merger of tata steel and corus

Tolani Institute of Management Studies

INTRODUCTION:

STEEL INDUSTRY

Contribution in the development of India’s economic growth:

The Indian steel industry is more than 100 years old now. The first steel ingot was

rolled on 16th February 1912 - a momentous day in the history of industrial India. Steel is

crucial to the development of any modern economy and is considered to be the backbone of

the human civilization. The level of per capita consumption of steel is treated as one of the

important indicators of socio-economic development and living standard of the people in any

country. It is a product of a large and technologically complex industry having strong forward

and backward linkages in terms of material flow and income generation. All major industrial

economies are characterized by the existence of a strong steel industry and the growth of

many of these economies has been largely shaped by the strength of their steel industries in

their initial stages of development.

India is the seventh largest steel producer in the world, employing over half a million

people directly with a cumulative capital investment of around Rs. one lakh crore. It is a core

sector essential for economic and social development of the country and crucial for its

defense. The Indian iron and steel industry contributes about Rs.8,000 crore to the national

exchequer in the form of excise and custom duties, apart from earning foreign exchange of

approximately Rs. 3,000 crore through exports. Consumption of finished steel grew by 5.9 %

and increased to 24.9 million tones. steel consumption is likely to increase in the at a rapid

pace in future due to large investments planned in infrastructure development, increase

urbanization and growth in key steel sectors i.e. automobile, construction and capital goods.

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Since, then the Indian steel industry has emerged as one of the core sectors in the

Indian economy with a very significant impact on economic growth. India with its abundant

availability of high grade iron ore, the requisite technical base and cheap skilled labor is thus

well placed for the development of steel industry and to provide a strong manufacturing base

for the metallurgical industries.

The deregulated Indian steel industry is performing at its peak level in almost all

spheres. The total production of finished steel from April 2004 to March 2005 has been

estimated to be about 383.25 lakh tones as against the production of 369.57 lakh tones during

the same period last year showing an increase of 3.7 %. The most spectacular achievement

has, however, been recorded in export performance.

Steel has so far proved to be the single key factor responsible for industrial production

and thereby, for economic growth. And it is growing from strength to strength with newer

developments--both within steel making practice as well as engineering developments, which

ask for more usage of steel. So much so, that economic development has become almost

synonymous with steel consumption

Source: www.investmentz.com

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http://www.investmentz.com/


1. Pest Analysis OF TATA STEEL INDUSTRY

Political:

In the 1920s and 1930s, when it was still called Tata Iron and Steel Company,

TISCO's largely tribal workers fought pitched battles with the European or Parsi

management. Work conditions and the right to organize were important rallying issues, and

over the years, the company developed a reputation for union-busting, often by violent

meansThe value of Dorabji’s Expansion Programme came to be appreciated only during the

phase when world was reeling under the pressure of the Great Depression. The Tatas

survived the depression and supplied nearly three-fourths of the country’s steel requirements.

By the Second World War, Tatas’ production capacities had expanded enough to make their

prices lower than those of steel produced in England raising them to an authoritarian position.

By the 1980s, the government was clearly in control of what had come to be called

the commanding heights of economy. More than 45% of output in organized industry came

from the public sector as well as bank and other long-lending institution.

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In 1981-82, eight of the largest firms in India were in the public sector, as were 24 out

of the top 30 in terms of total capital employee. In this sense it could be said that Nehru’s

goes when he had began the planning process had been achieved. But this success has to be

seen in the context of the fact that industrial growth rates had lagged at about 4%/annum

between 1964-65 and 1975-76.This rate was in sharp contrast to what was happening in the

Asian economies and in Southeast Asia. These countries had achieved consistent high growth

by opening up their markets and by abandoning policies of import substitution.

Indira Gandhi in her second stint as prime minister was not willing two inaugurate a

new industrial policy that departed from the socialist pattern put in place by her father. Yet

she was far too astute not to recognize the signs of crises that were waiting in the wings. She

made the gesture that her government supports the expansion and modernization of the

private sector. The basic elements of the new policy began to emerge against the background

of the India Special Drawing Rights billion-dollar loan agreement with the International

Monetary Fund to cope with the balance of payment deficits.

Rajiv Gandhi- Both internal & external finance shortages were worsening. Trade

deficit increased from 10 billion in 1983-84 to Rs. 34 billion in 1985-86 so it became difficult

to repay loan.(A)

BJP: Commitment to women all round empowerment- To provide job opportunities

to unemployed women’s.(B)

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Economic:

TATA Steel, formerly Tata Iron and Steel Company Ltd (Tisco), the company around

which the entire township of Jamshedpur was built, was registered in Bombay (now Mumbai)

on August 26, 1907. It had an initial capacity of 160,000 tones of pig iron, 100,000 tones of

ingot steel, 70,000 tones of rails, beams and shapes and 20,000 tones of bars, hoops and rods.

It also had a powerhouse, auxiliary facilities and a laboratory. It was in 1955 that Tata Steel

began its two million-tone expansion programme, the largest project in the private sector at

that time. The project was completed in December 1958. Beginning in the 1980s, the

company undertook in various phases an ambitious modernization programme. The first

phase, between 1981 and 1985, involved a total project cost of Rs.223 crores. This phase,

among other things, saw the installation of two 130 tone LD converters, two 250 tone a day

oxygen plants, a bar forging machine, two vertical twin-shaft lime kilns and a tar-dolo brick

plant. Significantly, a six-strand billet caster and a 130-tone vacuum arc refining unit were

installed, that too in the integrated steel plant.

The second phase (1985-1992), involving a project cost of Rs.780 crores, saw for the

first time in India coal injection in blast furnaces and coke oven battery with 54 ovens using

stamp-charging technology. Apart from this, a 0.3 mtpa (million tone per annum) wire rod

mill, a 2.5 mtpa sinter plant, a bedding and blending plant and a waste recycling plant of 1

mtpa were installed.(2)

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The cost of the third phase (1992-1996) of the project was a whopping Rs.3,600

crores, and that of the fourth phase (1996-2000) Rs.1,300 crores. The company recently

commissioned its 1.2 mt (million tone) capacity Cold Rolling Mill Complex at a project cost

of Rs.1,600 crores. This four-phase modernization programme has enabled Tata Steel to be

equipped with the most modern steel-making facilities in the world. As of today, the Tata

Steel facility has a hot metal capacity of 3.8 mtpa and a crude steel capacity of 3.5 mtpa,

corresponding to a salable steel capacity of 3.4 mtpa. Tata Steel has been in the forefront of

India's industrialization and an engine of growth. It is part of Tata Group, a prestigious,

family-owned Indian multinational with 2005 revenues of $17.8 billion, the equivalent of

about 2.8 % of India's GDP. Tata Steel's acquisition of Corus was a marriage made in heaven.

Social:

Social responsiveness became integral to organizational objectives of Tata Steel, even

before the company was established in 1907. In 1970, however, Tata Steel formally

incorporated its commitment to the stakeholder concerns, including those of the nation, and

environment, in its Articles of Association. ‘The Company shall have among its objectives

the promotion and growth of the national economy through increased productivity, effective

utilization of materials and manpower resources and continued application of modern

scientific and managerial techniques in keeping with the national aspirations, and the

Company shall be mindful of its social and moral responsibilities to the consumers,

employees, shareholders, society and the local community. (4)

For Jamsetji Tata, the progress of enterprise, welfare of people and the health of the

enterprise were inextricably linked. Wealth and the generation of wealth have never "been

ends in themselves, but a means to an end, for the increased prosperity of India.

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Tata Steel’s efforts at environment management are well recognized. It’s Steel Works

in Jamshedpur, all its mines, collieries and manufacturing divisions in its out locations are

certified to ISO-14001. Jamshedpur is the only town in the country which has an ISO-14001

certified service provider. Significant achievements by the Company include an improvement

in environment and resource conservation, including a reduction in green house erosion, raw

materials and water consumption. The Company has increased waste reuse and recycling.

The heritage of returning to society what they earn evokes trust among consumers,

employees, shareholders and the community. This heritage will be continuously enriched by

formalizing the high standards of behaviour expected from employees and companies.

The TATA name is a unique asset representing Leadership with Trust. Leveraging

this asset to enhance group synergy and become globally competitive is the route to sustained

growth and long term success. Values Trusteeship Integrity Respect for Individual Credibility

Excellence. (5)

Technology:

Tata Steel has been fortunate to have leaders and a rich reservoir of committed people

who could see clearly through the future and transformed the plant into a modern

technological giant with the power of their meticulous envisioning, strategy and planning,

through several modernization programmes having spent more than Rs. 70000 millions on

environment-friendly technologies since 1980. Installation of a modern Cold Rolling Mill

Complex, built at global speed and cost, is not only the epitome of Tata Steel’s modernization

programme, but also remains a global benchmark in project management of its kind. It is also

worthwhile to mention that the Company lost dearly for their decision on the installation of

EOF (Energy Optimizing Furnace) at Jamshedpur Works, and CRM (Cold Rolling Mill) at

Gopalpur in Orrisa.

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The Tatas made a great contribution in manpower development field too. From the

very beginning the Tatas invested substantial time, money and resources in training schemes.

In 1921, the Jamshedpur Technical Institute was set up with a purpose to replace foreign

technical experts with their Indian counterparts. Furnished with super-sophisticated labs,

advanced training aids and other infrastructural facilities, the Technical Training Institutes in

Jamshedpur is today one of the best in the country. Recently, a new Management

Development Centre has been built at Dimna to impart advanced management training to

middle and senior level managers in the Company.

Various Policies of Tata Steel:

Quality Policy

Safety Occupational Health and Environmental Policy

Human Resource Policy

Social Accountability Policy

Corporate Social Responsibility Policy

Drug & Alcohol Policy

HIV+ & AIDS Control Policy

Energy Policy

Towards organization: Tata was the 1st company to amend its articles of association

including the clause of social welfare.

Towards shareholders: Equal participation, straight forward business policy.

Towards employees: Pioneer of P.F. scheme, free medical and workmen’s corporation fund.

Towards Society: India should not be an economic super power, but a happy country.

Towards government: Suggestions of economic reforms and high tax payer company.

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Towards consumers: Consumer is the king of market. Quality products & services timely

solutions of problems

Corus

Introduction of corus

The London-based Corus Group is one of the world's largest producers of steel and

aluminium. Corus was formed in 1999 following the merger of Dutch group Koninklijke

Hoogovens N.V. with the UK's British Steel Plc on October 6, 1999. It emoploys 47,300

people worldwide and 24,000 people in the United Kingdom.

Corus is a leading European manufacturer providing steel and aluminium products

and services worldwide. The company is comprised of four Divisions; Strip Products,

Long Products, Distribution & Building Systems and Aluminium2, and has a global

network of sales offices and service centres. It focuses on semi-finished and finished

carbon steel products and is not involved in iron ore extraction.

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 provides innovative solutions to the construction, automotive, packaging,

mechanical engineering and other markets worldwide.

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Tata acquired corus, which is 4 times larger than its size and the largest steel producer

in the U.K. The deal, which creates the worlds fifth largest steelmaker, is India’s largest ever

foreign takeover and follow mittal steel’s $31 billion acquisition of rival arcelor in same

year.

Tata acquires corus on the 2nd of April 2007 for a price of $12 billion. The price per

share was 608 pence, which is 33.6% higher the first offer which was 455 pence.

For the fiscal year ended March 2006, the company generated revenues of

$3,693.6million (IR17,144.22 Crores), an increase of 0.1% over the previous fiscal year. The

company saw a net income of $755.4 million (IR3,506.38 Crores), an increase of 8%over

fiscal 2005 months.(3)

SWOT ANALYSIS OF CORUS

STRENGTHS:-

The change in management structure due to the privatisation of the British Steel

company in 1999 (which created Corus as a result of the merger of British Steel and

Hoogovens) led to strengthening the manufacturing company, which, prior to the merger, had

suffered serious cumulative losses between 1975 and 1984. A combination of increased

investment, reduced overheads, devolved decision-making and revolutionised working

practices has become the foundation of making Corus into one of Europe’s largest

manufacturing companies as of date. The company, spearheaded by Brian Moffat since 1993,

used a range of different approaches to global development such as joint ventures (Western

Europe and USA), overseas transplants (USA, Eastern Europe and possibly Asia and South

America); and continued exports of high-added value products in order to further strengthen

their international presence in the manufacturing business.

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WEAKNESSES:-

In the crisis-filled years that Corus suffered, critics have commented that the company

has a lack of long-term vision, evidenced by their concentration on small steel ventures in the

US, when all the other competitors have been making giant alliance moves in order to give

them stronger market positions in developing markets. It has not used its financial strength to

spread its operations globally, in this day and time when going global is a key factor to

success. Poor management prior to Moffat’s administration has also caused the firm a not-so-

good image with employees, as in 2000, they were forced to reduce their workforce due to

radical restructuring of its bulk steel operations.

OPPORTUNITIES:-

With the observed inability of Corus to spread operations globally, the opportunity

therefore is to take advantage of the increasingly boundless global market in order to not only

increase profits for the company, but also to gain market leadership, because it is believed

that the manufacturing company has got what it takes to take on a worldwide scale. They also

have the opportunity to further increase their production capacities through adoption of

systems which technology nowadays offers, and also to prepare for the increased demand for

their products once they decided to conquer the wider international markets. The steel prices

that are likely to continue to rise in the future – partly as a result of the dynamic Chinese

economy’s effect on world prices – should present an opportunity for Corus to utilise to the

fullest so that they could realise their true company potentials. With Philippe Varin now in

the helm after Moffat announced his resignation in 2003, opportunity offered by a new

organisational structure is also evident.

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THREATS:-

The strengthening of the pound against European currencies in the second half of the

1990s created a threat for the company, since by that time much of their sales were still in

Europe. It is therefore a threat to the firm at this time, when the tug against who is the

stronger currency still exists in the market. There is also the threat, not only for the Corus

group, but for the whole steel industry as well, of the European rules with respect to opening

the market of power generation, which would mean creating an unfair distortion of

competition for the industry concerned.

Vision

We aspire to be the global steel industry benchmark for value creation and corprate

citizenship.

Tata Steel and Corus: A Compelling Vision in Steel

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REASONS FOR MERGER:-

FOR CORUS:

Total Debt Of Corus Is 1.6 Bn Gbp

Corus Needs Supply Of Raw Material At Lower Cost

Though Corus Has Revenue Of $ 18.06 Bn Its Profit Was Just Of $626 Mn

Corus Facilites Were Relatively Old With High Cost Of Production

Employeee Cost Is 15% While That Of Tata Steel Is 9%

FOR TATA:

Tata Was Looking To Manfacture Finished Products In Mature Markets Of

Europe

A Diversified Product Mix Will Reduce Risks While Higher End Products Will

Add To Bottim Line.

Corus Holds A Number Of Patents And R&D Faclity

Tata Is Known For Efficent Handling For Labor And It Aims At Reducing

Employee Cost And Improve Productivity

It Will Move From 55 Th Positon In World To 5 Th In Prodcution Of Steel

Globally.

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Corus-Tata deal: An instance of how laws can constrict M&A

The Corus-Tata deal continues to make news, even as both the companies continue to

consider various options to combine. For watchers of M&A (merger and acquisition), the

deal is a case study of how Indian acquirers have to consider takeover code and other laws in

a different country, such as the UK. This, apart from taking care that Indian laws are

complied with.

While the Indian Companies Act, 1956, usually governs mergers in India,

international deals involve additional compliances with rules laid down under the FEMA

(Foreign Exchange Management Act, 1999) and associated law. Further, listed companies are

also subject to the rules and regulations laid down by the SEBI (Securities and Exchange

Board of India).

"The latter two laws can complicate any cross-border M&A," says Mr Diljeet Titus of

Titus & Co, Advocates, New Delhi.

"There are often occasions when an interplay between SEBI regulations and those of

FEMA can make it difficult for deals to be structured.

The best example is the 3(3) notice required to be given in the case of inter-se

promoter acquisition under the SEBI takeover code," he says, referring to Regulation 3(3) of

SEBI (Substantial Acquisition of Shares and Takeovers) Regulations.

"The 3(3) notice mandates that a notice has to be given to the stock exchange where

the shares of the company are listed four days prior to any inter-se promoter transfer of

shares.

"However, under the FEMA a non-resident can only acquire shares of an Indian

company at market price."

Mr Titus reasons that if the four-day notice is given to the stock exchanges, it

encourages speculation on the company's share price, making it difficult for the foreign

acquirer to buy the shares at market price.

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"Because the market price may not be the true price of the shares but just a

speculative price over four days."

It is possible to make M&A less painful, feels Mr Titus. "SEBI and the RBI (Reserve

Bank of India) may each establish an effective legal cell, which should be able to respond to

questions raised by the parties to a merger on a timely basis," he suggests.

"A comprehensive database of FAQ (frequently asked questions) from these two

organisations could help. For, many of the questions that arise in current deals may arise in

future deals too."

Merger/Amalgamations

An amalgamation is regulated by the Companies Act, 1956 (CA56), and the company (Court)

Rules, 1959 (Rules). A company may merge with another body corporate, whether or not an

Indian company, provided the surviving entity of the merger is a company whithin the

meaning of the CA56. A scheme of amalgamation (scheme)requires approval of the High

Court (Court) of the States where the registered offices of amalgamating companies are

situated. The steps for amalgamation of companies under the CA56 and the Rules are as

followa:

(1) Apply to the Court (by the company or any creditor or member of the company) for

directions to convene a meeting of the members and/or of creditors of the company,

for purposes of considering and approving the Scheme. Notice of the application must

also be given to the Regional Director, Company Law Board, whose representation is

considered by the Court before passing final orders.

(2) Pursuant to the Court’s directions the amalgamating companies would need to give 21

days notice of the meetings by advertisement in newspapers and then hold meetings

fo their respective members and/or creditors, according to the dates times, venues and

quorum fixed for the meetings by the Court. After approval of the Scheme by the

requisite majority (1) the Chairman of each ,eeting files his meetings report with the

Court.

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(3) Within seven days of submission of the chairman’s report to the Court, a final petition

is filed with the Court conforming the Scheme with a request for appropriate orders

and directions by the Court. The Court fixes a date for hearing the petition and the

notice of the hearing must be advertised in the newspaper(s) atleast 10 days before the

date fixed for the hearing.

(4) While considering the Scheme, the Court considers whether the applicant has

disclosed to the Court by affidavit all material facts relating to the company, such as

the latest financial position of the company, any investigation proceedings pending by

the Company Law Board and that the Scheme does not violate any provisions of laww

is not contray to public policy but is fair, just and reasonable.

If the Court receives no adverse representation from the Regional Director, the Court may

sanction the Scheme with appropriate orders and directions necessary for its proper working,

including transfer of properties or liabilities, dissolution of the transfer company without the

procedure of winding up, alloting of shares, debentures or other like interests, etc.

Thereafter, the amalgamating companies are required to file the order(s) of the Court

sanctioning the Scheme with their respective Registrars of Companies and, upon such filing,

the order of the Court becomes effective and legally binding. This Court process takes 3 – 6

months.

Tax Consideration: The Court order, being in effect a conveyance, is an instrument

liable to stamp duty that varries from state to state. However, if (1) at least 90% of the issued

share capital of the transferee company is in the beneficial ownership of the transferor

company, or (2) transfer is between a parent company and a subsidiary company, one of

which is the beneficial owner of not less 90% of the issued share capital of the other, or (3)

transfer is between two subsidiaries where not less than 90% of the issued share capital of

each is in the beneficial ownership of a common company of the other, then no stamp duty is

payable, provided an exemption certificate is obtained from the officer appointed bye the

State Government on their behalf.

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The transferee company may carry forward losses incurred before the amalgation.

However, to do this at least 51% of the shareholders of the transferee company (prior to the

amalgamation) should beneficially hold at least 51% of the votes on 31st March of each of the

future fiscal years in which the past losses are to be carried forward.

If the transferor company is carrying forward losses, then the following conditions must

be met to enable the transferee company to carry forward losses of the transferor company

(post-merger)

1. The transferee company holds continuously for a minimum period of five years from

the date of amalgamation at least 75% of the book value of fixed assets of the

transferor company accquired in the Scheme;

2. The transferee company continuous the business of the transferor company for a

period of fiv e years from the date of amalgamation;

3. The transferee company, owing an industrial undertaking of the transferor company

by way of amalgamation, achieves the level of production of at least 50% of the

installed capacity of this undertaking before the end of four years from the date of

amalgamation and continoues to maintain this minimum level of production till the

end of five years from the date of amalgamation.

However, the Central Board of Direct Taxes, on an application made by the transferee

company, can in suitable cases relax the condition of achieving the level of production or the

period during which it is to be achieved or both. The precondition for this is that genuine

efforts are made by the transferee company to attain the prescribed level of production and

there are circumstances preventing such efforts from attaining this level.

4. The transferee company furnishes to the Assessing Officer a certificate verified by an

accountant, with reference to tje books of accounts and other documents showing

particulars of production, along with the return of inccome. These should relate to the

assessment year relevant to the previous year during which the prescribed level of

production is achived and to subsequent assessment years relevant to the previous

years falling within five years from the date of amalgamation.

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Acquisitions

An acqusition may be in the acquisition of either shares or assets. While not considering

the merits and acquisition of assets and the higher stamp duty on the sale of assets.

1. FIPB Approval: Under the foreingn direct investment policy of the Government of

India, a proposal for the acquisition of shares of an India company by a foreign

company requires the prior approval of the Foreign Investment Promotion Board

(FIPB). However, FIPB approval is not required for the sale and transfer of shares of

an Indian company by a person resident outside India (not being a non-resident

Indian) to another person resident outside India(not being a non-resident India),

provided the transferee does not have a previous venture or investment in India in

shares or debentures or a technical collaboration or trade mark agreement in the

“same” or “allied” field in which the Indian company whose shares are being acquired

is engaged.

2. RBI Approval: An acquisition involving transfer of shares from a resident

company/Individual to a person not resident in India requires the prior approval of the

FIPB and the Reserve Bank of India(RBI). RBI approval is a two-tier process, with an

“in principle” approval (approving the transfer of shares, inter alia, subject to the

remittance of the purchase price to the resident company/individual) and thereafter a

“Final approval”.

3. Compliance with the Securities and Exchange Board of India (SEBI) Act, 1992;

Acquisition of the shares of a listed company must comply with the requirements

under the SEBI act (Substantial Acquisition of Shares & Takeovers Regulations),

1997.

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4. Approval of the Department of Company Affairs under CA56: An acquisition of

shares in a public company or a private company which is a subsidiary of a public

company (Public Company), requires the prior approval of the Department of

Company Affairs (DCA), if (1) the acquirer is under the same management as the

Public Company (2) the acquisition would result in the acquirer becoming the holder

of more than 25% of the paid up share capital of the Public Company, (3) the acuirer

is the owner of a dominant undertaking and there wouldbe, as a result of such

acquisition, an increase in the production, supply or distribution of goods produced in

India or services rendered in India by the dominant undertaking, or the acquirer qould,

as a result of the acquisition, become the owner of a dominant undertaking.

Further, a transferor holding 10% or more of the nominal value of the equity shares of the

Public Company must inform the DCA before transferring one or more of such shares.

In some jurisdiction, mergers and acquisitions attract significant antitrust legislation.

However, in India, being a dominant undertaking does not, per se, create any antitrust or

competition issues. Only an “abuse” of a dominant market position may create antitrust

issues.

Tax Considerations: Capital gains tax may be payable on the gains made by the seller on

ssale of the shares of the company.

Also, to enable the transferor company to carry forward its losses, it is essential that at

least 51% of the shareholders of the transferor company (prior to the acquisition) beneficially

hold at least 51% of the votes on 31st March of each of the future fiscal years in which the

past losses are to be carried forward.

Further, share tranfer duty will be payable on the transfer of shaes @ 0.25% of the

consideration, unless any one o

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MERGER AND ACQUISITION OF TATA & CORUS

“I believe this will be the first step in showing that Indian industry can in fact step

outside the shores of India in an international marketplace and acquit itself as a global

player.”

- “RATAN TATA”

Tata acquired corus, which is 4 times larger than its size and the largest steel producer

in the U.K. The deal, which creates the worlds fifth largest steelmaker, is India’s largest ever

foreign takeover and follow mittal steel’s $31 billion acquisition of rival arcelor in same year.

Tata acquires corus on the 2nd of april 2007 for a price of $12 billion. The price per share was

608 pence, which is 33.6% higher the first offer which was 455 pence.

Equity contribution from Tata Steel - $3.88 billion Credit Suisse leaded, joined by ABN

AMRO and Deutsche provided bank in the consortium.

In 2005, Tata Steel was only the world's 56th biggest steel producer and its takeover

of Corus represents its first expansion outside Asia.

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OBJECTIVES OF MERGER & ACQUISITION

The main objective of Merger & Acquisition transaction is as follows:

• Proper utilization of all available resources.

• To prevent exploitation of unutilized and underutilized assets and resources.

• Forming a strong human base.

• Reducing tax burden.

• Improving profits.

• Eliminating or limiting the competition.

• Achieving savings in monitoring costs.

The Deal

The deal (between Tata & Corus) was officially announced on April 2nd, 2007 at a

price of 608 pence per ordinary share in cash. This deal is a 100% acquisition and the new

entity will be run by one of Tata’s steel subsidiaries. As stated by Tata, the initial motive

behind the completion of the deal was not Corus’ revenue size, but rather its market

value. Even though Corus is larger in size compared to Tata, the company was valued

less than Tata (at approximately $6 billion) at the time when the deal negotiations started.

But from Corus’ point of view, as the management has stated that the basic reason for

supporting this deal were the expected synergies between the two entities. Corus has

supported the Tata acquisition due to different motives. However, with the Tata

acquisition Corus has gained a great and profitable opportunity to make an exit as the

company has been looking out for a potential buyer for quite some time.

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The total value of this acquisition amounted to ₤6.2 billion (US$12 billion). Tata Steel

the winner of the auction for Corus declares a bid of 608 pence per share surpassed the

final bid from Brazilian Steel maker Companhia Siderurgica Nacional (CSN) of 603

pence per share. Prior to the beginning of the deal negotiations, both Tata Steel and Corus

were interested in entering into an M&A deal due to several reasons. The official press

release issued by both the company states that the combined entity will have a pro forma

crude steel production of 27 million tones in 2007, with 84,000 employees across four

continents and a joint presence in 45 countries, which makes it a serious rival to other

steel giants.

The official declaration of the completed transaction between the two

companies was announced to be effective by Court of Justice in England and

Wales and consistent with the Scheme of Arrangement of the Tata Steel

Scheme on April 2, 2007. According the Scheme regulations, Tata Steel is

required to deliver a consideration not later than 2 weeks following the

official date of the completion of the transaction.

The process has started on September 20, 2006 and completed on July 2, 2007. In the

process both the companies have faced many ups and downs. The details of this process

has described below.

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.

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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 preconditions

and 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 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 form Corus’ shareholders

Post Acquisition Tata

Tata Steel has formed a seven-member integration committee to spearhead its union

with Corus group. While Ratan Tata, chairman of the Tata group, heads the

committee, three of the members are from Tata Steel and the other three are from

Corus group.

The acquisition by Tata amounted to a total of 608 pence per ordinary share or ₤6.2

billion (US $12 billion) which was paid in cash. First of all, the general assumption is

that the acquisition was not cheap for Tata.

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The price that they paid represents a very high 49% premium over the closing mid

market share price of Corus on 4 October, 2006 and a premium of over 68% over the

average closing market share price over the twelve month period. Moreover, since the

deal was paid for in cash automatically makes it moreexpensive, implying a cash

outflow from Tata Steel in the amount of £1.84 billion.

Tata has reportedly financed only $4 billion of the Corus purchase from internal

company resources, meaning that more than two-thirds of the deal has had to be

financed through loans from major banks.

The day after the acquisition was officially announced, Tata Steel’s share fell by 10.7

percent on the Bombay stock market. Despite its four times smaller size and smaller

capacity, Tata Steel’s operating profit for 2006, earning $840 million on sales of 5.3

million tones, were very close in amount to those generated by Corus ($860 million in

profits on sales of 18.6 million tons).

Tata’s new debt amounting to $8 billion due to the acquisition, financed with Corus’

cash flows, is expected to generate up to $640 million in annual interest charges (8%

annual interest cost). This amount combined with Corus’ existing interest debt

charges of $400 million on an annual basis implies that the combined entity’s interest

obligation will amount to approximately $725 million after the acquisition.

The debate whether Tata Steel has overpaid for acquiring Corus is most likely to be

certain, since just based on the numbers alone it turns out that at the end of the

bidding conflict with CSN Tata ended up paying approximately 68% above the

average price ofCorus’shares.

Another pressing issue resulting for this deal that has created a dilemma between

experts and analysts opinions is whether this acquisition for the right move for Tata

Steel in the first place. The fact that Tata has managed to acquire a British steel maker

that has been a symbol of Britain’s industrial power and at the same time its dominion

over India has been perceived as quite ironic. Only time will show whether Tata will

be able to truly benefit from the many expected synergies for the deal and not make

the typical mistakes made in many large M&A deal during this beginning period.

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Law applied in merger of Indian companies with foreign firms

The Companies Act Amendment Bill, which was tabled in Parliament in the Budget

session that adjourned last week, has proposed to allow Indian companies to merge with

overseas companies, a move that could introduce greater flexibility in cross-border merger

and acquisitions (M&As).

At present Sections 391-394 of the Companies Act, 1956, allow only foreign companies

to merge with Indian ones. The Bill has introduced Section 205 that also allows the reverse

and stipulates that payment to shareholders of listed Indian companies being merged can be

in the form of cash, shares or Indian Depository Receipts (IDRs) issued by the overseas

companies.

The amendment was first suggested in 2005 by an expert committee on company law

chaired by Tata Sons Director J J Irani. The report had stated that “both contract as well as

court-based mergers between an Indian company and a foreign company, where the foreign

company is the transferee, needs to be recognised in Indian law.

The committee recognises that this would require some pioneering work between

various jurisdictions in which such mergers and acquisitions are being executed/created”.

If this amendment goes through, it will meet a key demand of many multinational

companies investing in India.

Legal experts said the merger of an Indian company with a foreign one can help

structure M&A deals in many ways. For example, if an overseas company has acquired

another foreign company that has a subsidiary in India, the new provision will allow the

acquirer to merge the Indian operations with itself, instead of retaining it as a separate entity.

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merger of tata steel and corus

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