17-11-2012, 05:13 PM
Tata - Corus –A case of Acquisition
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“There are not many opportunities for producers in emerging low-cost markets to gain access to the markets of Europe other than by acquiring a company like Corus,” John Quigley (Editor, Industry Publication Steel week) Finance minister P. Chidambaram offered unspecified help, if needed, to close the deal; fellow steel magnate Lakshmi Niwas Mittal cheered the acquisition, and excited TV newsreaders gushed. India’s first Fortune 500 MNC was born. Tata acquired Corus, which is four times larger than its size and the largest steel producer in the U.K. The deal, which creates the world's fifth-largest steelmaker, is India's largest ever foreign takeover and follows Mittal Steel's $31 billion acquisition of rival Arcelor in the same year. Over the past five years, Indian companies had made global acquisitions for over $10 billion. The Tata bid almost equals this amount. Most of them have averaged $100 to 200 million. "It is a two-way street now," Kamal Nath (Commerce Minister, India) said. "Not only India is seeking foreign investment, but Indian companies are emerging investors in other countries." Ratan Tata has said he is confident the two companies have “a cultural fit and similar work practices.” Nearly 30 years ago J.R.D Tata had lured away a young engineer from Corus’s predecessor company, British Steel, to work at Tata Steel. That young Sheffield-educated engineer – Sir Jamshed J. Irani (knighted by the Queen 10 years ago) – was Tata Steel’s managing director until six years ago. Until the 1990s, not many Indian companies had contemplated spreading their wings abroad. An Indian corporate or group company acquiring a business in Europe or the U.K. seemed possible only in the realm of fantasy. Recent reports of United Nations Conference on Trade and Development (UNCTAD) and other organizations have recorded the fact that nowadays Foreign Direct Investment (FDI) is more likely to flow in through cross border mergers (and not through Greenfield Projects). Though Corus is four times bigger than Tata but in the year 2006 the operating profit for Tata was $840 million, whereas in case of Corus it was $860 million. There are some major inputs, which leads Tata towards this huge profit. On October 20 2006, the boards of Tata Steel and Corus announced their agreement on the terms of the recommended acquisition of the entire issued and to be issued share capital of Corus at a price of 455 pence in cash for each Corus Share, valuing Corus at £4.3 billion. Tata Steel said its 455-pence-a-share offer for Corus represents on an enterprise value, a price earning ratio of 7.9 times Corus’ ’06 earnings and includes a premium of approximately 26.2% to the average closing mid-market price of 360.5 pence. Details of the merger were likely to be decided by a strategic and integration committee that would develop and execute the integration and growth plans for the combined entity. Corus is much larger than Tata Steel, both in volumes and sales figures. Globally, it is ranked ninth in terms of volume. Tata Steel, in comparison, is ranked 58.
Ratan Tata, Chairman of Tata Steel, said:
“This proposed acquisition represents a defining moment for Tata Steel and is entirely consistent with our strategy of growth through international expansion. Corus and Tata
Steel are companies with long, proud histories. We have compatible cultures of commitment to stakeholders and complementary strengths in technology, efficiency, product mix and geographical spread. Together we will be even better equipped to remain at the leading edge of the fast changing steel industry.” Jim Leng, Chairman of Corus, said: “This offer from Tata Steel reflects the substantial value created for Corus shareholders since the placing and open offer and launch of our “Restoring Success” programme in 2003. In the middle of last year, my board agreed a strategic way forward for Corus to seek access to low cost production and high growth markets. Consistent with this, the Company held talks with a number of parties from Brazil, Russia and India. This transaction represents the culmination of these talks. This combination with Tata, for Corus shareholders and employees alike, represents the right partner at the right time at the right price and on the right terms. This creates a well balanced company, strategically well placed to compete in an increasingly competitive global environment.” Tata Steel offered to fund upfront the IAS 19 deficit on the Corus Engineering Steels Pension Scheme by paying £126 million into the scheme; and to increase the contribution rate on the British Steel Pension Scheme from 10 percent. to 12 percent until 31 March 2009. The Acquisition would be made by Tata Steel UK, a wholly-owned indirect subsidiary of Tata Steel.
Steel Industry Background
Steel is an alloy of iron and carbon containing less than 2% carbon and 1% manganese and small amounts of silicon, phosphorus, sulphur and oxygen. Steel is the most important engineering and construction material in the world. It is used in every aspect of our lives, from automotive manufacture to construction products, from steel toecaps for protective footwear to refrigerators and washing machines and from cargo ships to the finest scalpel for hospital surgery.
Tata and Indian Steel Industry
Tata Steel has 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. In the later part the concepts invented and implemented by Tata became lawful and compulsory practice for the Indian employees. From Tata Steel, Tata has started investing in various other businesses like; Oil mills, Airlines, Publishing, Motors, Consultancy services etc in a short span of 30 years. In the year 1945 Tata entered into tea business by the name of Tata Tea, which was called as Tata Finlay earlier. Tata also entered into exports as Tata Exports, which is the most successful and the largest export house in India. During the entire business in India Tata has seen many ups and downs, in different fields of business.