TATA STEEL LTD & CORUS STEEL

SEE REPORT

PREPARED BY
MARVANIYA HRAHSVARDHAN
(19FOMBC11014)
JEELKUMAR AMRUTIYA
(19FOMBC11002)

SEMESTER
VI

SUBMISSION OF
SEE EXAMINATION

GUIDED BY
PROF, MONA GIRNARA

SUBMITTED TO
SCHOOL OF MANAGEMENT
RK UNIVERSITY
RAJKOT

1
 PREFACE

As a part of the B.com Curriculum and in order to gain practical

Knowledge of Merger & Acquisition, we are required to make a report on
"Acquisition of TATA STEEL & CORUS STEEL The Basic Objective behind
doing this project report is to get knowledge OF Merger & Acquisition.

In this project report we have included various concepts, Ratio and

Analysis regarding Acquisition of TATA STEELS & CORUS STEELS.

Doing this Project report helped us to enhance our knowledge regarding

Acquisition of TATA STEELS & CORUS STEELS. We do undergo many
experiences related to our topic concepts. Through this report we come to know
about the importance of Acquisition towards the work.

2
 ACKNOWLEDGEMENT

I would like to express my special thanks to my professor “Mona

Girnara” for her able guidance and support in completing my Project.

I would also like to extend my gratitude to the director sir "Dr. Chintan
Rajani” for providing me with all the facilities that were required.

DATE Jeelkumar Amrutiya

31, MARCH 2022 Harshvardhan Marvaniya
B.COM SEMESTER 6

3
 INDEX

Sr. Particular Page no.

no.
1. Introduction 5
2. Background of Acquisition
2.1. Tata Steel Ltd 7
2.2. Corus Steels Pvt. Ltd
3. Reason of Acquisition 9
4. The Deal Highlight 10
5. Challenges of The Acquisition 13
6. Financial Analysis 16
6.1. Pre & Post Acquisition Analysis 16
Key Financial Ratios of Tata Steel ltd
17
6.2. (pre- Acquisition)
Key Financial Ratios of Bharti Airtel
19
6.3. (pre- Acquisition)
Key Financial Ratios of Bharti Airtel
21
6.4. (Post- Acquisition)
7. Interpretation 23
8. Analysis of Financial performance 23
9. Synergies From Acquisition 24
10. Conclusion 26
11. References 26

4
 INTRODUCTION

(Source:https://encrypted-
tbn0.gstatic.com/images?q=tbn:ANd9GcTNrCQagyOEaiUIZlpOJvRhhzjeUbkl
PIN7rEysoDGeFTSqtnk8YflBsFdB1o_AiYoeejA&usqp=CAU)

Tata Steel (part of the Tata Group) acquired the Anglo-Dutch steel firm
Corus after a four month bidding war with Brazil's CSN (Companhia
Siderúrgica Nacional) for US $13.75 billion (Rs. 52,000 crores) this was the
biggest acquisition by an Indian firm. Tata's acquisition of Corus made it the
fifth largest global steel producer with an annual capacity to produce 25 million
tons of steel. The acquisition was intended to give Tata Steel access to European
markets and to achieve potential synergies in the areas of manufacturing,
procurement, R&D, logistics, and back office operations

Analysts claimed that the acquisition price at 608 pence per share was
substantially higher than an earlier offer of 455 pence per share. Additionally,
analysts felt that it would take several years for potential production and
operational synergies to materialize that would yield significant cost savings.
Following the acquisition, Tata Steel's stock suffered a significant decline in
price causing Standard & Poor's to place it on a credit watch list with negative
implications.

5
 By analysing the financial statements of both Tata Steel (before and after
the acquisition) and Corus (before the acquisition), the question that we are
trying to answer is what was Corus's intrinsic value at the time of acquisition
and therefore conclude whether Tata Steel overpaid (or underpaid) for this
acquisition. In the process we also intend to analyse the impact on the intrinsic
value of Tata Steel due to Corus's acquisition.

6
 BACKGROUND OF ACQUISITION

 TATA STEEL LTD:

Established in 1907, Tata Steel is among the top ten global steel
companies.

It is now one of the world's most geographically-diversified steel

producers, with operations in 26 countries and a commercial presence in over
50 countries

The Tata Steel Group, with a turnover of US$ 26,13 billion in FY 2011-
2012, has over 81,000 employees across five continents and is the FIRST in

● First Fortune 500 INDIAN company.

● First to introduce 8 hour working days
● First to introduce leave with pay
● First to introduce pension system in India

Tata Steel's vision is to be the world's steel industry benchmark through

the excellence of its people, its innovative approach and overall conduct.

Tata Steel invested in various other businesses as well such as Oll mills,
Airlines. Publishing, Motors, Consultancy services etc.

 CORUS STEEL PVT LTD:

CORUS was formed on 6 October 1999.It is Europe's second largest steel

producer with a production of 18.2 million tones and revenue of 9.2 Billion.

Major manufacturing sites in UK, Netherlands, Germany, France and

Belgium & sales/offices canters in over 40 countries

7
 The product mix consisted of Strip steel products, Long products,
Distribution and building system and Aluminium.

The Corus was having leading market position in construction and

packaging in Europe with leading R&D

Corus was the 9th largest steel producer in the world. It opened its bid for
100 % stake late in 2006.

8
 REASONS OF MERGER:

 REASONS FOR TATA STEEL TO BID:

To tap the European mature market.

Cost of acquisition is lower than setting up a green field plant and

marketing and distribution channel.

TATA manufactures low value, long and flat steel products while Corus
produces high value stripped products.

Helped to feature in top 10 players in the world.

Technology benefit

CORUS holds a number of patents and R&D facilities.

 REASONS FOR CORUS TO BE SOLD:

A chance to bail out of debt and financial crisis. Total debt of CORUS was
1.6bn GBP.

Access to cheap high quality iron ore from India.

Corus facilities were relatively old with high cost of production.

Corus needed supply of raw material at lower cost.

Though Corus has revenues of $18.06bn, its profit was just $626mn
(Tata's revenue was $4.84 bn & profit S 824mn).

9
 THE DEAL HIGHLIGHT

● TATA steel acquisition of CORUS was a bold and smart move.

Complementarities in scale, market geography, financials, technology and raw
materials offered a strong rationale for the deal.
● The acquisition of CORUS has been timely done. Given the rising momentum
of consolidation in the industry and rising valuations of steel companies, had
TATA steel not acted when it did, the opportunity could have been lost forever.

Negotiating Terms of Deal:

 September 20, 2006:

Corus Steel has decided to acquire a strategic partnership with a
Company that is a low cost producer

 October 5, 2006:
The Indian steel giant, Tata Steel wants to fulfill its ambition to expand
its business further.

 October 6, 2006:
The initial offer from Tata Steel is considered to be too low both by
Corus and analysts.

 October 17, 2006:

Tata Steel has kept its offer to 455p per share.

 October 18, 2006:

Tata still doesn't react to Corus and its bid price remains the same.
10
  October 20, 2006:
Corus accepts terms of £ 4.3 billion takeover bid from Tata Steel

 October 23, 2006:

The Brazilian Steel Group CSN recruits a leading investment bank to
offer advice on possible counter-offer to Tata Steel's bid.

 October 27, 2006:

Corus is criticized by the chairman of JCB, Sir Anthony Bam ford, for its
decision to accept an offer from Tata.

 November 3, 2006:
The Russian steel giant Several announces officially that it will not make
a bid for Corus

 November 18, 2006:

The battle over Corus intensifies when Brazilian group CSN approached
the board of the company with a bid of 475p per share

 December 18, 2006:

Within hours of Tata Steel increasing its original bid for Corus to 500
pence per share, Brazil's CSN made its formal counter bid for Corus at 515
pence per share in cash, 3% more than Tata Steel's Offer.

11
  January 31, 2007:
Britain's Takeover Panel announces in an e-mailed statement that after an
auction Tata Steel had agreed to offer Corus investors 608 pence per share in
cash

 April 2, 2007:
Tata Steel manages to win the acquisition to CSN and has the full voting
support from Corus' shareholders

Synergies expected from the 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
there would be a powerful combination of high quality developed and low cost
high 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.
● Increase in profitability.

12
 CHALLENGES OF ACQUISITION

● Increase the market

Tata Steel’s case for the acquisition is that its low-cost plants in India
would use Corus’s finishing plants to supply and expand the latter’s high-end
customer franchises in Europe. Tata Steel has the same strategy for 1.8 million
tons at NatSteel in Singapore and Millennium Steel in Thailand, companies it
has bought over the past two years for a combined $653 million. Tata Steel’s
higher efficiency pitch to Corus was self-evident. Although its $5 billion in
revenues are a quarter of Corus’s $19.4 billion, Tata Steel generates $1.5 billion
a year in operating profits on a capacity of 5 million tons, while Corus’s 18
million tons brings home only $1.9 billion.
The Corus takeover catapults Tata Steel from its current 65 th place among
global steel producers to the No. 5 spot with a combined capacity of 23.5
million tons. Others ahead of it are Arcelor-Mittal (110 million tons), Japan’s
Nippon Steel (32 million tons); South Korea’s Posco (30.5 million tons) and
JFE of Japan (29.9 million tons). Excluding Corus, Tata Steel has plans to raise
its Indian capacity to 30 million tons by 2015.

● Driven by Threat

Tata Steel’s managing director, B. Muthuraman, is confident that steel

prices will stay firm in the near term. But he expects them to fall from current
levels of about $550 a ton (for hot rolled coils) and stabilize at about $450 a ton
over the next five to six years. Even at that lower level, Tata Steel stands to
benefit hugely. At a media conference late last month, Tata Steel executives put
the company’s cost of production at about $150 a ton, and the industry average
at $330-$340 a ton.

13
 Fish attributes the softening in steel prices to oversupply. He says
customers have been buying ahead of impending price increases and perceived
shortages in availability. But now, he says, most users have built sufficient
inventories and will probably only order what they need immediately.

● TATA’S take

Tata Steel’s stated argument, however, is rooted in its captive iron ore and
coal resources. The distribution of the world’s iron ore resources strengthens
that case. The world’s top five iron ore producers control an overwhelming 90%
of the market, according to a Tata Steel presentation. In contrast, the top five
steel producers command less than 20% of the world market. What’s clear in
those numbers is the relatively low bargaining power of steel producer’s vis-à-
vis their ore suppliers. Producers without captive raw materials have been hit
hard in the past two years, a Tata Steel document shows. Between 2003 and
2005, iron ore prices have doubled from $39 to $80 a ton; hard coking coal from
$46 to $125 a ton; and semi-soft coal from $31 to $115 a ton. Muthuraman says
Tata Steel’s plan is to ensure that as it expands capacity, its requirements of iron
ore and coal come from captive sources.

● Penetrating the CXO suite

Tata Steel, too, may have found it difficult to penetrate the lucrative
construction, packaging and automobile markets in Europe without Corus’s help
to open doors. Saikat Chaudhary, Wharton professor of management, says
opportunities are plenty for steel companies that meet quality standards,
especially since many of them have faced “difficulties precisely in getting
access to the CXO suite, which is dominated by the IBMs and the Accenture’s
of the world; many others don’t have the pedigree.” If Tata steel meets the
technical specifications of customers and at a slightly lower cost, it can break
into that market more easily with Corus in tow.

14
● The Asian club:

Cartelization in the global steel industry is another factor that will affect
Tata-Corus, says Tiffany. “This is an industry that historically has had lots of
collusion. The reason is the very high cost to build a steel mill. And steel is not
fungible. Where you build it is where you are. If the market goes down, you
have all these fixed costs, so this industry worldwide — starting in Germany in
the 1880s — has long promoted the need for a cartelized industry to protect
against the downside. So some residue of that is still there.” But Tiffany points
out that the newly emerging global players from India, Russia and China have
never been part of that inner circle. “The global club has been Western
European and American,” he says. “Look at the opposition that the Mittal-
Arcelor [merger] faced. The lack of opposition to the Tata-Corus deal is
because Tata Steel is paying a good price.”

15
 FINANCIAL ANALYSIS

PRE ACQUISITION ANALYSIS:

DEBT TO MARCH 2006 MARCH 2005 MARCH 2004
EQUITY:
TATA STEEL 0.26 0.39 0.75
LTD
CORUS STEEL 0.80 0.21 0.20
PVT. LTD

POST MERGER ANALYSIS

DEBT TO MARCH 2010 MARCH 2009 MARCH 2008
EQUITY:
TATA STEEL 0.68 1.11 0.83
LTD

16
KEY FINANCIAL RATIOS OF TATA STEEL LTD (PRE -
ACQUISITION)

KEY FINANCIAL RATIOS MAR 2006 MAR 2005 MAR 2004

OF TATA STEEL PVT &
CORUS STEEL LTD
PVT (in Rs. Cr.)
PER SHARE RATIOS
Basic EPS (Rs.) 63.33 62.75 47.30

Diluted EPS (Rs.) 63.33 62.75 47.30

Cash EPS (Rs.) 77.33 73.92 64.23

Book Value [Share (Rs.) 176.19 127.51 122.32

P/E Ratio 6.95 7.93 6.14

PROFITABILITY RATIOS

Net Profit Margin (%) 23.17 23.97 16.32

Return on Net worth / Equity 35.94 49.20 38.66
(%)
Return on Capital Employed 25.16 30.79 18.48
(%)
Return on Assets (%) 18.27 20.80 11.53

LIQUIDITY RATIOS

Current Ratio (X) 0.81 0.77 0.72

Quick Ratio (X) 0.39 0.42 0.50

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VALUATION RATIOS
Price/BV (X) 3.04 3.14 3.14
Earnings Yield 0.12 0.16 0.12

Enterprise Value (Cr.) 31,926.62 24,689.61 17,280.59

Retention Ratios (%) 79.47 79.28 78.86

BASIC INFORMATION
Sales/Revenue 15437.44 14717.56 10937.77
Operating Exp. 1466.83 1440.72 1130.30
EBITDA 5.20 4.07 4.96

PAT 3559.15 3564.69 1968.90

E/S Capital 553.67 553.67 369.18
(Source:https://www.moneycontrol.com/financials/tatasteel/ratiosVI/TIS/3#TIS

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KEY FINANCIAL RATIOS OF CORUS STEEL PVT LTD (PRE
-ACQUISITION)

KEY FINANCIAL RATIOS MAR 2006 MAR 2005 MAR 2004

OF TATA STEEL PVT &
CORUS STEEL LTD
PVT (in Rs. Cr.)
PER SHARE RATIOS
Basic EPS (Rs.) 3.91 2.70 3.94
Diluted EPS (Rs.) 3.72 2.49 3.65
PROFITABILITY RATIOS

Net Profit Margin (%) 1.7 4.4 4.7

Return on Capital Employed 5.4 13.3 12.6
(%)
Return on Assets (%) 2.0 5.8 6.2
LIQUIDITY RATIOS

Current Ratio (X) 1.87 1.80 1.97

Quick Ratio (X) -1.07 0.01 0.05
BASIC INFORMATION
Sales/Revenue 9733.00 9155.00 8373.00
Operating Exp. 9276.00 8512.00 7756.00
EBITDA 313.00 707.00 663.00
PAT 239.00 451.00 441.00

19
KEY FINANCIAL RATIOS OF TATA STEEL LTD (POST-
ACQUISITION)

KEY FINANCIAL RATIOS MAR 2010 MAR 2009 MAR 2008

OF TATA STEEL PVT &
CORUS STEEL LTD
PVT (in Rs. Cr.)
PER SHARE RATIOS
Basic EPS (Rs.) 56.85 71.18 64.14
Diluted EPS (Rs.) 56.85 71.18 64.14
Cash EPS (Rs.) 69.08 84.50 75.56
Book Value [Share (Rs.) 418.85 331.59 298.70

P/E Ratio 10.50 2.97 10.38

PROFITABILITY RATIOS

Net Profit Margin (%) 20.23 21.36 23.84

Return on Net worth / Equity 13.57 21.46 21.47
(%)
Return on Capital Employed 7.83 8.99 9.94
(%)
Return on Assets (%) 6.78 7.58 8.50
LIQUIDITY RATIOS

Current Ratio (X) 1.23 0.96 4.64

Quick Ratio (X) 0.92 0.63 4.31
VALUATION RATIOS
Price/BV (X) 1.51 0.62 2.32

20
Earnings Yield 0.09 0.35 0.09

Enterprise Value (Cr.) 78147.05 45882.51 73683.19

Retention Ratios (%) 85.93 77.52 75.06

BASIC INFORMATION
Revenue 26181.73 24951.39 20617.00
Operating Exp. 2419.89 2127.48 1654.96
EBITDA 7.70 4.69 8.20
PAT 5046.80 5201.74 4837.03
E/S Capital 887.41 730.79 730.78
(Source:https://www.moneycontrol.com/financials/tatasteel/ratiosVI/TIS/3#TIS

21
 INTERPRETATION
Tata Steels Ltd (Pre- Acquisition)
PARTICULARS 2004 2005 CHANGE
EBITDA 4.96 4.07 0.89
PAT 1968.90 3564.69 1595.75
Sales/ Revenue 10937.77 14717.56 3786.79
Current Ratio 0.72 0.77 0.05
Quick Ratio 0.50 0.42 -0.08

Corus Steels Pvt Ltd (pre- Acquisition)

PARTICULARS 2004 2005 CHANGE
EBITDA 663.00 707.00 44.00
PAT 441.00 451.00 10.00
Sales/ Revenue 8373.00 9155.00 782.00
Current Ratio 1.97 1.80 -0.17
Quick Ratio 0.05 0.01 -0.04

Tata Steel with Corus Steels (Pre & Post Acquisition)

PARTICULARS 2006 2008 CHANGE
EBITDA 5.20 8.20 3.00
PAT 3559.15 4837.03 1278.15
Sales/ Revenue 15437.44 20617.00 5179.56
Current Ratio 0.81 4.64 3.83
Quick Ratio 0.39 4.31 3.92

ANALYSIS OF FINANCIAL PERFORMANCE

EBITDA of TATA steels India ltd increased by 3 crore after the acquisition
of course steel in the year 2008.

Market share of TATA steels has decreased by 1.77 rupees.

22
 SYNERGIES FROM MERGER:
1. Tata Steel's acquisition of UK-based Corus has once again brought into focus
new markets and customers it would gain in an industry that is getting
consolidated with a few global players.

2. For starters, Corus has more than 50% market share in the UK's 15 million
tonne annual steel market, and the acquisition would allow Tata Steel to easily
leverage the existing network and goodwill.

3. Apart from its links in the UK, Corus has strong relationships with customers in
continental Europe, especially in high margin segments like construction,
automobile and aerospace industry.

4. Corus has 41% of its 18 million tonne capacity geared to the strip products
(which includes cold rolled product applications for the auto industry) and 21%
for long products (which are used for railway lines, beams, wire and reinforcing
bar).

5. It is understood that Corus enjoys nearly 14-15% market share in the European
auto steel grade market.

6. Tata Steel, for several years, has been focussing on boosting its presence in
higher margin products. For instance, it sold nearly 3,50,000 tonnes of cold-
rolled, auto grade steel in FY06, which accounted for nearly 37% of the total
size of the domestic market.

7. With Tata Steel's export presence in Europe negligible as a proportion of total

sales, the synergies for Tata Steel are enormous in the medium-term. Corus is

23
 estimated to generate nearly half of its turnover of £ 9.2 billion in CY05 from
Europe.

8. Analysts point out that expanding presence in the East-Asian auto grade steel
market had been one of the key factors in Tata Steel's earlier acquisitions of
Thailand-based Millennium Steel and Singapore-based NatSteel Asia.

(Source:https://www.business-standard.com/article/companies/tata-corus-huge-
synergies-in-medium-term-106102000039_1.html)

24
 CONCLUSION:

Mergers are economic ornamental trade practices. Tata has entered into the
Fortune 500 company list, as the Corus turnover was four times that of Tata
Steel, it is the second largest producer of steel in the UK and among the top five
steel producers in the world. The acquisition of Corus has helped Tata Steel to
make a global presence in more than 30 countries and enjoy a huge market
share.

REFERENCES:

● https://encrypted-
tbn0.gstatic.com/images?q=tbn:ANd9GcTNrCQagyOEaiUIZlpOJvRhhzjeUbkl
PIN7rEysoDGeFTSqtnk8YflBsFdB1o_AiYoeejA&usqp=CAU)

● https://en.wikipedia.org/wiki/Tata_Steel_Europe

● https://blog.ipleaders.in/tata-acquired-corus-steel/

● https://blog.ipleaders.in/tata-acquired-corus-steel/#:~:text=Tata's%20
acquisition%20of%20Corus%2C%20like,was%20worth%20in%20the%20
transaction.

● https://www.moneycontrol.com/financials/tatasteel/ratiosVI/TIS/3#TIS

● https://www.business-standard.com/article/companies/tata-corus-huge-
synergies-in-medium-term-106102000039_1.html

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