tata corus (1)
TRANSCRIPT
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Tata-Corus Acquisition
Vikas 04/2010Shaila 22/2010Sunit 28/2010
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We aspire to be the global
steel industry benchmark forValue Creation and Corporate
Citizenship
VISION TATA STEEL
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Former Name : Tata Iron and Steel Company
Parent : Tata Group
Type : Public BSE (500470)
Founded : 1907
Chairman : Ratan Tata
Industry : Steel
Overview of the Acquirer
Founder : Jamshedji Nusserwanji Tata
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Headquarter : Jamshedpur, Jharkhand, India
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Name : Corus
Parent : Tata Steel, member of Tata Group
Type : Subsidiary
Founded : 1999
CEO : Kirby Adams
Industry : Steel
Overview of the Target
Formation : Merger of British Steel Corporation & Koninklijke Hoogovens N.V.
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Headquarter : London, England, UK
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Official Announcement: April 2nd ,2007
Price of Deal: 608 pence per ordinary share in cash
Total Value of the Deal: US $ 12.11 Billion
Deal Competitor: Companhia Siderurgica National(CSN)
Competitors Bid: 603 pence per share Deal process commencement: September 20,2006
Deal process completion : July 2, 2007
THE DEAL
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The Positive Side (TATA Steel)
Tata was one of the low cost steel producer
Had strong retail and distribution in SE Asia
Had self sufficiency in raw material
Indian Auto Industry was the main consumer
The Negative Side (CORUS Group)
Corus was fighting to keep its production costunder control
It had to look out for the Source of the Iron Ore.
Synergies between the two
companies
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September 20, 2006: Corus Steel has decided to acquire a strategicpartnership 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 doesnt react to Corus and its bid priceremains the same.
October 20, 2006: Corus accepts terms of 4.3 billion takeover bidfrom Tata Steel
October 23, 2006: The Brazilian Steel Group CSN recruits a leading
investment bank to offer advice on possible counter-offer to TataSteels bid.
Milestone- Key Date
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October 27, 2006: Corus is criticized by the chairman of JCB, Sir AnthonyBamford, for its decision to accept an offer from Tata.
November 3, 2006: The Russian steel giant Severstal announces officiallythat it will not make a bid for Corus
November 18, 2006: The battle over Corus intensifies when Brazilian groupCSN approached the board of the company with a bid of 475p per share
December 18, 2006: Within hours of Tata Steel increasing its original bid forCorus to 500 pence per share, Brazil's CSN made its formal counter bid forCorus 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-mailedstatement 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 thefull voting support from Corus shareholders
Key Date cont.
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Gain market share Economies of scale
Enter new markets Acquire technology Utilization of surplus funds: surplus fund mean cash flow
available after the payment of tax. It is the remainingmoney after all liabilities including tax, insurance andexpenses.
Managerial Effectiveness: it is base on 3 views.Traditional perspective, organizational and individual.
Strategic Objective: It is base on the mission n visionstatement that how they fulfill or move towards the highgoal.
Objective behind M&A
deal
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Become a global player with a balanced presencein developed European and fast growing Asian
markets.
Acquire strong positions in construction,automotive and packaging market sectors.
Significant raw material security and greenfield /brownfield developments.
Lowest cost position in Europe & South East Asia.
Own developmental plans.
COMBINED AMBITION
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DOUBLE THE SIZE AND PROFITABILITY
Current : EBITDA OF 13% ; 25 million tonnes
By 2012 : EBITDA of 25% ; 40 million tonnes
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In 2006, TISCO signed a deal with Corus to acquire it (455)pence per share.
Counter attack by Brazilian Company CSN
The offer was for 475 pence per share
Looking at this scenarios Corus Group asked both theCompany to attain an auction
More the bid wins the Share
The last offer by CSN was 604 pence per share and TataSteel Won their bid by offering 608 pence per share.
Pre Merger Period
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A holding company was setup by Tata in
Singapore to acquire Corus. Idea was to have all foreign acquisitions
under one holding company.
Singapore has a favorable Tax jurisdictionand gave Tata Steel an easy avenue forraising global resources and funds.
The Tata-Corus Deal
Investment Vehicle
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The Tata-Corus Deal
Tata Steel India
Tata Steel Holdings Asia
(Singapore)
Tata Steel UK (SPV)
Corus Group Ltd. (UK)
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Reasons for Acquisition
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To tap European mature market
Cost of acquisition is lower than setting upgreen field plant and marketing anddistribution channel.
Tata manufactures low value long and faststeel products while Corus produced highvalue stripped products
Reasons for Bid from Tata Steel
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Acquisition would help Tata to feature in
top 10 players in the world. Technology benefit
Economies of scale
Corus held a number of patents and R&Dfacilities
Reasons for Bid from Tata Steel
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Saturated market of Europe
To extend its global reach through Tata To get access to low cost Indian Ore
reserves
Decline in market share and profit Total debt of Corus was 1.6 Bn GBP
Facilities were old with high cost of
production
Reasons From Corus to accept the
Tata Bid
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TATA CORUS Deal - $ 12 billion
Funding was for 60:40 debt equity. Equity Contribution from Tata Steel - $ 3.88
billion.
Credit Suisse leaded, joined by ABN AMROand Deutsche Bank in the consortium.
Of the $ 8.12 billion of financing, CreditSuisse provided 45% and ABN AMRO andDeutsche provided 27.5% each.
FINANCING THE
DEAL
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How the Acquisition was Implemented
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Appointing Advisors
Negotiating Terms Due Diligence
Exchange of contracts
Completion
The Tata-Corus Deal
Process of Acquisition
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Ratan Tata Chairman of Tata Steel on Acquisition
This proposed acquisition represents a
defining moment for Tata Steel and isentirely consistent with our strategy ofgrowth through international expansion.Corus and Tata Steel are companies withlong, proud histories. We have compatiblecultures of commitment to stakeholdersand complementary strengths in
technology, efficiency, product mix andgeographical spread. Together we will beeven better equipped to remain at theleading edge of the fast changing steelindustry.
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Was The Merger a Success or a Failure?
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The following points can be attributed:
TATA Steel Group rose to 5th position from 56th
The production capacity increased from4million tonnes to 28million tonnes by 2011
Standard & Poors Rating cut it credit Rating to
BB from BBB and removed them from the
negative watch list
Merger Success or Failure?
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Big boost to the Indian economy, as TATA wasacquiring a company 3 times its size
The R&D Unit of Corus complements that ofTATAs
Links low cost Indian production and raw
materials and growth markets to high marginmarkets and high technology in the West
Help from financing institutions as $8 billion
was raised through debt
TATAs Implementation of the Deal
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Tata Steel Stock Price
Statistics
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Tata Steel Europe Stock Price
Statistics
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Acquisition - A SUCCESS
Verdict
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FINANCIAL ANALYSIS
5 Yr Financial performance of Tata Steel
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5 Yr. Financial performance of Tata SteelBefore Merger
Category Unit FY`02 FY`03 FY`04 FY`05 FY`06
Production `000 Mt 3,636 3,941 4,089 4,109 4,552
Revenue $ Mn 1583 2150 2755 3532 3884
EBIDTA $ Mn283 516 840 1378 1401
EBIDTA
Margin
% 20% 27% 34% 42% 40%
PBT $ Mn52 277 616 1178 1187
Net Profit $ Mn 43 222 404 773 794
Net Profit
Margin
% 3% 12% 16% 24% 23%
EVA $ Mn
-96 34 156 528 529
5 Yr Financial performance of
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Category Unit FY`02 FY`03 FY`04 FY`05 FY`06
Production `000 Mt 17.1 19.4 19.5 18.7 18.8
Revenue $ Mn 11456 10018 12165 10845 12845
EBIDTA $ Mn 512 305 1251 1142 1846
EBIDTA
Margin
% 4.47 % 3.04% 10.28% 10.53 % 14.37 %
PBT $ Mn -644 -321 766 649 610.35
Net Profit $ Mn -741 -388 593 512 446
Net Profit
Margin
% - 6.47 - 3.87 4.87 4.72 3.47 %
5 Yr. Financial performance ofCorus Before Merger
Fi i l j t b f
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2006-07 31st Dec,2006
Turnover 4546 18979
EBITDA 1704 1846
PBT 1440 610.35
PAT 971 446
Net Profit Margin 23% 2.35 %
EPS 1.70 0.41
Dividend 254 134
TATA Steel Corus
Financial just beforeAcquisition
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P C i
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Peer Comparison
Ratios Corus CSN Severstal Nucor
EV/EBITDA 4.5 X 6.29 X 18.98 X 9.14 X
EV/TON 538 2263 3221 864
Price/Book
Value
1.34X 0.90 X 4.76 X 1.72 X
P/E Ratio 14.96X 4.69 X 43.5 X 15.13
X
EPS 0.41$ 2.12 $ 1.27 $ 3.06 $
Peer Comparison for FY 2006
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Profit before Tax of Peers Pre & PostAcquisition
Year CSN CORUS Nucor Severstal
2006 987 610.35 2693.818 2112.429
2007 2161 - 2253.315 2654.455
2008 2941 - 2790.470 2587.959
(USD mn )
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Particulars 2006-07 2007 -08
Risk Free Rate 8.00% 5.27%
Market premium 6.50% 9.00%
Assumed Beta 1.12 1.5
Cost Of equity 15.28% 18.77%
Equity % 37.00% 35.00%Cost Of Debt 8.00% 8.00%
Tax Rate 34.00% 25.00%
After tax cost of debt 5.28% 6.00%
Debt % 63.00% 65.00%
WACC 8.98% 10.4695%
Capital Employed 42074.75 92161.62
Net Profit 4165.61 12321.76
Total Weighted Cost 3778.313 9648.861
EVA 387.297 2672.9
Figures In Cr.EVA Calculation Pre & PostAcquisition
TATA St l b f & Aft
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TATA Steel before & After2006-07 2007-08 2008-09
EBITDA/Turnover 31.14% 14.08 % 12.55 %
PBT (In crores Rs) 6313 16371 6743
PAT(In crores Rs) 4165 12321 4849.24
PBT/Turnover 24.61 % 12.39 % 7.43 %
Interest Coverage
Ratio
16.35 3.46 4.32
EPS 64.66 177.18 66
Debt /Equity 0.71 1.99 1.65
P/E 6.95 3.91 3.12
A Fi i l t k th A i iti
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A Financial take on the Acquisition.
1. Valuation TATA Steel Paid 7 Times EBITDA of Corus Enterprise Value
Also,9 times EBITDA for 12 Months ended 30th September 2006
Comparing with Arcelor - Mittal deal-
Mittal Steel Acquired at an EBITDA of 4.5 times,
The point is Arcelor has much superior assets, wider marketreach and financially stronger than Corus
The price paid by Tata Steel looks almost obscenely high.
A Financial take on the
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A Financial take on theAcquisition
2. Interest charges New Debt of $ 8 bn @ 8% annual interest
cost i.e. $ 640 mn
Coruss existing interest debt amounts to$ 725 mn.
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Period Ending 31-Mar-10 31-Mar-09 31-Mar-08 31-Mar-07
Assets
Current Assets
Cash And Cash
Equivalents67,878,000 61,484,000 42,319,000 108,880,000
Short Term
Investments19,312,000 33,977,000 11,337,000 38,000,000
Net Receivables 116,319,000 130,384,000 187,068,000 16,877,000
Inventory 186,866,000 216,684,000 230,643,000 38,881,000Other Current
Assets67,615,000 129,987,000 154,598,000 19,803,000
Total Current Assets 457,990,000 572,517,000 625,965,000 222,441,000
Long Term Investments 33,851,000 29,066,000 20,796,000 126,975,000
Property Plant and Equipment - - - -
Goodwill 145,418,000 153,649,000 180,500,000 2,197,000Intangible Assets - - - -
Accumulated Amortization - - - -
Other Assets - - - -
Deferred Long Term Asset Charges 1,149,000 761,000 103,000 69,000
Total Assets 1,097,381,000 1,215,891,000 1,250,124,000 495,985,000
Balance sheet of TATA STEEL for four FY after Merger
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Balance sheet of TATA STEEL for four FY after MergerLiabilities
Current Liabilities
Accounts Payable 119,260,000 105,661,000 106,529,000 17,945,000
Short/Current LongTerm Debt
531,004,000 599,005,000 536,247,000 249,255,000
Other Current
Liabilities123,996,000 138,104,000 170,238,000 41,725,000
Total Current Liabilities 301,874,000 305,192,000 333,074,000 79,196,000
Long Term Debt 521,149,000 586,132,000 527,199,000 245,252,000
Other Liabilities - - - -
Deferred Long Term Liability Charges
- 1,055,000 1,556,000 2,098,000
Minority Interest - - - -
Negative Goodwill - - - -
Total Liabilities 869,242,000 938,748,000 908,384,000 349,763,000
Stockholders' Equity
Misc Stocks Options Warrants - - - -
Redeemable Preferred Stock - - - -
Preferred Stock - - - -Common Stock 149,180,000 68,427,000 71,221,000 28,394,000
Retained Earnings 155,832,000 189,504,000 160,287,000 107,733,000
Treasury Stock -76,873,000 -35,515,000 55,507,000 10,096,000
Capital Surplus 7,808,000 10,022,000 4,161,000 44,000
Other Stockholder Equity - - - -
Total Stockholder Equity - - - -
Net Tangible Assets - - - -
INCOME STATEMENT
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Period Ending 31-Mar-10 31-Mar-09 31-Mar-08 31-Mar-07
Total Revenue 1,023,931,000 1,473,293,000 1,315,336,000 252,124,000
Cost of Revenue 631,625,000 984,214,000 800,262,000 116,231,000
Gross Profit 392,306,000 489,079,000 515,075,000 135,893,000
Operating Expenses
Research
Development- - - -
Selling
General and
Administrativ
e
- - - -
Non
Recurring- - - -
Others - - - -
Total
Operating
Expenses988,569,000 1,334,820,000 1,178,778,000 188,357,000
Operating Income or Loss 35,362,000 138,473,000 136,559,000 63,767,000
INCOME STATEMENT
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INCOME STATEMENT
Income from Continuing Operations
Total Other
Income/Expenses
Net- - - -
Earnings Before
Interest And Taxes35,362,000 138,473,000 136,559,000 63,767,000
Interest Expense -34,943,000 -37,907,000 -45,394,000 -6,341,000
Income Before Tax - - - -
Income Tax
Expense21,518,000 18,940,000 40,493,000 21,474,000
Minority Interest -152,000 409,000 -1,399,000 -675,000
Net Income From
Continuing Ops-20,092,000 49,509,000 123,500,000 41,773,000
Non-recurring Events
Discontinued
Operations
- - - -
Extraordinary
Items- - - -
Effect Of
Accounting
Changes- - - -
Other Items - - - -
Net Income -20,092,000 49,509,000 123,500,000 41,773,000
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THANK YOU!