ever Dividend: 130% + 25% special dividend
• Saleable Steel Production up by 8% at 4.93 million tonnes
• G blast furnace crossed 2 million tonnes production
• Highest ever annual production at HSM (3.24 Mtonnes) andCRM (1.5 Mtonnes)
• In-house upgradation of E blast furnace completed
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 6/132
Commissioning of 4’ Precision and 3’ Commercial
Tube Mill in Jamshedpur
• Gross Steel sales up by 8% at 4.79 million tonnes
• Sales to Automotive sector up by 29% at 0.86 million tonnes
• Global Supplier Approval received from Honda Engg. Services(Honda Car, Japan) for CRCA
• Sales of Branded Products up by 13% at 0.99 million tonnes
• Turnover of Branded Products up by 20% at Rs. 4,604 crores
(USD 1,059 million) – crossed USD 1 billion for the first time
• Consolidation of NatSteel Asia equity holding in Xiamen, Chinaand Vietnam
• Tata Steel (Thailand) integration process completes oneyear
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 7/132
Tata Steel Performance
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 8/132
Tata Steel Performance
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 9/132
Tata Steel Performance
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 10/132
Corporate Sustainable Responsibility at Tata
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 11/132
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 12/132
Globalization at Tata Steel
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 13/132
Tata Steel‟s Growth Strategy
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 14/132
Tata Steel
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 15/132
Tata Steel Performance
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 16/132
Acquisition of Corus: by
Tata SteelCorusCreated from the merger of British Steel andHoogovens
Corus was Europe's second largest steelproducer with
Revenues GBP 9.2 billion (in 2005) &
Crude steel production 18.2 million tons(primarily in U.K. and Netherlands)
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 17/132
Ninth-largest steel maker worldwide
Activities- 3 main divisions:∙ Strip products,
∙ Distribution and building systems division,
∙ Global network of sales & services offices
• It opened the bid for its 100% stake late in
2006
• Tata (India) & Companhia SiderurgicaNacional (CSN) emerged as most powerfulbidder
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 18/132
Performance of Corus (2000-05)
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 19/132
Mergers
Acquisitions
Takeovers
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 20/132
Merger• A strategy through which two firms agree to
integrate their operations on a relatively co-equalbasis
Acquisition• A strategy through which one firm buys a
controlling, or 100% interest in another firm withthe intent of making the acquired firm asubsidiary business within its portfolio
Takeover• A special type of acquisition when the target firm
did not solicit the acquiring firm‟s bid for outrightownership
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 21/132
Mergers & Acquisitions
Cost new productdevelopment/increased
speed to market
Increased
diversification
Increased
market power
Avoiding excessive
competitionOvercomingentry barriers
Learning and
developing new
capabilities
Lower risk
compared to
developing newproducts
Reasonsfor
M&A
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 22/132
M&A Process
AnalysisDue
Diligence
Post Merge
Integration
Target
Identification Negotiation Deal
Closing
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 23/132
Date Line
Initially Corus agreed 455p a
share offer from India's Tata Steelon 20th October 2006, valuing the group at£4.3bn
But Standard Life, the largest investor inCorus (7.9% stake): terms were too low
Sir Anthony Bamford (Britain's leadingindustrialist): Tata's first bid was too lowand that it would damage Britain'smanufacturing industry
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 24/132
Tata was advised by ABN Amro,Deutsche Bank and NM Rothschild,while
CSN's advisers were Goldman Sachs,Lazard and UBS
Corus was advised by Credit Suisse,JP Morgan Cazenove and HSBC
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 25/132
CSN announced on November 17th anindicative bid of 475p a share
Corus reported on November 29th a60% surge in third-quarter profits onthe back of booming Europeandemand for steel
Tata Steel on December 11th uppedits offer to 500p a share, valuingCorus at £4.7bn
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 26/132
CSN on the same day, raised its terms to 515p,valuing Corus at £4.9bn
The Corus board promptly recommended both therevised offers to its shareholders
Tata won the battle and acquired Corus on January31st 2007 upping their bid to 608p per share,valuing Corus at £6.7 bn ($11.3bn)
Corus's chairman Jim Leng became the group'sdeputy chairman.
Whereas the Brazilians CSN final offer in an auction
by the U.K.'s Takeover Panel was 603 pence
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 27/132
Financing of Corus Acquisition
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 28/132
Financing Plan of Tata Steel Equity
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 29/132
19
5
2 1.7
0
5
10
15
20
Corus Group
(in UK & The
Nl)
Tata Steel -
Jamshedpur
NatSteel -
Singapore
Millennium
Steel -
Thailand
Tata Steel - Corus:Capacity before acqusition
(in M.Ton./annum)
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 30/132
19
1210
65
2 1.7
0
2
4
6
8
10
1214
16
18
20
Corus Gr.(in
UK & Nl)
TS-
Jharkhand
TS-
Jamshedpur
TS- Orissa TS-
Chattisgarh
NatSteel -
Singapore
Millennium
Steel -
Thailand
Tata Steel-Corus: Projected Capacity
(inM.Ton./annum)
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 31/132
Effect in Share market for both Tata & Corus
Shares of Tata felt more than 10 per cent inMumbai on 31st Jan 2007 following theconclusion of the auction, as some analystssaid the deal was expensive and could
strain Tata finances at least in the shortterm whereas,
Corus shares jumped 38p or 6.8 per cent inLondon trading to 601p on the same day.
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 32/132
Bid battle‟s effect on Corus share price
(From 5th Oct 06-31st Dec 07)
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 33/132
Share Price of Tata Steel
(From bid starting in Oct 06 to acquisition & after)
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 34/132
The Acquisition was made by Tata SteelU.K.,
A wholly-owned indirect subsidiary of TataSteel, recently incorporated in the UK forthe purpose of completing the acquisition
Acquisition was effected by means of ascheme of arrangement:
∙ Under Section 425 of the (English)Companies Act 1985; subject to High Courtof Justice in England and Wales and
∙ Corus' shareholders approval
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 35/132
Total Global Production (1131.8 Mton)
Other Companies,
891.2
Arcelor Mittal
(Global), 120 Nippon Steel
(Japan), 32
Tata Steel
(India), 28.2
JFE (Japan), 29.9
POSCO (South
Korea), 30.5
Tata Steel leapfrogged from 56th to 5th position world wide after aquisition
Benefits from the deal
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 36/132
Benefits from the deal
Enhanced scale positioned the combined
group as the fifth largest steel company inthe world by production,
The powerful combination of
low cost upstream production in India with
high end downstream processing facilities of Corus
∙ Will improve the competitiveness of theEuropean operations of Corus significantly
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 37/132
Financial Performance –Consolidated
(excluding Corus)
(FY 2006-07 vs FY 2005-06)
2005-06 2006-07
Rs.crores USDMillion Rs.crores USDMillion
22,272 5,123 Turnover 27,437 6,311
6,591 1,516 EBITDA 7,888 1,815
32% 32% EBITDA Margin 31% 31%
5,515 1,269 Profit before Tax 6,313 1,452
3,735 859 Net Profit 4,177 961
67.62 1.56 EPS (Rs per share) 73.06 1.68
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 38/132
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 39/132
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 40/132
∙ The cross-fertilisation of research anddevelopment capabilities
∙ A transfer, from Europe to India, of technology, best practices and expertise of senior Corus management
∙ Tata Steel will retain access to low cost rawmaterials, Slab for the enlarged group and
∙ Exposure to high growth in emergingmarkets, whilst gaining price stability indeveloped markets
Group Ambition (Tata & Corus)
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 41/132
Group Ambition (Tata & Corus) Tata Steel & Corus: a compelling vision in steel
Global player with a balanced presence indeveloped European and fast growing Asian
markets Strong positions in construction, automotive and
packaging market sectors
Significant raw material security & greenfield /brownfield developments
Lowest cost position in Europe and South EastAsia
Current: EBITDA of 13% ; 25 million tonnes: # 6By 2012: EBITDA of 25% : 40 million tonnes: Potential #2
Enhanced Product Portfolio
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 42/132
Strong High Value Added Product Portfolio straddling Automotive
and
Construction Spaces
Access to New Markets
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 43/132
Access to New Markets Combined entity has significant presence in both
emerging and developed economies
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 44/132
Strong Cultural Fit
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 45/132
Strategic Integration
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 46/132
Significant identified Synergies
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 47/132
Statements
On its first bid in October chairman of Tata Steel Ratan Tata said “This proposed acquisition represents a
defining moment for Tata Steel and isentirely consistent with our strategy of growth through internationalexpansion”
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 48/132
Mr. Ratan added
“Corus and Tata Steel are companies
with long, proud histories. We havecompatible cultures of commitment tostakeholders and complementary
strengths in technology, efficiency,product mix and geographical spread.Together we will be even betterequipped to remain at the leadingedge of the fast changing steelindustry.”
Ji L Ch i f C id
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 49/132
Jim Leng, Chairman of Corus, said
“This offer from Tata Steel reflects thesubstantial value created for Corusshareholders since the placing and
open offer and launch of our „Restoring Success‟ programme in2003” .
Ratan Tata said at opening speech on31st January 2007
“I b li h hi ill b h fi i
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 50/132
“I believe that this will be the first step inensuring that the Indian industry can in factstep outside the shores of India in an
international market place and in fact acquititself as a global player”
MD Tata Steel Mr. Muthuraman commented:
∙ “It brings the capacity of nearly 19 milliontonne per annum immediately and
∙ It gives us access to very matured anddeveloped markets of Europe
∙ Corus has a very highly developed R&Dcapability, which India in general lags”
M th dd d
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 51/132
Muthuraman added
“In terms of EBITDA multiple it is about 9times on the last one year EBITDA for theperiod ended 30 September 2006, which Imust admit is a little higher than theindustry average of the last 5 to 6 years but
it is roughly representation of last unevenfigured years.”
Mr. Tata said
“This is another step in Tata Steel's journeyto what it wants to become in the next 10 to15 years.”
In response to questions
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 52/132
In response to questionsabout possible job cuts atCorus, Mr Muthuraman said
(Employees by region: see ingraph)
“This is not about cutting jobs. The company has to be
made more competitive so jobs can be secured."
When completed, the deal
became India's biggest-everforeign takeover andestablish the country as anew force in the fast-consolidating steel industry.
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 53/132
The acquisition immediately made
Tata the fifth-biggest steelmaker andallowed the company to cut costs by$350m a year.
Jim Leng, chairman of Corus, said: "Tata
and Corus are stronger together and will beable to compete effectively in anincreasingly global environment.
"This combination creates a strong androbust platform for growth that will benefitall stakeholders."
Scope of the Project
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 54/132
Scope of the Project Steel Industry – At a glance
Tata Steel – market position /competitiveness CSN - Overview
Analysis:
• Drivers for the acquisition• Attractiveness
• Strategic fit
• Valuation Vs Cost of acquisition
• Mode of Funding• Legal and cultural aspects
• Post merger integration issues
STEEL INDUSTRY
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 55/132
STEEL INDUSTRYCHARACTERISTICS
Cyclical nature in steel industry is countered by
- Economies of scale
- Movement of steel from surplus market toshortage market
- Fragmented nature of industry –
- Top 5 companies having 20 % market share
- Low bargaining power of steel producers due toprice of iron ore
- High bargaining power of buyers
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 56/132
Global Steel output(in million tonnes)
Country 2005 2006 % change
China 355.8 418.8 17.7
Japan 112.5 116.2 3.3
US 94.9 98.5 3.8
Russia 66.1 70.6 6.8South Korea
47.8 48.4 1.3
Germany 44.5 47.2 6.1
India 40.9 44.0 7.6
Ukraine 38.6 40.8 5.7
Italy 29.4 31.6 7.5
Brazil 31.6 30.9 (2.2)Worldproduction 1,028.8 1,120.7 8.9
Global steel ranking
Company Capacity (in milliontonnes)
Arcelor - Mittal 110.0
Nippon Steel 32.0
Posco 30.5
JEF Steel 30.0
Tata Steel - Corus 27.7
Bao Steel China 23.0
US Steel 19.0
Nucor 18.5
Riva 17.5
Thyssen Krupp 16.5
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 57/132
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 58/132
Steel Industry – At a glance
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 59/132
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 60/132
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 61/132
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 62/132
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 63/132
Indian Scenario
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 64/132
• After liberalization, there has been no shortages of iron andsteel materials in the country.• Apparent consumption of finished (carbon) steel increased
from 14.84 Million Tonnes in 1991-92 to 39.185 million tonnes(Provisional) in 2005-06.•Steel industry that was facing a recession for some time hasstaged a turnaround since the beginning of 2002.•Demand has started showing an uptrend on account of infrastructure boom..•The steel industry is buoyant due to strong growth in demandparticularly by the demand for steel in China.
Indian Scenario
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 65/132
•Steel industry was delicensed and decontrolled in 1991& 1992 respectively.•Today, India is the 7th largest crude steel producer of steel in the world.•In 2005-06, production of Finished (Carbon) Steel was44.544 million tonnes.•Production of Pig Iron in 2005-06 was 4.695 Million
Tonnes.•The share of Main Producers (i.e SAIL, RINL and TSL)and secondary producers in the total production of Finished (Carbon) steel was 36% and 64% respectively
during the period of April-November, 2006.
Steel Industry in India
Steel Production in India
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 66/132
(in mmt)
Category 2002-03 2003
-04 2004-05 2005
-06 2006-07(April-Nov'
06)
Pig Iron 5.28 3.76 3.22 4.69 3.074
FinishedCarbon Steel
33.6 36.9 40.0 44.5 30.689
(Source: Joint Plant Committee)
Steel Imports - India
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 67/132
Year Qty. (In mmt) 2001-2002 1.271 2002-2003 1.510 2003-2004 1.540
2004-2005 2.109 2005-2006 (Prov.) 3.765
2006-07 (Apr-Nov, 2006)
(Prov. estimated)
2.500
p
Steel Exports - India
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 68/132
(Qty. in Million Tonnes) Finished (Carbon)
SteelPig Iron
2002-2003 4.506 0.629 2003-2004 4.835 0.518 2004-2005 4.381 0.393 2005-2006 4.350 0.300
2006-2007(April-Nov06) (estimated)
3.150 0.200
Steel Exports India
Indian Steel – At a Glance….
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 69/132
1947 : Steel production 1.25 million tonne
Present capacity : 44.5 million tonnes.
Indian Steel At a Glance….
Source: Deustche Bank Research
India’s Growth vis à vis World
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 70/132
India’s Growth vis-à-vis World
Indian Steel – Productivity &
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 71/132
Labour Productivity in
India: 144 tonnes / labour/ yr
West Europe: 600 tonnes
• Rising Import Demands because of
- Dynamic Growth
- Demand for high quality products
• Share of Steel demand:
- Construction Industry : 43%
- Mechanical Engg. :32%
- Automotive : 5%
y
Performance
Indian Steel – Growth Vs
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 72/132
Factors Holding back the
Growth:- Power Supply (India islikely to be the world’s 4th largest
energy consumer by 2010 after the US, China and Japan).
- Raw material Supply(Iron ore, Coal, Steel scrap)
- Inefficient TransportSystem
India’s increase :
25%
World Increase: 27%
Indian Steel Growth Vs
Impediment
India and the World
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 73/132
Growth
India’s Steel output expected to rise +6% p.a
compared to around 4% rise in global steel outputs.
India’s share of global crude steel output is forecast to rise to just under 4% in the next ten years. This is still
comparatively tiny compared to China’s share of 41%.
Technology
Increased use of continuous casting technology – 38% in mid-90s to 66%
However, in India 6% of crude steel is still made using theoutdated open-hearth process (EU-25: 0.3%) – so, still ahuge potential for restructuring.
India and the World
Demand Condition
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 74/132
In India demand is being driven up by mammoth infrastructureprojects, like the construction of dams, ports, power plants,railways and motorways.
In addition, the key industrial sectors (such as construction,automotive and shipbuilding) are experiencing rapid growth.
With salaries and wages rising, consumers are becoming more
discerning with regard to their cars, household appliances andthe like, which is also boosting steel demand.
Indian Steel Industry – Tata Steel
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 75/132
The TATAs' first steel plant under construction in Jamshedpur in 1911.
Tata Steel – India’s largest private sector steel
company
capacity : 5.3 mmtpa
y
TATA STEEL- A GLANCE
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 76/132
TATA STEEL A GLANCE
Established in 1907 - Asia first and India‟s largest
private sector steel company – one of the lowest cost
producers – EVA+
Competitive edge – captive raw material resources and 5MMTPA plant at Jamshedpur – 8 MMTPA in 2008
Natsteel, Asia and Millenium Steel, Thailand in its fold – 8manufacturing facilities in S E Asia and pacific rim countries – 5th largest steel producer with acquisition of Corus – prospected output 56 MMTPA in 2015
Future green field projects – 5 MMTPA in Chattisgarh, 6
MMTPA in Orissa, 12 MMTPA in Jharkhand – overseas projectin Iran and Bangladesh
Steel products targeted at quality conscious auto sector andbooming construction industry – emerging as a leader in wire
business
TATA STEEL - PRODUCTS
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 77/132
TATA STEEL PRODUCTS
Hot and cold rolled coils and sheets
Galvanized sheets
Tubes & wire rods Construction rebars
Rings and bearings
Tata Steelium ( world‟s first branded cold rolled steel )
Tata Shaktee ( Galvanized corrugated sheets ) Tata Tiscon ( re – bars )
Tata Agrico ( hand tools and implements )
Tata Wiron ( Galvanized wire products )
Tata Pipes ( pipes for construction )
Tata structure ( contemporary structural material )
Steel Junction ( India‟s first retail steel store )
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 78/132
Tata Steel growth plans
Tata Steel has committed itself to attainingglobal scale operations
Output exceeding 30 million tonnes and a strong
regional presence Tata Steel making a total estimated investment
of Rs. 70,000 crores in the next decade,ingreenfield projects and other strategic
acquisition Tata Steel proposes to establish three greenfield
facilities in Orissa, Chhattisgarh and Jharkhand,
with an aggregate capacity of 23 million tonnes.
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 79/132
TATA STEEL – FINANCIAL STATISTICS
2005-06 2004-05
REVENUES (Cr) 20491 16181
PBT(Cr)
5515 5442PAT(Cr) 3721 3571
EBITDA MARGIN 40.19 % 42.48 %
PBT MARGIN
34.04 % 36.17 %EPS(Rs) 63.35 62.77
DIVIDEND 23.4 % 23.61 %
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 80/132
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 81/132
Corus overview
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 82/132
Corus overview
CSN History & Growth
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 83/132
CSN –History & Growth
Companhia Siderúrgica Nacional was incorporated in 1941
Initially focused on producing coke, pig iron castings and longproducts
Three major expansions were undertaken at the PresidenteVargas Steelworks during the 1970s and 1980s.
The first, completed in 1974, increased installed annualproduction capacity to 1.6 million tons of crude steel.
The second, completed in 1977, raised capacity to 2.4 milliontons of crude steel.
The third, completed in 1989, increased capacity to 4.5 milliontons of crude steel.
privatized in 1993 and early 1994, through which the Braziliangovernment sold its 91% interest in company
CSN’ t t f b i
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 84/132
CSN’s strategy for business
Mission is to increase value for theshareholders
Maintaining position as one of theworld's lowest-cost steel producers
Maintain a high EBITDA margin.
Strengthen position as a globalplayer
CSN i t l
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 85/132
CSN in steel
Fully-integrated manufacturingfacilities
Second largest steel producer in
Brazil Crude steel capacity 5.6 million
tonnes
Rolled product capacity is 5.1 milliontons
CSN li f St l
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 86/132
CSN policy for Steel
Implement a carefully craftedglobalization strategy. This may includethe acquisition or construction of steeloperations, steel-related businesses or
distribution or service centers outsideBrazil, as well as the association withother companies engaged in suchventures
Emphasize a wide range of value-addedproducts, mostly galvanized, pre-paintedand tin-coated.
CSN P d t
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 87/132
CSN Product range
Produce a broad line of steelproducts
Slabs
Hot- and Cold-rolled
Galvanized and Tin mill products
Process flow chart -CSN
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 88/132
Process flow chart CSN
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 89/132
CSN M k t t t
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 90/132
CSN Market structure
In 2004 sold steel products to customersin Brazil and 61 other countries.
in 2002 Our domestic steel sales, as a
percentage of total sales volume were65% and operating revenues were70%,,
In 2003 the above figures were 59% and61%,respectively
In 2004 it was 71% and 73%,respectively,
CSN E ports markets
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 91/132
CSN Exports markets
The three principal export marketsfor exports of products (%of our
export sales volume in 2004) North America 44%,
Europe 32%
Asia11%
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 92/132
Tata Steel & CSN
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 93/132
Tata Steel & CSN
Both bidders have presence inemerging economies.
Both have access to cheap sources of
iron ore. CSN may have an edgebecause it owns one of the largestiron ore mine in the world.
Both are among the most efficientproducers globally.
Sales - Tata Steel,CSN and
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 94/132
Corus
Operating rev enue s(US m$)
23832078 2169
2920
3903
2000 2001 2002 2003 2004
Operating rev enue s million pounds
10140
9332
2004 2005
Profitability CSN Vs TATA
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 95/132
ySteel
0
200
400
600
8001000
1200
1400
1600
2000 2001 2002 2003 2004
Adj. EBITDA inmillions of US$
CORUS BUYOUT-
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 96/132
STATEGY
Tata Steel, CSN both planned a leveragedbuy-out
Raising debt on the security of future cash
flows from Corus. Tata Steel's financing arrangements no
recourse
CSN ,part of the new credit facilities arewith recourse .
Can CSN shareholders be comfortableabout that exposure
Stock price movement
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 97/132
Situation 1: Corus decides
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 98/132
to sell Reasons for decision: Total debt of corus is 1.6bn GBP
Corus needs supply of raw material at lower cost
Though Corus has revenues of $18.06bn, itsprofit was just $626mn(Tata‟s revenue was $4.84bn & profit $ 824mn)
Corus facilities were relatively old with high costof production
Employee cost is 15%( Tata steel- 9%)
Situation 2: Tata Steel decides
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 99/132
to bid
Reasons: Tata is looking to manufacture finished
products in mature markets of Europe
At present manufactures low value longand flat steel products while corusproduces high value stripped products
A diversified product mix will reduce risks
while higher end products will add tobottomline.
Situation 2: Tata Steel decides
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 100/132
to bid
Corus holds a no. of patents and R & D facility.
Cost of acquisition is lower than
setting up a green field plant andmarketing and distribution channels
Tata is known for efficient handlingof labour and it aims at reducingemployee cost and improvingproductivity at Corus
Situation 3:
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 101/132
CSN decides to bid Reasons: There was an abortive merger with corus
3 years ago. It had offered $3.5bn.
CSN has a 3.8% stake in corus since 2002
Every 10p increase in bid gets CSN anextra 3mn GBP
CSN also looking for producing finished
steel products in Europe CSN is paid 1% of the offer price as an “incentive remuneration” from Corus
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 102/132
TATA-CORUS: STRATEGIC FIT
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 103/132
Corus, being the second largest steelmaker in Europe,
would provide Tata Steel access to some of the largest
steel buyers The acquisition would open new markets and product segments for
Tata Steel, which would help the company to de-risk its businessesthrough wider geographical reach.
A presence in mature markets would also provide Tata Steel anopportunity to go further up the value chain as demand for
specialized and high value-added products in these markets is high The market reach of Corus would also help in seeking longer-term
deals with buyers and to explore opportunities for pushing brandedproducts.
Corus is also very strong in research and technology development,which would add to the competitive strength for Tata Steel infuture. Both companies can learn from each other and achievebetter efficiencies by adopting the best practices
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 104/132
Tata Steel - Corus : Presentcapacity
(in million tonnes per annum)
Corus Group (in UKand The Netherlands)
19
Tata Steel -Jamshedpur
5
NatSteel - Singapore 2
Millennium Steel -Thailand
1.7
Aggregate presentcapacity
27.7
Tata Steel - Corus : Projectedcapacity
(in million tonnes per annum)
Corus Group (in UKand The Netherlands)
19
Tata Steel -
Jamshedpur
10
Tata Steel - Jharkhand 12
Tata Steel - Orissa 6
Tata Steel - Chattisgarh 5
NatSteel - Singapore 2
Millennium Steel -Thailand
1.7
Aggregate projected
capacity
55.7
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 105/132
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 106/132
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 107/132
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 108/132
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 109/132
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 110/132
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 111/132
Funding Scenarios- Need to both create
and protect share holder value
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 112/132
and protect share holder value
Equity- $ 4.1 billion- (Options)
(i) Borrowings by Tata Steel- Dilute EPS( 1.4%FY 08); Funding domestic greenfield ventures
(II) Preferential share issue by tata steel to tatasons- Also EPS unfriendly( 13.1% FY 08)
(iii) $2.3-$2.4 billion cash reserves of tatabalance- $1.7-$1.8 billion- Dilution of TCS
shares in LSE
Debt:-Senior debt, junk bonds etc- 8 billion
Impact on Tata steel‟s FY „‟08 P & L with $1.7 b pref issue to TATA
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 113/132
sonsAddnl debt on B/s
Net D/E at FY‟07 end(%) Net D/E at FY‟08 end(%)
Price for equity issue(Rs)
Equity dilution (%)
Interest/loss of other Income
Tata Steel‟s share in SPV profits
Synergy gains
Net increase in PAT
Increase in EPS(%)
Net debt/equity post dilution(%)
FY‟ 08 ROE without considering Corus acquisition(%)
FY‟ 08 ROE with Corus acqn(%)
(Fig –Rs. In crores)
5,802.5
0.40.4
500
25.1
(814)
618.2
450.0
374.3
(13.1)
0.39
22.10
17.30
Source: CLSA
Valuation
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 114/132
Valuation
Based on replacement value:At current rates-1100-1300$/ton---$22 billion(15
yrs)
Actual amount agreed ………….$12.1billion
Based on DCF : PV @ 8% would take around 15 years
E:\term4\M & A\project\corus valuation.xls
Hence financially does not appear attractive in the
near term.
Financing the deal
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 115/132
Financing the deal
Leveraged buyout: Loans of $8 billion are arranged for acquisition.
The current EBIDTA of Corus is sufficient to paythe annual interest of the loan
Around $2.5bn will come from cash reserves of TATA steel
TATA sold 0.84% of TCS stake
Financiers for the deal- ABN Amro, DeutscheBank
Increased debt obligations will create more creditrisk for Corus
Brokerage house First Global estimates that a $50 fall inglobal steel prices could lead to a $414-million loss from the
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 116/132
acquisition in FY08 there is a $ 75 fall, the losses could climbto $ 846 million.
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 117/132
Valuation Contd
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 118/132
Tata Steel is paying 7 times EBITDA of Corus for 2005 and ahigher 9 times EBITDA for 12 months ended 30 September2006. In comparison, Mittal Steel acquired Arcelor at anEBITDA multiple of around 4.5.
Considering the fact that Arcelor has much superior assets,wider market reach and is financially much stronger than
Corus, the price paid by Tata Steel looks almost high.
Valuation Contd
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 119/132
Manufacturing assets donot deserve such
high price as UK plants of Corus
Target EBITA margins by Tata Steel -25 per cent
once it starts supplying crude steel to Corus.(Long way off??)
Assuming 7 percent interest rate, interest andprincipal outgo requires annual fund of $1.5 bwhich looks tough for cash flow from Corus
Comments as an Investment
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 120/132
Banker
Alternatives used to mitigateexternal debt financing and risk:
- Partial settlement by cash and
partial settlement throughconvertible/non convertibledebentures
Use of share swap ???
Legal issues
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 121/132
Needed approval from EU
Approval of Share holders of Corus as perUK companies Act
Use of subsidiaries to structure the deal
-Avoidance of FIPB and RBI approval byavoiding share swap
Corus pension liabililites-
-British Steel Pension Scheme
-Corus Engg Steel Pension Scheme-126mGBP
Problemsin
Integration
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 122/132
Acquisitions
in Achieving Success
difficulties
Inadequate
evaluation of target Large or
extraordinary debt
Inability to
achieve synergy
Too much
diversification
Managers overly
focused on
acquisitions
Too large
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 123/132
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 124/132
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 125/132
Post acquisition issues
Digesting large deals and create share
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 126/132
Digesting large deals and create shareholder value will be a concern
UK steel unions want job guarantee.British trade unions launched protest ongrounds of potential layoffs.
The biggest challenge one would face ishow to integrate these two companies,how to integrate these two cultures, how
to work with new type of management,how to work in the matured marketverses working in developing market.
Post Merger Integration Issues
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 127/132
For the Tatas, the Corus acquisition is only half the battlewon
Robert Bruner, dean of the Darden School of Business,
University of Virginia, says, "When integration gets boggeddown, bad things happen—all stemming from the 'me‘
issues."
Issues are complex because it is a mammoth cross borer deal
Even more complex because Corus itself is the result of across-border merger.
Post Merger Integration Issues….
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 128/132
An estimate suggests that 70% of all failed M&As are because of
cultural issues
Considering that there aren't too many overlaps between Tata Steeland Corus, a "light-handed integration― will make more sense,
wherein the Tatas bring in some changes, but don't do a complete
overhaul of how Corus is run – says Prof. Venkiteswaran of IIM-A
Employees loathe uncertainty about their fate in the company.Phanish Puranam, professor, London Business School, says,"Productivity drops, competition takes away business and soon the
value of the deal is gone even before integration starts."
So, Tatas should not view the acquired company as a loser. It makessense for the Tatas to allow the existing management to continue asbefore. Some level of planned restructuring can come in later.
Post Merger Integration Issues….
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 129/132
Tetley, the Tata's previous UK buy, ran into cultural and racialobstacles because of concerns that British employees would resenthaving managers from a former British colony.
Tatas to learn from their Tetley acquisition and maybe use some of the managers who handled that integration
In the initial volatile phase, competitors may try to snatch awaygood managers and customers from Corus
The Tatas need to identify the key people at Corus and ways to keepthem as headhunters try to snatch good managers in such vulnerable
situations - Tatas have put two Corus people in the Tata Board
Post acquisition issues
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 130/132
ICRA forecasts slow down in global steel growth in2007 - a significant drop to 5.2 per cent in 2007from a healthy 8.9 per cent in 2006
The Tata Steel share's had declined by over 10 percent on the announcement of the Tata`s acquiringCorus on apprehensions of the deal being "over-valued“. Reviving the company‟s value would bechallenge
Acquiring synergies necessitates include improvingCorus operating margins, controlling costs & adopting the best practices of both sides
Conclusion
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 131/132
7/28/2019 Session III - Tata-Corus
http://slidepdf.com/reader/full/session-iii-tata-corus 132/132
ANY QUESTIONS ?