MERGERS AND ACQUISITIONS REPORT

Trainee From inSAKE Solutions

By Dipanjan Dhar
 About inSAKE Solutions

InSAKE Academy offers variety of courses on finance and personality development which
are very well designed and innovative. Their courses are a solution to those looking for a
start in field of finance. InSAKE Academy has provided us with great training and
guidance throughout our internship program, it definitely helped us upskill ourselves and
boost confidence.
As a part of this training, we got to learn about Fundamental analysis, industry analysis,
technical analysis, mutual funds, investment banking, practically analyzing financial
statements and a good brush up on various topics relating to equity, stock market, portfolio
management and personality development.
During this learning process we were lucky to get the support and guidance of our mentor
Mr. Sandeep Shetty, Mr. BBS Reddy (with their warm wishes and great cooperation).
The resources used for the making of this report were mostly from secondary sources such
as official website of the company, government websites, BSE India reports, reports
published by the company and press releases and earning transcripts.
The report is prepared under the guidance of Mr. Sandeep Shetty as a part of
EquityResearch FI 4.0 Training Program.I

InSAKE Solutions is one of the Education Technology & Consulting Services companies in
India. Our goal is to provide state of the art solutions to the corporates and upskill aspirants
as per industry standards. InSAKEsolutions expanded their solutions to 5 Countries,
provided investment and financial solutions to 100+ clients across the Globe and students of
InSAKE solutons got placed in many top MNC's (Multinational Companies) in India with
different job roles. InSAKE Solutions currently providing Equity Research FI 4.0 course
which is helpful for every finance graduates to get exposure in equity research, financial
modelling, fundamental analysis, technical analysis, industry analysis, soft skills,
communication skills, etc. They Provide Mentorship from Industry Experts in upskilling  and
also enabling Technology for Finance tools to make operations with more accuracy.
 Company Profile(Tata Steel)
Tata Steel was established by Indian Parsi Businessman Jamsetji Tata in 1907, exactly in
the year when British American Tobacco (BAT) has started its first factory in India. But
it started operating in the year 1912. Tata Steel holds a very vital place in Indian business
history, because it has introduced some of the unique concepts like 8-hour working days,
leave with pay and pension system for the first time in India and the first player to start rapid
industrialization process. Tata Steel is Asia’s first and India’s largest integrated private sector
steel company with 2005/06 revenues of US$ 5 billion and crude steel production of 5.3 million
tonnes across India and South-East Asia. It is a vertically integrated manufacturer and is one of
the world’s most profitable and value creating steel companies. Tata Steel played a vital role in
the improvement of steel production in the country. Tata Steel, with an annual crude steel
capacity of 34 million tonnes per annum (MnTPA), is one of the world’s most geographically
diversified steel producers. The group recorded a consolidated turnover of INR 1,56,294 crore in
the financial year ending March 31, 2021. Tata Steel Limited has a consolidated turnover of US
$32,836 million in the financial year ending March 31, 2022.Tata Steel group is spread across
five continents with an employee base of over 65,000.  Its products are basically classified into
flat products and construction products. Its segments include Tata Steel India, Tata Steel Long
Products, Other Indian operations, Tata Steel Europe, South-East Asian operations,and the rest
of the world.

SWOT OF TATA STEEL

 Pre Merger Company Profile-CORUS
Corus Group plc was formed on 6th October 1999, through the merger of two companies,British
Steel and Koninklijke Hoogovens, following the privatization of many steelworks companies by the
U.K. government. The company consists of four divisions which include: Strip Products,Long
Products, Aluminum and Distribution and BuildingSystems. With headquarters in London, Corus
operates as an international company,satisfying the demand of many steel customers worldwide.
Its core business comprises of manufacturing, development and allocation of steel and aluminum
products and services.The company has a wide variety of products and services which comprise
of themanufacturing of electrical steel, narrow strip, plates, packaging steel, plated steel strip,semi
finished steel, tube products, wire rod and rail products and services.Corus is Europe’s second
largest steel producer with revenues in 2005 of £9.2 billion(US$18 billion and crude steel
production of 18.2 million tonnes, primarily in the UK and the Netherlands. Corus had about
42,600 employees in over 40 countries and sales offices and service centres worldwide.The
company also had huge amount of short term and long term debts. The total debt burden in the
year 2006, prior to the acquisition was about 2433 million GBP.

SWOT OF CORPUS
 Acquisition Process of the Tata Corus 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.
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 Bamford, for
its decision to accept an offer from Tata.
November 3, 2006 : The Russian steel giant Severstal 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.
November 27, 2006 : The board of Corus decides that it is in the best interest of its will
shareholders to give more time to CSN to satisfy the preconditionsand decide whether it
issue forward a formal offer.
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.
January 31, 2007 : Britain's Takeover Panel announces in an e- mailed statement that
after an auction Tata Steel had agreed to offer Corus investors608 pence per share in
cash.
April 2, 2007 : Tata Steel manages to win the acquisition to CSN and has the full voting
support form Corus’ shareholders.
 Synergies of the Deal
Most experts were of the opinion that the acquisition did make strategic sense for Tata
Steel.After successfully acquiring Corus, Tata Steel became fifth largest producer of
steel in the world,up from fifty sixth positions. There were many likely synergies
between Tata Steel, the lowestcost producer of steel in the world, and Corus, a large
player with a significant presence in value added steel segment and a strong distribution
network in Europe.Among the benefit to Tata Steel was a fact that it would be able to
supply semi-finished steel to Corus for finishing at its plants, which were located closer
to the high value markets. Another area - an obvious come out of large scale
consolidation - would be the synergies of joint procurement. Economies of scale would
give more strength during raw material purchase negotiation and also while
implementing product price changes. All these synergies, was expected to increase the
merged entities profitability further.Tata Steel optimism regarding the synergies that
could be generated after merger with Corus was strong.According to industry experts,
Tata steel would have two options with regard to Steel production after the acquisition.
The option would be to continue with its primary steel production close to its iron ore
deposits, and the ship semi-finished steel for finishing at Corus's plant that were close
to foreign consumer markets. The second option would be to shift a part of Corus
steelmaking capacity to India, where Tata Steel was already planning a massive
expansion to cater to the rapidly growing demand of steel in the country. Corus
expertise in making better grades of steel used in automobiles and in aerospace could
be used to boost Tata Steel's supplies to the growing Indian automobiles market.Corus
consultancy services based in new Port, South Wales, provided iron, steel, and metal
related consultancy, right from the stage from core mining to that of marketing the
finished products. It was planned that this would be synergized with an automation unit
that Tata had in India.

How Acquisition was Implemented

 Tata acquired Corus on 2nd April, 2007

 The deal price was US$ 12.11 Billion.
 On 17th Oct 2006 Tata bid was priced at 403 pence per share
 Tata steel winner of the auction for corus declares a bid of 608 pence per share

Reasons for failure

1. Bad economy

Since the takeover, European Tata Steel operations had been stagnant. Steel
manufacture in the UK collapsed in July 2011 with a flat line in the seven months. Steel
production in the Netherlands was increasing and recovered much faster from the
fluctuations of the market. Further, the demand from the regional user industries such
as automobile, consumer durables and capital goods decreased. All these were
reflected in the financial performance of the company.
2. The shadow of the Chinese market

Cheaper Chinese steel flooded the European market, causing global market conditions
to be distorted and stress was placed on steel producers in the UK. China’s steel
industry has witnessed massive growth, supplying about 48% of the world’s steel
consumption. Whereas the European Union contributed only 12 %. Growth in the
Chinese economy and government investment in the business sector during the high
growth phase were the main reasons for the rise in demand for steel. The slowdown
reduced this demand sharply and thus China was left with more steel than it required.

3. High energy costs

High energy costs in the UK have adversely impacted energy-intensive businesses like
steel mills in comparison to other neighbouring countries. In 2015 these companies had
to pay around 9.55 ppm a kilowatt-hour, compared to a low of 6.7 pence an hour per
kilowatt-hour in 2010. The environmental policies of the UK along with the green tax
substantially increased energy costs for heavy manufacturing sectors since 2010.

4. Lack of control after the acquisition

The success of any merger or acquisition could be ensured only after taking control of
the new entity. There must be a plan to take control and sustain the business operations
as a going concern. Tata continued its activities in Europe with Philippe Varin, Chief
Executive Officer of Corus since 2003. Corus recorded a loss of £458 million in 2002
only a few weeks before his arrival.

After the acquisition of a company, the parent company must analyse the problems and
solve them with their employees. They must be present, not only as an advisor but also
as an executive authority.

5. Lack of knowledge transfer

Mergers and acquisitions provide scope for enhancing the core skills, improve synergy
and meet the needs of customers by exchanging valuable information. A proper transfer
of knowledge gives the companies a competitive edge and helps them to sustain the
business. In this case, there was a lack of proper knowledge transfer which affected the
synergy and incurred losses to the company.
6. Paying too much for the acquisition

Tata’s acquisition of Corus, like many of its earlier purchases, was motivated by a
desire to execute bigger deals, although it could not add much value due to the huge
cost of acquisition. Tata paid far more than Corus was worth in the transaction. Tata
paid 608 pence per share in cash for Corus, which was 34% more than the previous
offering of 455 pence per share. The total settlement amount was $12 billion, with $6
billion being a debt.

The reason Tata’s acquisition was overvalued is simply that the transaction was far too
lucrative at the time, and Tata’s management went along with the spirit of competition
and paid more than they’d like. They overlooked the fact that the connection between
both the cost and the performance was proportional. The right price for the purchase is
subjective, which means there cannot be a single right price for any transaction. When
its competitors were already acquiring companies, Tata would have expected that the
acquisition would place them ahead in the game. Tata, on the other hand, lacked the
self-discipline to not spend any money more than it could afford. 

7. Failing to create the expected value

In this acquisition, the created value was less than the expected value.  By two years,
the profitability of Corus steel started to decline. After a month of its release, the share
price started to reduce to 20%. This indicated that the shareholders believed that the
acquisition would damage the value rather than increasing them.

8. Cultural issues Corus steel is a company based in the UK and Tata steel is an
Indian company. To get the best results from the acquisition, the cultural dilemma which
would impede the integration of the company has to be fixed. These cultural difficulties
are deeply embedded in the management of a company but have been complicated due
to the cultural differences between the countries.  These issues had to be addressed
before any integration.
Post Acquisition
 Tata steel has formed a seven member integration committee to spearhead its
union with corus group.
 Tata share fell by 10.7% on Bombay stock market after acquisition.
 Tata's new debt amounting to $8 billion due to the acquisition.

Conclusion
India’s lower wages and favorable energy prices will continue to promise substantial
cost advantages compared to production facilities in (Western) Europe or the US. The
growth prospects of the client industries are also very good. Corus’ expertise in making
the grades of steel used in automobiles and in aerospace are useful for Tata Steel’s
supplies to the Indian automobile market. Corus in turn get benefit from Tata Steel’s
expertise in low cost manufacturing of steel. If we will compare the financial ratios of
2006-07(Pre Corus) and 2007-08(Post Corus) it shows very good financial result after
acquisition but due to global recession in 2008-09 there was decline in PAT and in other
financial parameters of the company.The acquisition of Corus is in line with Company’s
plans of global acquisitions and its rationale of expansion strategy. This was the biggest
overseas acquisition by an Indian company. The Tata Steel-Corus combine has now
become the fifth largest steel maker in the world with a capacity of 23 million tons a
year. Whatever the cost, Corus is in the Tata bag. The rapid progress of the Indian
automobile, engineering and construction industries means that the country will need
more and more high-quality steel. Access to Corus technology will, in course of time,
allow Tata Steel to move up in the value chain and in that case it will be win win
situation for TATA. The results of the study shows that evident hypothesis, the research
study conclude that merger and acquisition of Tata and Corus with respect of
profitability, performance, turnover, capacity, economies of scale and enhanced control.
This study of impact of merger and acquisition on value matters resulted with positive
influenced in profitability, capital base, dividends and earnings for share holders. This is
a positive characteristics for strong future. There will be a lot of potential synergies in
terms of sharing of best practices across the companies.