tata steels and corus

7/31/2019 Tata Steels and Corus

1/13


2/13

Reasons for the DealTata Steels had a stable balance sheet( Low debt to equity ratio)Corus' expertise making steel used in automobiles and in

aerospace could be used to boost Tata Steel's supplies tothe Indian automobile market.The Consolidation trend in Steel Industry was consideredas an opportunity Tata Steels need access to latest R & Ds to produce high

quality steel.This deal will open up access to new marketsCorus was bleeding because of high operational costsCorus did not have access to raw material and it operatedmajorly in the almost saturated European market.


3/13

The dealTata acquired 100% stake in the Corus steels.This deal took place on 2nd of April 2007 for a price of

$12 billion.The acquiring price per share was 608 pence, which is33.6% higher than the first offer in 2005For this deal Tata has financed only $4 billion and the

remaining was raised through bank loansThe deal, which is India's largest ever foreign takeover,made Tata steel the worlds fifth largest steelmaker.


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The deal (Contd..)$2.66 billion from their Asian subsidiary was amezzanine debt

The remaining $6.4 billion was funded by threebankers Standard Chartered Bank, ABN AMRO Bankand Deutsche BankThe official press release issued by both states that the

combined entity will have a pro forma crude steelproduction of 27 million tonnes in 2007, with 84,000employees across four continents and a joint presencein 45 countries


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Post AcquisitionPost Corus merger, Tata Steel was India's second-largest and second-most profitable company in privatesectorThe Tata Steel Group has a turnover of US$ 22.8 billionin FY '10, has over 80,000 employees across fivecontinents and is a Fortune 500 company.

The day after the acquisition was officially announced,Tata Steels share fell by 10.7% on the BSE.


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Financial Analysis

8.95% 8.09% 9.18% 10.34%17.78%

28.57%35.45%

0.00%

10.00%

20.00%

30.00%

40.00%

Mar '11 Mar '10 Mar '09 Mar '08 Mar '07 Mar '06 Mar '05

R O A

Return on Asset

14.43 13.06 15.01 17.1127.71

43.7256.06

0

20

40

60


R O C E

%

Return On Capital Employed(%)

The Total income of the company increases gradually, but Return on Capital employedand Return on net worth shows a gradual decrease. This shows that the company is notable to generate more revenue relative to the assets it acquired.


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Financial Analysis ( Contd )The increase in the Return on equity is because thedeal mainly was paid through loan and there wasshareholders equity in the company was not affected.

264.62%277.76%

208.47%184.75% 183.24% 174.90%

0.00%

50.00%

100.00%

150.00%

200.00%

250.00%

300.00%

Mar '11 Mar '10 Mar '09 Mar '08 Mar '07 Mar '06

R O E

Return On Equity


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Financial Analysis ( Contd )Though the sales has increased, the profit margin % is constant (except during 2008-2010 due to global economic slowdown) as the operation expenditure of the company changes relatively with the sales.The union problems in the Corus plants and economic slowdown are cited as reasons

for this.

21.52%

18.86%19.38%

21.12% 21.37%

20.46%

21.89%

17.00%17.50%18.00%18.50%19.00%19.50%20.00%20.50%21.00%21.50%22.00%22.50%


Profit margin


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Financial Analysis ( Contd ) As good news to the shareholders there is a constantimprovement in the price of the shares.They are enjoying the benefits of the acquisition through shareprice appreciation and dividends.

6.87.4

4.8 4.7

3.32.8

0.0

1.0

2.0

3.0

4.05.0

6.0

7.0

8.0

Mar '11 Mar '10 Mar '09 Mar '08 Mar '07 Mar '06

P / E

Price to Earning ratio


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Financial Analysis ( Contd )

0.64 0.68

1.341.08

0.69

0.26 0.39

0

0.5

1

1.5

Mar '11 Mar '10 Mar '09 Mar '08 Mar '07 Mar '06 Mar '05 e

b t E q u

i t y

R a t

i o

Debt Equity Ratio

8.52 4.41 5.71 8.35

26.1931.86

24.01

010203040

Mar '11 Mar '10 Mar '09 Mar '08 Mar '07 Mar '06 Mar '05 I n

t e r e s t

C o v e r

Interest Cover

Tata steel had a very less Debt to equity ratio of 0.69 before the deal and it was 1.08after the deal.This means they raised funds mainly through equity rather than debt. But debt isbetter than equity, because the former will cost interest of only 8%, but the latter isexpected to return 15%.The decrease in interest cover ratio shows the increase in interest paid for the loans, which has started improving from 2011.


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Financial Analysis (Contd )Improvement in Management Efficiency Ratios shows the improvement in operatingtechniques acquired from the Corus R & D.

8.0710.9 9.36 10.84

7.69 7.08 7.82

02468

1012


Inventory Turnover Ratio67.93

46.58 41.2933.45 29.81 26.99 23.5

0

20

40

60

80


Debtors Turnover Ratio

0.981.12 1.22 1.2 1.09 0.98 1.11

0

0.5

1

1.5


Asset Turnover Ratio


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Global Impact Corus main steelmaking operations are located in UKand the Netherlands with other plants in Germany,France, Norway and BelgiumThis deal has made Tata Steels the world's mostgeographically-diversified steel producers, withoperations in 26 countries and a commercial presencein over 50 countries.


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SynergiesThe expected synergy through the deal was $350 million per year.Tata steel is much smaller in terms of capacity, in terms of EBITA it isalmost equivalent to Corus.Thus their merger has provided Tata the capacity to produce highquality products in a dearer price.Tata had a strong retail and distribution network in India and SE Asia.There is a powerful combination of high quality developed and low costhigh growth markets Technology transfer and cross-fertilization of R&D capabilities.There was a strong culture fit between the two organizations both of

which highly emphasized on continuous improvement and Ethics.Economies of Scale are the greatest advantage for both.This deal will be a backward integration for Corus and a forwardintegration for Tata Steel.

tata steels and corus

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