TATA – CORUS Deal

GROUP 8 Negotiation
Objective
Tata Steel
“ To gain access to global steel market
and expand production capacity to keep
pace with growing demand for steel.”
Corus
“To get a low cost partner to make
company profitable in the long run.”
SWOT – TATA Steel
Strengths
•Lowest Cost Producer in
world
•Experience of TATA group in
doing global acquisitions
•Stable balance sheet( Low
debt to equity ratio)
Weaknesses
•Corus was triple the size of
TATA steels in terms of
production
Opportunities
•Consolidation trend in Steel
Industry
•CSN’s tarnished image after
failure of 2002 negotiations
•To get exposed to the global
steel market ( will save time
and learning space for them)
Threats
•Brazilian player CSN
•Russian player Severstal
•No committed financers to
support the possible deal
SWOT - Corus
Strengths:
•World’s ninth largest and
Europe’s second largest steel
producer
•Wide range of products
•Presence of operating
facilities spread in whole EU
Weaknesses:
•Corus was bleeding because of
high operational costs
•Section 201 tariff imposed by
Bush in 2002 led to loss in Corus
clientele
Opportunities:
•Consolidation trend in Steel
Industry
•To get right price at a time
when market is less volatile
Threats:
•Huge pension liability might have
led to collapse of the deal
•Disagreement of Labor and
government due to possibility of
job cut
Tradable – Tata Steel
 Advantage of Low cost of operations
 Pension plan debt in Corus
 Tata offered to pay it off
 Stability of balance sheet compared to
other bidders
 Despiteraising massive funding for
procurement
 Management efficiencies and reputation
of Tata group
Tradable - Corus
 International Operations
 Wide range of products
 Almost 45 products
 Demand diversified among all of them

 Higher profitability per tonne with the

acquisition
 Not localised production
 All over EU
 Gave Tata scope for expansion
 Could utilize existing infrastructure for
expansion plans
 Mining Assets
Strategic Barrier
 Uncertainty over the size of the
bargaining range of the deal
 CSN was concurrently competing for
Corus bid
 It may be enough for Tata to match the
475 pence per share price
 Has support of Corus board
 Might result in outbreak of bidding wars
 Highly unlikely since not as financially
stable
 Though there was always chance for one
Psychological barrier
 Indian companies had never previously
undertaken such a big merger
 There was uncertainty around ability of
Tata to complete the deal
 Corus management was diffident
 Security of the future of the company was
at stake
Structural Barrier
 The Special Purpose Vehicle (SPV) Tata
Steel UK will have their bridge loans
maturing
 These will be repaid by other routes like GDR’s
 In certain events resources raised through
GDR’s have to be approved
 Special Committee on Overseas Investments
under RBI considers this
 Then transferred to Ministry of Finance for
examination with recommendations of Special
Committee
 Project Report/Feasibility Report also has to be
submitted
 In the course of this process the risk of
approval not being granted existed
BATNA
TATA CORUS
 Alternatives  Option to go with
existed in the CSN
event of takeover
not succeeding
 Compromise on
 Pure merger was pension deal
 This would
an option
possibly turn
 Tata group would
tables for Tata
be looking at a
20-23% stake in
combined holding
 Negotiation Evaluation

 Offer did not fully reflect the value of the

company's position in a consolidating
market
 The quality of the steel company's earnings
was likely to improve due to less volatile
market conditions
 The synergy benefits of the merger are not
factored into the bid
 Tata's bid multiple was at least 10 percent
below average recent deals in the sector
Chronology
 October 5: Tata says "considering" bid for Corus.
 October 20: Corus agrees 455p a share offer from India's
Tata Steel, valuing the group at £4.3bn. But Standard Life,
the largest investor in Corus, with a 7.9% stake, says it
thinks the terms are too low.
 October 26: Sir Anthony Bamford, one of Britain's leading
industrialists, says he agrees that Tata's first bid is too low
and that it would damage Britain's manufacturing industry.
 November 3: Russia's Severstal rules itself out as a rival
bidder.
 November 17: CSN announces indicative bid of 475p a
share.
 December 10: Tata’s moved in with a revised offer of 500
pence.
 December : CSN again announces revised offer of 603
THAN
K
YOU