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Anjali Tata Motors
Anjali Tata Motors
Table of Contents
Introduction
o Tata Steel industry
o The steel industry and the global scenario in the 2000s
o Corus Steel
o The process of Acquisition
o What went wrong with the deal?
1. Bad economy
2. The shadow of the Chinese market
3. High energy costs
4. Lack of control after the acquisition
5. Lack of knowledge transfer
6. Paying too much for the acquisition
7. Failing to create the expected value
8. Cultural issues
o Conclusion
Introduction
Mergers and acquisitions possess a great potential for integrating
resources from different parts of the world and building
something even bigger from it. On 2nd April 2007, India saw one
of the biggest acquisitions ever. Tata acquired Corpus steel, the
two steel giants together possessed a lot of potential for both the
Indian and global steel industry. It might have started with
brilliant plans and great expectations, instead turned out to be a
case study of a failed acquisition. Even though it was an obvious
thing to happen, experts are still researching the reason for its
failure. “This acquisition of Corus by Tata Steel represents a big
step forward in the company’s worldwide strategy and represents
an exciting prospect for the two companies,” said Ratan Tata,
President of Tata Steel and Corus.
Corus Steel
Corus was the second-largest steel producer in Europe,
generating revenues of 9.2 billion pounds in 2005 (18
billion dollars and 18.2 million tonnes’ crude steel
production, mainly in the UK and Netherlands). Corus
offered innovative solutions in various sectors like
automobile, construction, manufacturing technology.
Corus had a workforce of 41,100 in more than 40
countries along with sales and service centres all over the
world. The brand depicted quality and strength due to its
global expertise and regional customer service.
Tata Steel, the auction winner for Corus, declared a bid of 608
pence per share, which was higher than the final bid of 603 pence
per share from Brazilian steel company Companhia Siderurgica
Nacional (CSN). Tata Steel was required to deliver the
consideration within two weeks after the date of completion of
the proposed transaction according to the regulations in the
scheme. Tata Steel and Corus were interested in the M&A deal
before the start of the deal for a variety of reasons. According to
the official press releases made by both the companies, the
combined entity will set up to have a crude steel production of
27 million tonnes in 2007, with 84,000 employees spread across
the globe and a joint presence in more than 40 countries. The
merger possessed a huge threat to its competitors. The world’s
crude steel output increased by 7-8 per cent a year from 2002-
2006 owing to rapidly increasing Chinese auto manufacturing,
shipbuilding sectors and the major infrastructure growth,
including key projects, such as the Beijing Summer Olympics
facilities in 2008.
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.
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.
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.
Conclusion
The Tata Corus acquisition was the largest private-sector transaction
conducted by an Indian company outside of India. At one point the merged
entity became the fifth most revenue-generating steel company all over the
world. This acquisition may have resulted in a variety of benefits. Tata Steel
was one of the world’s most lucrative steel businesses, and the acquisition
gave space for a lot of research and learning space. English being one of the
most common languages in India has aided the process of integration.
Tata Steel had done many successful cross border acquisitions in the past.
Unfortunately, the merger did not turn out to be successful and incurred
losses. The storey of Tata’s acquisition of Corus ended on a sad note. It is
important to analyse the reasons and understand where it went wrong.
Being a better provider of capital investment, offering excellent management
supervision and transferring valuable knowledge are the most important
conclusions that could be drawn from the mistakes. The various concerns
raised need to be taken care of while companies go for acquiring companies
across borders much bigger than them.