Mergers and Acquisitions

FTMBA, Trimester V

Final Project
Merger Analysis
“Amalgamation - Bamnipal Steel (BNL) and Tata Steel BSL into Tata Steel Ltd”

Submitted to
Prof. Sangeeta Wats

30th November 2022

Submitted by
Group 14 – Division A
Kunal Mehta G050
Anuja Gite G027
Mayank Rathi G047
 Table of Contents
Introduction ................................................................................................................................3
Background .................................................................................................................................3
About ..........................................................................................................................................3
Tata Steel Ltd (TSL) ...............................................................................................................3
Tata Steel BSL (TSBSL) .........................................................................................................4
Bamnipal Steel Ltd (BNPL) ....................................................................................................4
Motives for Merger .....................................................................................................................4
Tata Steel Acquires Bhushan Through IBC .................................................................................5
CIRP Process of Bhushan Steel ...............................................................................................5
Objections Raised....................................................................................................................6
Valuation Methodology for Amalgamation .................................................................................7
Shareholding Pattern ...................................................................................................................8
Audit Committee Report - Tata Steel Limited .............................................................................8
Fairness Report (EY)...................................................................................................................9
Post-Merger Integration ..............................................................................................................9
Transaction Details ................................................................................................................... 10
Accounting Treatment ........................................................................................................... 10
Financials .............................................................................................................................. 10
Due Diligence Challenges ......................................................................................................... 11
Post-Amalgamation scenario ..................................................................................................... 12
Exhibits ..................................................................................................................................... 13
Valuation Excel Snippets....................................................................................................... 13
Methodology to arrive at exchange ratio ................................................................................ 15
References ................................................................................................................................ 15
Introduction
Tata Steel Ltd. made an announcement of Amalgamation between “Tata Steel BSL”, “Bamnipal
Steel (BNL)” and “Tata Steel Ltd”. The 16th November 2021 would be considered as the record
date for the purpose of determining the shareholders of Tata Steel BSL Ltd. who will be entitled
to get equity shares of Tata Steel Ltd. (TSL) in the share swap. The purpose of this report is to
determine to qualitative benefit from the amalgamation and what would be the share exchange
ratio and merger details

Background
Merger of Bamnipal Steel and Tata Steel BSL with TATA Steel Ltd

Bhushan Steel, was the largest auto-grade steel manufacturer of the country. Since 2015, the
company was facing financial troubles and in July 2017, the company was admitted to National
Company Law Tribunal (NCLT) due to non-payment of loan. The company was being investigated
by the Serious Fraud Investigation Office (SFIO) for defrauding the shareholders.

Tata Steel, India’s largest steel manufacturer, acquired Bhushan Steel from bankruptcy
proceedings in May 2018 through its subsidiary Bamnipal Steel Ltd. for a sum of Rs. 35,200 crores.
Bhushan Steel was renamed Tata Steel BSL when the acquisition was complete. Bamnipal Steel
Ltd. was an unlisted fully owned subsidiary of Tata Steel floated on January 19, 2018 for the sole
purpose of acquiring Bhushan Steel Ltd.

In April 2019, Tata Steel’s board approved the amalgamation of Tata Steel BSL and Bamnipal
Steel Ltd. with Tata Steel. However, the transaction took more than two years to complete due to
global pandemic and litigations from operational creditors and previous promoters. The
amalgamation was approved by the “National Company Law Tribunal (NCLT)” in August, 2021
and the shares will suspend trading from the browsers from November, 2021. According to the
amalgamation scheme, since Bamnipal Steel Ltd. is a fully owned subsidiary, therefore no fee
would be payable and they will issue and allocate to the shareholders of Bhushan Steel one equity
share of INR 10 face value for every 15 (fifteen) equity shares of INR 2 face value. The record
date was set as November 16.

About

Tata Steel Ltd (TSL)

TSL produces and sells steel goods both domestically and abroad. The “NSE" and the "BSE"
both have listed TSL's equity shares.
TSL reported combined operating revenues from operations of INR 1,33,000 crore and combined
net profit of INR 17800 crores for the fiscal year that ended on March 31, 2018.

Tata Steel BSL (TSBSL)

With a capacity to produce primary steel of 5.60 MTPA and secondary steel of 2.11 MTPA,
TSBSL is an integrated primary steel plant. Prior to being acquired by TSL, the business was
known as “Bhushan Steel Ltd” until changing its name to “Tata Steel BSL” Limited. The NSE
and BSE both list the equity shares of TSBSL. TSBSL reported consolidated revenues from
operations of INR 20,900 crores and consolidated net profit of INR 1700 crores for the fiscal
year that ended on March 31, 2019.

Bamnipal Steel Ltd (BNPL)

TSL set up BNPL as a fully-owned subsidiary with the intention of acquisition of Bhushan Steel
under the Corporate Insolvency Resolution Process ("CIRP") of the Insolvency and Bankruptcy
Code 2016 (“IBC”). It is a “Special Purpose Vehicle”

Motives for Merger

The main objective to amalgamate the Tata Steel BSL and Bamnipal Steel Ltd. with the Tata
Steel was to improve the efficiency of management, maximise the shareholders value, realise
benefits of greater synergies between their businesses, have a sharper strategic focus, improve
agility across business and avail pooled resources to optimise the cost.

The amalgamation would be beneficial to both the businesses in the following manner:

● Higher operational amalgamation and greater facility utilisation. Improving and

standardising the operations at all the facilities of both the companies will help in
increasing the utilisation at both the facilities. Moreover, adoption of best practices from
both the companies will further help in improving the facility utilisation.
● Efficient and assured availability of raw materials as well as reduced procurement and
logistics cost. Increase in purchase quantity will help negotiate better deals in terms of raw
material prices for the company.
● Operational efficiency emerging out of a single value chain, and reduced cost and working
capital. Consolidation of common departments will help reduce the cost, thus increasing
the bottom line and maximising the shareholders’ value. Amalgamation will significantly
reduce the operational, financial, managerial and such other costs. TSBSL will be able to
 avail credit at a lower rate compared to before as the company would have the backing of
TSL and Tata Group.
● Enhancing value through combined marketing and sales. Consolidating the sales and
marketing division of both the companies will significantly drive down the cost of
marketing and sales as a percentage of revenue.
● Expanding product portfolio. Expanding the range of products will help the company to
serve their customers better and attract new customers. Tata Steel BSL was the only
manufacturer of the cold rolled sheet and coil in the country, which finds several
applications across industries. Company was the largest manufacturer of Galvanised coil
and Sheet lines.

Tata Steel Acquires Bhushan Through IBC

With the introduction of IBC there has been a shift from “Debtors in possession” to a “Creditors
in Control” system as it consolidates all existing insolvency related laws wherein a resolution
professional of any stressed asset would implement a resolution plan (RP) within 180 days (can
go up to 270 days). In case that doesn't happen, the company liquidates. With IBC there are avenues
for acquirers to acquire these stressed assets as it would be comparatively cheaper to buy such a
company than set up assets as investment needed in similar greenfield projects would require a lot
more time and money

Tata Steel Ltd (TSL) took over Bhushan Steel (BSL) via incorporating a “SPV” named Bamnipal
Steel (BNL). IBC Code is through which the acquisition has taken place. The acquisition resulted
in Tata Steel getting a majority controlling ownership (72.65%) in Bhushan Steel.

Later on it also managed to acquire Bhushan Steel’s subsidiary, Bhushan Energy price of INR800
crore, again, via the process of IBC.

CIRP Process of Bhushan Steel

This process for Bhushan Steel shad started on 26th July, 2017 when a consortium of lenders, led
by State Bank of India, filed an application of initiating insolvency process for BSL. The due
diligence and site visits went on till November 2017 after which resolution plans were submitted
by February 2018. TSL had submitted their resolution plan for “Bhushan Steel” (BSL) and was
announced as the highest applicant by compliance resolution by the “Committee of Creditors”.
After getting approvals from the Competition Commission of India and finalising documents
TSL’s resolution plan was approved by NCLT on 15th May, 2018.
In accordance with the Resolution Plan, BNL acquired 72.65% of the equity of TSBL for Rs.
158.89 crore and provided additional funds worth INR 35,073.69 crore through debt or convertible
debt. The rest of the 27.35% equity would be held by the shareholders of TSBL’s existing
shareholders and creditors who would receive shares in exchange for the debt owed to them. As
BSL was a listed company and because of amendments regarding Delisting of Equity Shares TSL
was not allowed to have more than 75% stake (which has since been amended) and most of the
funding from TSL of about INR 20,000 crores were as preference shares.

The transaction is financed in part by INR 16,500 crore external bridging loan that BNL obtained
and the remaining amount by “Tata Steel Ltd” investing in “BNL”. The bridge-loan would be
replaced by the debt raised at BSL. A payment of INR 35,232 crores was made to settle sustainable
debts owed to creditors of Bhushan Steel, CIRP expenditures, and dues of employees with the
money that would have been received by TSBL as equity and debt. The financial creditors
substituted the remaining unsustainable debt of INR 25,285 crore with a new contract for INR 100
crores.

During the fiscal year that concluded on March 31, 2019, the promoters of TBSL waived off the
unsustainable debt less the cost of a new contract, which was recognised as an equity contribution.
10 percent redeemable cumulative preference shares at 100 rupees, or 2425 rupees. For INR 4,700,
57 crores were redeemed. The financial results for the year ended 31st March, 2019, recognised
the gain from this redemption as an extraordinary item. Over the course of a year, INR 1,200 crores
were paid to the operating creditors.

The State Bank of India had filed for IBC against Bhushan Energy Limited after which the CIR
process was begun. The interim RP invited claims and the collated amount was Rs. 56,080 crores
from 53 financial creditors. Further there was a claim of Rs. 2846.52 from 751 operational creditors
including employees, workmen and statutory creditors. The public notice issued invited 19
applications who also executed the confidentiality undertaking. Post the submission of their
resolution plans a “Virtual Data Room” (VDR) was set up for 17 potential applicants where there
were relevant documents and information with regards to the CIR process to carry out due
diligence on Bhushan Steel Limited. The RP had appointed 2 valuers (i) Duff and Phelps India Pvt
Ltd and (ii) PWC to determine the liquidation value of Bhushan Steel. Further they appointed
“KPMG” as the evaluator of the resolution plan and “Shardul Amarchand Mangaldas” as the legal
counsel for the CoC

Objections Raised
1. Bhushan Energy Limited who was itself under the CIR Process says the resolution plan
adversely affects their rights as the have Power Purchase Agreement that were entered into
with Bhushan Steel Ltd and Tata Steel seeks to terminate them, allegedly unlawfully.
Bhushan steel had to make minimum payments towards that supply of power that would
 be sufficient for BEL to meet their expenses and debt service obligations. The RP failed to
include BEL as an operational creditor and BEL sought non-enforcement of clauses that
would affect their claims under PPA.

2. Bhushan employees alleged that the application by RP was incomplete as many annexures
were not placed before the adjudicating authority. The plan submitted by Bhushan
Employees was non-compliant with the code as they lacked mandatory content. There was
no disclosure about the source of funds, bid bond or connected persons. Hence TSL and
JSW were the only ones eligible. However, it must be noted that the employees were in
favour of rehabilitation of the company. TSL responded by saying that they had no locus
standi to challenge the decision and clarified that all employees on the payroll of BSL
would continue to be employed by them.

3. Bhushan employees also claimed that a fully-owned subsidiary of TSL known as Tata Steel
UK is guilty on couple of counts under the Act of Health & Safety, 1974. However, an
English court cannot sentence imprisonment to them and can only impose a fine which has
been done.

4. Larsen and Toubro asserted that it must be considered as a secured creditor and be provided
with its dues worth Rs. 961,56,79,356 for a steel plant. However, the claim does not stand
as the status of L&T is as supplier of goods and hence, they would fall under the operational
creditor category. Hence, there was no possibility to alter their status from an unsecured
creditor to that of a secured creditor.

Valuation Methodology for Amalgamation

To arrive at the valuation of the equity shares of Tata Steel Ltd (“TSL”), we approached to
estimate the value of the businesses of TSL. The valuation of Tata Steel is to be estimated
without the proposed transaction

We have calculated it through the following three approaches:

1. Market Approach (Price method)

2 weeks average-market price and 6 months average-market price is taken as he market

value of TSL and TSBSL, whichever is higher

2. Income Approach (DCF Method)

 Present value of all the expected future cash flows on the assets. The WACC also,
(weighted average cost-of-capital), is calculated by using target debt to equity ratio.
EBITDA multiple has been considered for the final calculation of terminal value

Terminal value - EBITDA (final projection year) x EV multiple of industry players in the
same industry

3. Book value of assets method

This approach focuses on the Net asset value of the company divided by the number of
shares

Shareholding Pattern

Category Number of Shares and % of Number of Shares and % of

Voting Rights Pre-Merger Voting Rights Post-Merger

Promoter and Promoter Group 36,96,32,176 36,96,32,176

32.26% 31.71%

Public 77,62,37,337 79,61,71,390

67.75% 68.29%

Total 114,58,69,513 116,58,03,566

100% 100%

Audit Committee Report - Tata Steel Limited

The audit committee has audited the following documents:

1. Proposed scheme document
2. Valuation Report by independent Chartered Accountant - to check the exchange ratio
estimation
3. Fairness Opinion by external advisor - on the share exchange recommendation in the
valuation report
4. Auditor’s Certificate issued by the statutory auditor - PWC (compliance of scheme)
The audit report states that the Bamnipal Steel Ltd was a incorporated as an entity for the
completion of the acquisition of Bhushan Steel to form Tata Steel BSL Ltd by corporate insolvency
resolution process as stated in the (“IBC”) insolvency and bankruptcy code

Bamnipal Steel Ltd is the holding company of Tata Steel BSL Ltd. However, once the completion
of the amalgamation of Tata Steel BSL into Tata Steel Ltd, Bamnipal Steel Ltd (BNL) would no
longer be required to exist as a separate legal entity. The rationale for such amalgamation is to
improve and simplify the corporate structure of Tata Steel Ltd, resulting in optimised
administrative, financial and operational costs for Tata Steel.

The equity shares issued by Bamnipal Steel Ltd and Tata steel BSL Ltd (except the ones issued to
public shareholders) stand cancelled. Public Shareholders of Tata Steel BSL Ltd would receive a
fully paid-up share of the company (Tata Steel) based on the exchange ratio under the valuation
report

Fairness Report (EY)

The fairness opinion report is on the swap ratio under the amalgamation scheme of BNPL and
TSBSL into TSL (Tata Steel Ltd), where the equity shareholders of the TSBSL and BNPL would
be issued equity shares of TSL

The equity swap ratio for the transaction:

● One share (INR 10) each fully paid up of TSL for fifteen shares of TSBSL (INR 2) fully
paid up
● Equity shares of BNPL stand cancelled

Post-Merger Integration
TSL amalgamated with TSBSL and Bamnipal Steel Ltd. on November 11. Since TSBSL was a
subsidiary of TSL for around 3 years, TSBSL had adopted the culture of the company to a certain
extent. Many practices of TSBSL were adopted by the TSL to make the employees of TSBSL feel
warm and welcome in the organisation.

The committee steering the amalgamation had put in place an action plan for post-merger
integration. The post-merger integration process was a very decentralised and democratic process
as departments were given room to decide their own guidelines, timeframes, and goals within a
certain limit.
Since various departments across the companies were to be consolidated, the committee had put
in place the guidelines on how to consolidate the departments. This included details like how to
merge the two departments, how to handle the redundant employees in the departments, action
plan and targets for the department among other things. Implementation committee was set up for
every department who was responsible for overseeing the driving the post-merger integration
process throughout the department. The Oversight committee had formed units in every
department, composed of key people in the department, who were responsible for overseeing the
integration in every department.

TSL focused a lot on the integration of TSBSL with itself. An exchange program of Blue Collar
and Production workers within the company was initiated wherein employees of TSBSL were
assigned short assignments and posts in TSL. It helped employees at TSBSL learn about the culture
of the company. The corporate offices of TSBSL were closed and employees were moved to TSL
corporate offices. At the corporate office, a buddy program where one TSL employee was mapped
with two TSBSL employees. The Buddy program was aimed to get the TSBSL employees
accustomed to the company’s culture and work ethics.

Transaction Details

Accounting Treatment
Tata Steel (TSL) would update their books of accounts, for the amalgamation of TSBSL and
BNPL, with the “Pooling of Interest Method” as enlisted out in Ind AS 103 (Business
Combinations). Further, by the provisions under the Income Tax Act of 1961, this merger was tax
neutral.

Financials
TSL had an operating revenue of INR 73,016 crores which was 3.5 times that of TBSL while their
PAT was almost 10 times at INR 10,533 crores. Post-merger TSL would face an increase in interest
cost along with a slight decrease in PAT since TBSL has past business losses.
Due Diligence Challenges

The legal team that worked with Tata Steel during the acquisition faced multiple and significant
challenges while carrying out due diligence on BSL. Since the process is not like a standard M&A
process wherein the promoters and sellers of the firm being sold would assist the buyer in the
acquisition including providing post-closing indemnities and transition support.
Post-Amalgamation scenario

TSL (“Tata Steel”) acquired TSBSL (“Bhushan Steel”) in 2018 through the “IBC” Process and
renamed it to “TBSL”. As a forthcoming initiative, the acquisition was to commensurate an
amalgamation to realise substantial synergy and to get the tax break as soon as possible

When TSL had acquired BSL it was a distressed asset that had huge financial liabilities and could
not even finance their working capital requirements. The enterprise resource planning, operating
systems were all inadequate. There was an inconsistent supply for raw materials that made most
of their facilities operate below capacity. Hence TSL’s main focus was to increase crude steel
production to their capacity. They have a long history of implementing performance improvement
programs with proper timelines.

Under 45 days of the acquisition, TSBSL launched “Be1: Alag Pachan, Uchi Udaan'' as a platform
to attain operational excellence by optimising resources, minimising waste, collective problem
solving with the help of data analytics and so on. TSL redesigned the organisational structure with
dedicated functional division within a month of the acquisition for vigilance and ethics, HR, CSR,
safety, environment, transformation among others. There were site visits to TSL’s other plants to
focus on technical and managerial skills. 70+ senior leaders moved across the value chain to meet
with and review operational matters on a daily basis. There was a high level of emphasis on
debottlenecking and reducing input costs. A key lever that was identified to increase the furnace
productivity was use of a particular kind of coal known as PCI Coal that reduces fuel cost. This
only happened due to cross learnings from the Jamshedpur and Kalinganagar plants of Tata Steel.
Synergies leveraged by TSBSL with TSL included combining cargo (inbound and outbound)
planning, inter-plant synergies, increased use of captive raw material and manufacturing TSL
branded products at TSBSL at arm’s length. From 3.65 million tonnes of crude steel produced in
FY18 they were able to increase output to 4.46 million tonnes by FY20. Utilisation rates went up
from 83.7% to 93.6%. Their distribution channels were leveraged and the old distributors were
onboarded to the new system. Initiatives undertaken reduced power costs by 1/4th. There were
improvement savings of about Rs. 4000 crores under the Be1 program. The cash conversion cycle
reduced from 106 days in FY18 to 8 days in FY2021. EBITDA/tonne improved from Rs.
5793/tonne in FY18 to Rs. 12,637/tonne in FY2021 while free cash flow from the same period
increased to Rs. 8219 crores from Rs. 678 crores. Lastly, within 3 years, they were able to repay
external debt of about Rs. 9500 crores.
Exhibits

Valuation Excel Snippets

Methodology to arrive at exchange ratio

References
1. Fairness opinion - tata steel. (n.d.). Retrieved November 30, 2022, from
https://www.tatasteel.com/media/8797/fairness-opinion.pdf
2. Report of audit committee - tata steel. (n.d.). Retrieved November 30, 2022, from
https://www.tatasteel.com/media/8799/report-of-audit-committee.pdf
3. Synergy Valuation – tata steel. (n.d.). https://www.tatasteel.com/media/8801/valuation-
report.pdf
4. IBBI Gov. (n.d.).
https://ibbi.gov.in/webadmin/pdf/order/2018/May/15th%20May%202018%20in%20the%
20matter%20of%20Bhushan%20Steel%20Limited%20CA%20Nos.%20176,%20186,%2
0217%20&%20244-2018%20IN%20CP%20(IB)-201-(PB)-2017_2018-05-
17%2017:46:48.pdf
5. Jayant. (n.d.). Tata Steel acquires Bhushan Steel through IBC route. Medium.Com.
https://jayant09.medium.com/tata-steel-acquires-bhushan-through-ibc-route-
ca9c95bd8fc5
6. Irjmets.com. (n.d.). [Word document].
www.irjmets.com/uploadedfiles/paper/volume_3/issue_11_november_2021/17091/16368
76561.docx
7. Tata Steel—Investors. (n.d.). https://www.tatasteel.com/investors/integrated-report-2020-
21r/TSL_IR21_Final.pdf
8. BSE India—Annual Report. (n.d.).
https://www.bseindia.com/bseplus/AnnualReport/500470/73142500470.pdf
9. Tata Steel acquires Bhushan Steel. (n.d.). Mergers India.
https://mnacritique.mergersindia.com/tata-steel-acquires-bhushan-through-ibc-route/
 Similarity Report ID: oid:9832:27980457

PAPER NAME AUTHOR

M&A Project.docx Kunal Mehta

WORD COUNT CHARACTER COUNT

3511 Words 19085 Characters

PAGE COUNT FILE SIZE

15 Pages 256.3KB

SUBMISSION DATE REPORT DATE

Dec 1, 2022 3:24 AM GMT+5:30 Dec 1, 2022 3:25 AM GMT+5:30

9% Overall Similarity
The combined total of all matches, including overlapping sources, for each database.
8% Internet database 1% Publications database
Crossref database Crossref Posted Content database
5% Submitted Works database

Excluded from Similarity Report

Bibliographic material Quoted material
Cited material Small Matches (Less then 8 words)

Summary
 Mergers and Acquisitions

FTMBA, Trimester V

Final Project
Merger Analysis
“Amalgamation - Bamnipal Steel (BNL) and Tata Steel BSL into Tata Steel Ltd”

Submitted to
Prof. Sangeeta Wats

30 November 2022

Submitted by
Kunal Mehta G050
Anuja Gite G027
Mayank Rathi G047
 Table of Contents
Introduction ..................................................................................................................................... 3
Background ..................................................................................................................................... 3
About............................................................................................................................................... 3
Tata Steel Ltd (TSL) ................................................................................................................... 3
Tata Steel BSL (TSBSL) ............................................................................................................ 4
Bamnipal Steel Ltd (BNPL)........................................................................................................ 4
Motives for Merger ......................................................................................................................... 4
Tata Steel Acquires Bhushan Through IBC.................................................................................... 5
CIRP Process of Bhushan Steel .................................................................................................. 5
Objections Raised ....................................................................................................................... 6
Valuation Methodology for Amalgamation .................................................................................... 7
Shareholding Pattern ....................................................................................................................... 8
Audit Committee Report - Tata Steel Limited ................................................................................ 8
Fairness Report (EY) ...................................................................................................................... 9
Post-Merger Integration .................................................................................................................. 9
Transaction Details ....................................................................................................................... 10
Accounting Treatment .............................................................................................................. 10
Financials .................................................................................................................................. 10
Due Diligence Challenges............................................................................................................. 11
Post-Amalgamation scenario ........................................................................................................ 12
Exhibits ......................................................................................................................................... 13
Valuation Excel Snippets .......................................................................................................... 13
Methodology to arrive at exchange ratio .................................................................................. 15
References ..................................................................................................................................... 15
Introduction
Tata Steel Ltd. made an announcement of Amalgamation between “Tata Steel BSL”, “Bamnipal
5
Steel (BNL)” and “Tata Steel Ltd”. The 16th November 2021 would be considered as the record
date for the purpose of determining the shareholders of Tata Steel BSL Ltd. who will be entitled
5
to get equity shares of Tata Steel Ltd. (TSL) in the share swap. The purpose of this report is to
determine to qualitative benefit from the amalgamation and what would be the share exchange
ratio and merger details

Background
9
Merger of Bamnipal Steel and Tata Steel BSL with TATA Steel Ltd

Bhushan Steel, was the largest auto-grade steel manufacturer of the country. Since 2015, the
company was facing financial troubles and in July 2017, the company was admitted to National
Company Law Tribunal (NCLT) due to non-payment of loan. The company was being investigated
by the Serious Fraud Investigation Office (SFIO) for defrauding the shareholders.

Tata Steel, India’s largest steel manufacturer, acquired Bhushan Steel from bankruptcy
proceedings in May 2018 through its subsidiary Bamnipal Steel Ltd. for a sum of Rs. 35,200 crores.
Bhushan Steel was renamed Tata Steel BSL when the acquisition was complete. Bamnipal Steel
6
Ltd. was an unlisted fully owned subsidiary of Tata Steel floated on January 19, 2018 for the sole
purpose of acquiring Bhushan Steel Ltd.
6
In April 2019, Tata Steel’s board approved the amalgamation of Tata Steel BSL and Bamnipal
Steel Ltd. with Tata Steel. However, the transaction took more than two years to complete due to
global pandemic and litigations from operational creditors and previous promoters. The
amalgamation was approved by the “National Company Law Tribunal (NCLT)” in August, 2021
and the shares will suspend trading from the browsers from November, 2021. According to the
amalgamation scheme, since Bamnipal Steel Ltd. is a fully owned subsidiary, therefore no fee
2
would be payable and they will issue and allocate to the shareholders of Bhushan Steel one equity
1
share of INR 10 face value for every 15 (fifteen) equity shares of INR 2 face value. The record
date was set as November 16.

About

Tata Steel Ltd (TSL)

TSL produces and sells steel goods both domestically and abroad. The “NSE" and the "BSE"
both have listed TSL's equity shares.
TSL reported combined operating revenues from operations of INR 1,33,000 crore and combined
2
net profit of INR 17800 crores for the fiscal year that ended on March 31, 2018.

Tata Steel BSL (TSBSL)

With a capacity to produce primary steel of 5.60 MTPA and secondary steel of 2.11 MTPA,
TSBSL is an integrated primary steel plant. Prior to being acquired by TSL, the business was
known as “Bhushan Steel Ltd” until changing its name to “Tata Steel BSL” Limited. The NSE
and BSE both list the equity shares of TSBSL. TSBSL reported consolidated revenues from
2
operations of INR 20,900 crores and consolidated net profit of INR 1700 crores for the fiscal
year that ended on March 31, 2019.

Bamnipal Steel Ltd (BNPL)

1
TSL set up BNPL as a fully-owned subsidiary with the intention of acquisition of Bhushan Steel
under the Corporate Insolvency Resolution Process ("CIRP") of the Insolvency and Bankruptcy
Code 2016 (“IBC”). It is a “Special Purpose Vehicle”

Motives for Merger

1
The main objective to amalgamate the Tata Steel BSL and Bamnipal Steel Ltd. with the Tata
Steel was to improve the efficiency of management, maximise the shareholders value, realise
benefits of greater synergies between their businesses, have a sharper strategic focus, improve
agility across business and avail pooled resources to optimise the cost.

The amalgamation would be beneficial to both the businesses in the following manner:

● Higher operational amalgamation and greater facility utilisation. Improving and

standardising the operations at all the facilities of both the companies will help in
increasing the utilisation at both the facilities. Moreover, adoption of best practices from
both the companies will further help in improving the facility utilisation.
3
● Efficient and assured availability of raw materials as well as reduced procurement and
logistics cost. Increase in purchase quantity will help negotiate better deals in terms of raw
material prices for the company.
3
● Operational efficiency emerging out of a single value chain, and reduced cost and working
capital. Consolidation of common departments will help reduce the cost, thus increasing
the bottom line and maximising the shareholders’ value. Amalgamation will significantly
reduce the operational, financial, managerial and such other costs. TSBSL will be able to
 avail credit at a lower rate compared to before as the company would have the backing of
TSL and Tata Group.
● Enhancing value through combined marketing and sales. Consolidating the sales and
marketing division of both the companies will significantly drive down the cost of
marketing and sales as a percentage of revenue.
● Expanding product portfolio. Expanding the range of products will help the company to
serve their customers better and attract new customers. Tata Steel BSL was the only
manufacturer of the cold rolled sheet and coil in the country, which finds several
applications across industries. Company was the largest manufacturer of Galvanised coil
and Sheet lines.

Tata Steel Acquires Bhushan Through IBC

With the introduction of IBC there has been a shift from “Debtors in possession” to a “Creditors
8
in Control” system as it consolidates all existing insolvency related laws wherein a resolution
professional of any stressed asset would implement a resolution plan (RP) within 180 days (can
go up to 270 days). In case that doesn't happen, the company liquidates. With IBC there are avenues
for acquirers to acquire these stressed assets as it would be comparatively cheaper to buy such a
company than set up assets as investment needed in similar greenfield projects would require a lot
more time and money

Tata Steel Ltd (TSL) took over Bhushan Steel (BSL) via incorporating a “SPV” named Bamnipal
Steel (BNL). IBC Code is through which the acquisition has taken place. The acquisition resulted
in Tata Steel getting a majority controlling ownership (72.65%) in Bhushan Steel.

Later on it also managed to acquire Bhushan Steel’s subsidiary, Bhushan Energy price of INR800
crore, again, via the process of IBC.

CIRP Process of Bhushan Steel

2
This process for Bhushan Steel shad started on 26th July, 2017 when a consortium of lenders, led
by State Bank of India, filed an application of initiating insolvency process for BSL. The due
diligence and site visits went on till November 2017 after which resolution plans were submitted
4
by February 2018. TSL had submitted their resolution plan for “Bhushan Steel” (BSL) and was
announced as the highest applicant by compliance resolution by the “Committee of Creditors”.
After getting approvals from the Competition Commission of India and finalising documents
3
TSL’s resolution plan was approved by NCLT on 15th May, 2018.
 7
In accordance with the Resolution Plan, BNL acquired 72.65% of the equity of TSBL for Rs.
158.89 crore and provided additional funds worth INR 35,073.69 crore through debt or convertible
3
debt. The rest of the 27.35% equity would be held by the shareholders of TSBL’s existing
shareholders and creditors who would receive shares in exchange for the debt owed to them. As
BSL was a listed company and because of amendments regarding Delisting of Equity Shares TSL
was not allowed to have more than 75% stake (which has since been amended) and most of the
funding from TSL of about INR 20,000 crores were as preference shares.

The transaction is financed in part by INR 16,500 crore external bridging loan that BNL obtained
and the remaining amount by “Tata Steel Ltd” investing in “BNL”. The bridge-loan would be
4
replaced by the debt raised at BSL. A payment of INR 35,232 crores was made to settle sustainable
debts owed to creditors of Bhushan Steel, CIRP expenditures, and dues of employees with the
money that would have been received by TSBL as equity and debt. The financial creditors
substituted the remaining unsustainable debt of INR 25,285 crore with a new contract for INR 100
crores.
4
During the fiscal year that concluded on March 31, 2019, the promoters of TBSL waived off the
unsustainable debt less the cost of a new contract, which was recognised as an equity contribution.
10 percent redeemable cumulative preference shares at 100 rupees, or 2425 rupees. For INR 4,700,
2
57 crores were redeemed. The financial results for the year ended 31st March, 2019, recognised
the gain from this redemption as an extraordinary item. Over the course of a year, INR 1,200 crores
were paid to the operating creditors.

The State Bank of India had filed for IBC against Bhushan Energy Limited after which the CIR
process was begun. The interim RP invited claims and the collated amount was Rs. 56,080 crores
from 53 financial creditors. Further there was a claim of Rs. 2846.52 from 751 operational creditors
including employees, workmen and statutory creditors. The public notice issued invited 19
applications who also executed the confidentiality undertaking. Post the submission of their
resolution plans a “Virtual Data Room” (VDR) was set up for 17 potential applicants where there
were relevant documents and information with regards to the CIR process to carry out due
diligence on Bhushan Steel Limited. The RP had appointed 2 valuers (i) Duff and Phelps India Pvt
Ltd and (ii) PWC to determine the liquidation value of Bhushan Steel. Further they appointed
12
“KPMG” as the evaluator of the resolution plan and “Shardul Amarchand Mangaldas” as the legal
counsel for the CoC

Objections Raised
1. Bhushan Energy Limited who was itself under the CIR Process says the resolution plan
adversely affects their rights as the have Power Purchase Agreement that were entered into
with Bhushan Steel Ltd and Tata Steel seeks to terminate them, allegedly unlawfully.
Bhushan steel had to make minimum payments towards that supply of power that would
 be sufficient for BEL to meet their expenses and debt service obligations. The RP failed to
include BEL as an operational creditor and BEL sought non-enforcement of clauses that
would affect their claims under PPA.

2. Bhushan employees alleged that the application by RP was incomplete as many annexures
were not placed before the adjudicating authority. The plan submitted by Bhushan
Employees was non-compliant with the code as they lacked mandatory content. There was
no disclosure about the source of funds, bid bond or connected persons. Hence TSL and
JSW were the only ones eligible. However, it must be noted that the employees were in
favour of rehabilitation of the company. TSL responded by saying that they had no locus
standi to challenge the decision and clarified that all employees on the payroll of BSL
would continue to be employed by them.

3. Bhushan employees also claimed that a fully-owned subsidiary of TSL known as Tata Steel
UK is guilty on couple of counts under the Act of Health & Safety, 1974. However, an
English court cannot sentence imprisonment to them and can only impose a fine which has
been done.

4. Larsen and Toubro asserted that it must be considered as a secured creditor and be provided
with its dues worth Rs. 961,56,79,356 for a steel plant. However, the claim does not stand
as the status of L&T is as supplier of goods and hence, they would fall under the operational
creditor category. Hence, there was no possibility to alter their status from an unsecured
creditor to that of a secured creditor.

Valuation Methodology for Amalgamation

To arrive at the valuation of the equity shares of Tata Steel Ltd (“TSL”), we approached to
estimate the value of the businesses of TSL. The valuation of Tata Steel is to be estimated
without the proposed transaction

We have calculated it through the following three approaches:

1. Market Approach (Price method)

2 weeks average-market price and 6 months average-market price is taken as he market

value of TSL and TSBSL, whichever is higher

2. Income Approach (DCF Method)

 Present value of all the expected future cash flows on the assets. The WACC also,
(weighted average cost-of-capital), is calculated by using target debt to equity ratio.
EBITDA multiple has been considered for the final calculation of terminal value

Terminal value - EBITDA (final projection year) x EV multiple of industry players in the
same industry

3. Book value of assets method

1
This approach focuses on the Net asset value of the company divided by the number of
shares

Shareholding Pattern

Category Number of Shares and % of Number of Shares and % of

Voting Rights Pre-Merger Voting Rights Post-Merger

Promoter and Promoter Group 36,96,32,176 36,96,32,176

32.26% 31.71%

Public 77,62,37,337 79,61,71,390

67.75% 68.29%

Total 114,58,69,513 116,58,03,566

100% 100%

Audit Committee Report - Tata Steel Limited

The audit committee has audited the following documents:

1. Proposed scheme document
2. Valuation Report by independent Chartered Accountant - to check the exchange ratio
estimation
3. Fairness Opinion by external advisor - on the share exchange recommendation in the
valuation report
4. Auditor’s Certificate issued by the statutory auditor - PWC (compliance of scheme)
 The audit report states that the Bamnipal Steel Ltd was a incorporated as an entity for the
13 10
completion of the acquisition of Bhushan Steel to form Tata Steel BSL Ltd by corporate insolvency
resolution process as stated in the (“IBC”) insolvency and bankruptcy code
11 1
Bamnipal Steel Ltd is the holding company of Tata Steel BSL Ltd. However, once the completion
of the amalgamation of Tata Steel BSL into Tata Steel Ltd, Bamnipal Steel Ltd (BNL) would no
2
longer be required to exist as a separate legal entity. The rationale for such amalgamation is to
improve and simplify the corporate structure of Tata Steel Ltd, resulting in optimised
administrative, financial and operational costs for Tata Steel.

The equity shares issued by Bamnipal Steel Ltd and Tata steel BSL Ltd (except the ones issued to
public shareholders) stand cancelled. Public Shareholders of Tata Steel BSL Ltd would receive a
fully paid-up share of the company (Tata Steel) based on the exchange ratio under the valuation
report

Fairness Report (EY)

The fairness opinion report is on the swap ratio under the amalgamation scheme of BNPL and
TSBSL into TSL (Tata Steel Ltd), where the equity shareholders of the TSBSL and BNPL would
be issued equity shares of TSL

The equity swap ratio for the transaction:

● One share (INR 10) each fully paid up of TSL for fifteen shares of TSBSL (INR 2) fully
paid up
● Equity shares of BNPL stand cancelled

Post-Merger Integration
TSL amalgamated with TSBSL and Bamnipal Steel Ltd. on November 11. Since TSBSL was a
subsidiary of TSL for around 3 years, TSBSL had adopted the culture of the company to a certain
extent. Many practices of TSBSL were adopted by the TSL to make the employees of TSBSL feel
warm and welcome in the organisation.

The committee steering the amalgamation had put in place an action plan for post-merger
integration. The post-merger integration process was a very decentralised and democratic process
as departments were given room to decide their own guidelines, timeframes, and goals within a
certain limit.
Since various departments across the companies were to be consolidated, the committee had put
in place the guidelines on how to consolidate the departments. This included details like how to
merge the two departments, how to handle the redundant employees in the departments, action
plan and targets for the department among other things. Implementation committee was set up for
every department who was responsible for overseeing the driving the post-merger integration
process throughout the department. The Oversight committee had formed units in every
department, composed of key people in the department, who were responsible for overseeing the
integration in every department.

TSL focused a lot on the integration of TSBSL with itself. An exchange program of Blue Collar
and Production workers within the company was initiated wherein employees of TSBSL were
assigned short assignments and posts in TSL. It helped employees at TSBSL learn about the culture
of the company. The corporate offices of TSBSL were closed and employees were moved to TSL
corporate offices. At the corporate office, a buddy program where one TSL employee was mapped
with two TSBSL employees. The Buddy program was aimed to get the TSBSL employees
accustomed to the company’s culture and work ethics.

Transaction Details

Accounting Treatment
Tata Steel (TSL) would update their books of accounts, for the amalgamation of TSBSL and
1
BNPL, with the “Pooling of Interest Method” as enlisted out in Ind AS 103 (Business
Combinations). Further, by the provisions under the Income Tax Act of 1961, this merger was tax
neutral.

Financials
TSL had an operating revenue of INR 73,016 crores which was 3.5 times that of TBSL while their
PAT was almost 10 times at INR 10,533 crores. Post-merger TSL would face an increase in interest
cost along with a slight decrease in PAT since TBSL has past business losses.
Due Diligence Challenges

The legal team that worked with Tata Steel during the acquisition faced multiple and significant
challenges while carrying out due diligence on BSL. Since the process is not like a standard M&A
process wherein the promoters and sellers of the firm being sold would assist the buyer in the
acquisition including providing post-closing indemnities and transition support.
Post-Amalgamation scenario

TSL (“Tata Steel”) acquired TSBSL (“Bhushan Steel”) in 2018 through the “IBC” Process and
renamed it to “TBSL”. As a forthcoming initiative, the acquisition was to commensurate an
amalgamation to realise substantial synergy and to get the tax break as soon as possible

When TSL had acquired BSL it was a distressed asset that had huge financial liabilities and could
not even finance their working capital requirements. The enterprise resource planning, operating
systems were all inadequate. There was an inconsistent supply for raw materials that made most
of their facilities operate below capacity. Hence TSL’s main focus was to increase crude steel
production to their capacity. They have a long history of implementing performance improvement
programs with proper timelines.

Under 45 days of the acquisition, TSBSL launched “Be1: Alag Pachan, Uchi Udaan'' as a platform
to attain operational excellence by optimising resources, minimising waste, collective problem
solving with the help of data analytics and so on. TSL redesigned the organisational structure with
dedicated functional division within a month of the acquisition for vigilance and ethics, HR, CSR,
safety, environment, transformation among others. There were site visits to TSL’s other plants to
focus on technical and managerial skills. 70+ senior leaders moved across the value chain to meet
with and review operational matters on a daily basis. There was a high level of emphasis on
debottlenecking and reducing input costs. A key lever that was identified to increase the furnace
productivity was use of a particular kind of coal known as PCI Coal that reduces fuel cost. This
only happened due to cross learnings from the Jamshedpur and Kalinganagar plants of Tata Steel.
Synergies leveraged by TSBSL with TSL included combining cargo (inbound and outbound)
planning, inter-plant synergies, increased use of captive raw material and manufacturing TSL
branded products at TSBSL at arm’s length. From 3.65 million tonnes of crude steel produced in
FY18 they were able to increase output to 4.46 million tonnes by FY20. Utilisation rates went up
from 83.7% to 93.6%. Their distribution channels were leveraged and the old distributors were
onboarded to the new system. Initiatives undertaken reduced power costs by 1/4th. There were
improvement savings of about Rs. 4000 crores under the Be1 program. The cash conversion cycle
reduced from 106 days in FY18 to 8 days in FY2021. EBITDA/tonne improved from Rs.
5793/tonne in FY18 to Rs. 12,637/tonne in FY2021 while free cash flow from the same period
increased to Rs. 8219 crores from Rs. 678 crores. Lastly, within 3 years, they were able to repay
external debt of about Rs. 9500 crores.
Exhibits

Valuation Excel Snippets

Methodology to arrive at exchange ratio

References
1. Fairness opinion - tata steel. (n.d.). Retrieved November 30, 2022, from
https://www.tatasteel.com/media/8797/fairness-opinion.pdf
2. Report of audit committee - tata steel. (n.d.). Retrieved November 30, 2022, from
https://www.tatasteel.com/media/8799/report-of-audit-committee.pdf
3. Synergy Valuation – tata steel. (n.d.). https://www.tatasteel.com/media/8801/valuation-
report.pdf
4. IBBI Gov. (n.d.).
https://ibbi.gov.in/webadmin/pdf/order/2018/May/15th%20May%202018%20in%20the%
20matter%20of%20Bhushan%20Steel%20Limited%20CA%20Nos.%20176,%20186,%2
0217%20&%20244-2018%20IN%20CP%20(IB)-201-(PB)-2017_2018-05-
17%2017:46:48.pdf
5. Jayant. (n.d.). Tata Steel acquires Bhushan Steel through IBC route. Medium.Com.
https://jayant09.medium.com/tata-steel-acquires-bhushan-through-ibc-route-
ca9c95bd8fc5
6. Irjmets.com. (n.d.). [Word document].
www.irjmets.com/uploadedfiles/paper/volume_3/issue_11_november_2021/17091/16368
76561.docx
7. Tata Steel—Investors. (n.d.). https://www.tatasteel.com/investors/integrated-report-2020-
21r/TSL_IR21_Final.pdf
8. BSE India—Annual Report. (n.d.).
https://www.bseindia.com/bseplus/AnnualReport/500470/73142500470.pdf
9. Tata Steel acquires Bhushan Steel. (n.d.). Mergers India.
https://mnacritique.mergersindia.com/tata-steel-acquires-bhushan-through-ibc-route/
 Similarity Report ID: oid:9832:27980457

9% Overall Similarity
Top sources found in the following databases:
8% Internet database 1% Publications database
Crossref database Crossref Posted Content database
5% Submitted Works database

TOP SOURCES
The sources with the highest number of matches within the submission. Overlapping sources will not be
displayed.

bseindia.com
1 2%
Internet

ndtv.com
2 2%
Internet

Indian Institute of Mangement Rachi Suchana Bhawan on 2021-05-06

3 1%
Submitted works

mnacritique.mergersindia.com
4 <1%
Internet

business-standard.com
5 <1%
Internet

Great Lakes Institute of Management on 2022-01-17

6 <1%
Submitted works

S.P. Jain Institute of Management and Research, Mumbai on 2020-07-14

7 <1%
Submitted works

issuu.com
8 <1%
Internet

Sources overview
 Similarity Report ID: oid:9832:27980457

firstpost.com
9 <1%
Internet

hccindia.com
10 <1%
Internet

Asian Institute of Technology on 2020-03-02

11 <1%
Submitted works

Indian Institute of Management, Bangalore on 2019-02-20

12 <1%
Submitted works

University of New England on 2020-12-21

13 <1%
Submitted works

Sources overview