CG&R Assignment

108-010-1
Tata Steels Acquisition of Corus

This case was written by Vivek Gupta, ICMR Center for Management Research. It was
compiled from published sources, and is intended to be used as a basis for class discussion
rather than to illustrate either effective or ineffective handling of a management situation.
2008, ICMR Center for Management Research
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ICMR Center for Management Research
108-010-1
Tata Steels Acquisition of Corus
- Vivek Gupta, Managing Director, AT Kearney (India), in February 2007.

Indian steel companies are on a consolidation mode. The Tata-Corus deal has set many records.
So far, the only $1 billion-plus deal was done by ONGC, and its the first milestone for India Inc,
with the Tata deal crossing $10 billion mark. Its a landmark deal since an Indian company has
taken over an international company three times its size.2

- S. Mukherji, Managing Director, ICICI Securities, in February 2007.
INTRODUCTION
On January 31, 2007, India based Tata Steel Limited (Tata Steel) acquired the Anglo Dutch steel
company, Corus Group Plc (Corus) for US$ 13.70 billion3. The merged entity, Tata-Corus,
employed 84,000 people across 45 countries in the world. It had the capacity to produce 27 million
tons of steel per annum, making it the fifth largest steel producer in the world as of early 2007
(Refer Exhibit I for the top ten players in the steel industry after the merger). Commenting on the
acquisition, Ratan Tata, Chairman, Tata & Sons, said, Together, we are a well balanced company,
strategically well placed to compete at the leading edge of a rapidly changing global steel
industry.4
Tata Steel outbid the Brazilian steelmaker Companhia Siderurgica Nacionals (CSN) final offer of
603 pence per share by offering 608 pence per share to acquire Corus. Tata Steel had first offered
to pay 455 pence per share of Corus, to close the deal at US$ 7.6 billion on October 17, 2006. CSN
then offered 475 pence per share of Corus on November 17, 2006. Finally, an auction5 was
initiated on January 31, 2007, and after nine rounds of bidding, Tata Steel could finally clinch the
deal with its final bid 608 pence per share, almost 34% higher than the first bid of 455 pence per
share of Corus.
Many analysts and industry experts felt that the acquisition deal was rather expensive for Tata
Steel and this move would overvalue the steel industry world over. Commenting on the deal,
Sajjan Jindal, Managing Director, Jindal South West Steel said, The price paid is expensive...all
steel companies may get re-rated now but its a good deal for the industry.6
1
2
3
4
5
Did Tata Steel Overheat in its Zeal to Win Corus? Knowledge@Wharton, February 08, 2007.
Tata Win Booster for Corporate Indias Confidence, The Economic Times, February 01, 2007.
As on January 31, 2007, 1 US Dollar = 44.18 INR and 1 Pound = 86.73 INR.
Tata Steel Completes Acquisition of European Steelmaker Corus, International Herald Tribune, April 03, 2007.
Since Tata Steel and CSN could not declare their final offer by January 31, 2007, an auction had to be initiated by
The Takeover Panel which oversees mergers and acquisitions in the UK.
India Inc. Hails Tatas Win, The Times of India, January 31, 2007.

The financials for this deal [require] high performance levels, perfect post-deal execution and
sustained high steel prices. It is a risky game and will be okay for Tata as long as the economy is
growing and no major bumps occur. If [these bumps] do occur, they can become a challenge, and
I am reminded of the high leverage days of the mid-1980s.1
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Despite the worries of the deal being expensive for Tata Steel, industry experts were optimistic
that the deal would enhance Indias position in the global steel industry with the worlds largest 7
and fifth largest steel producers having roots in the country. Stressing on the synergies that could
arise from this acquisition, Phanish Puram, Professor of Strategic and International Management,
London Business School said, The Tata-Corus deal is different because it links low-cost Indian
production and raw materials and growth markets to high-margin markets and high technology in
the West. The cost advantage of operating from India can be leveraged in Western markets, and
differentiation based on better technology from Corus can work in the Asian markets.8
BACKGROUND NOTE
Tata Steel is a part of the Tata Group, one of the largest diversified business conglomerates in
India. Tata Group companies generated revenues of Rs. 967,229 million in the financial year 200506. The groups market capitalization was US$ 63 billion as of July 2007 (only 28 of the 96 Tata
Group companies were publicly listed).

In 1907, Jamshedji Tata established Tata Steel at Sakchi in West Bengal. The site had a good
supply of iron ore and water. Tata Steel grew rapidly and by 1911, it had its own railway network
that connected its factory to the iron and coal beds. At this time, the company was producing
70,000 tons of iron per year. During the first and the second World Wars, Tata Steel was one of the
main suppliers of steel required for manufacturing shells and armored cars.
Tata Steels business continued to grow over the decades and in 1973, it took over some flux
mines and collieries near Jharia, West Bokaro9. In 1983, the company acquired the Indian Tube
Company Limited, a manufacturer of seamless and welded tubes. In 1991, it acquired the ferrochrome unit of OMC Alloys Limited near Bamnipal in Orissa.
With the liberalization of Indian economy in the early 1990s, Tata Steels business grew rapidly.
In the mid-1990s, Tata Steel emerged as Asias first and Indias largest integrated steel producer10
in the private sector. In April 2000, Tata Steel commissioned its Cold Rolling Mill (CRM) plant at
Jamshedpur.
In February 2005, Tata Steel acquired the Singapore based steel manufacturer NatSteel Limited
(NatSteel). NatSteel owned steel mills in Australia, China, Philippines, Thailand and Vietnam.
Thus, with this acquisition, the company gained access to major Asian markets and Australia. To
strengthen its position further in the Asian steel industry, Tata Steel acquired the Thailand based
Millennium Steel in December 2005. These two acquisitions not only helped Tata Steel to
strengthen its presence in major Asian countries but also provided it with an additional customer
base of two million tons of steel.
Tata Steel generated net sales of Rs 175.52 billion in the financial year 2006-07. The companys
profit before tax in the same year was Rs 64.14 billion while its profit after tax was Rs. 42.22
billion (Refer Exhibit II for consolidated income statement of Tata Steel and Exhibit III for
consolidated balance sheet of Tata Steel).
8
9
10
On June 25, 2006, India born Laxmi Mittals Rotterdam based steel company Mittal Steel Company N.V. (largest
steel producer before the acquisition) acquired Luxembourg based Arcelor SA (second largest steel producer before
the acquisition). This acquisition resulted in the formation of ArcelorMittal which became the largest steel producer in
the world.
Pedal to the Metal: Challenges of Tata Steels Corus Takeover, Knowledge@Wharton, October 31, 2006.
Till the year 2000, Bokaro was in Bihar. Now, it is a part of the new state, Jharkhand.
Integrated steel producers have the facilities to manufacture steel, from the iron ore stage right up to the finished steel
stage.

TATA STEEL
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CORUS
After several acquisitions over the decades, Hoogovens had become one of the major players in the
European steel industry. By the year 1990, the Hoogovens group had five divisions Steel,
Aluminum, Technical Services, Subcontracting, and Steel Processing & Trading. Hoogovens
manufactured steel and aluminum and the companys major customers were automobile,
automobile components, aerospace, ship building, construction, batteries, furniture and optics
industries.

One of the major achievements on the business front in 1998 was Hoogovens selection as the only
long term European supplier to Boeing. The company bagged various awards such as corporate
supplier award by Volkswagen Audi Group, a Toyota Achievement award and the Duracell award
for continuous improvement11.
On October 06, 1999, Hoogovens merged with British Steel Plc12 (British Steel) to form Corus
Group Plc, the worlds third largest steel producer during that time. Hoogovens held 38.3% stake
in the new company while British Steel held 61.7%. At this point in time, British Steel was
struggling, and the merger was initiated to help it revive its business. British Steel had registered a
net loss of more than 80 million in the financial year 1998. According to John Bryant, the CEO of
Corus in 1999, The aim of the merger was to attain operating economies by combining the
facilities of the two companies to eliminate duplication and remove overlaps in marketing,
accounting, procurement, logistics, R&D and other functions.13
However, the merger did face a few problems in the beginning. The Dutch and the British did not
get along well. A few strategic decisions like the closure of the companys aluminum business
were called off, and a merger with CSN was abandoned.13 The losses kept mounting and by 2001,
the merged entity had suffered an operating loss of 1.152 billion. The bad financial performance
reflected the very low prices of steel, as low as US$ 200-250 per ton between 2001 and 2002.
Pound sterlings gains against the euro also worked against the company.
In 2003, Philippe Varin (Varin) took over as the CEO of Corus. Varin and Jim Leng (Leng),
Chairman of Corus, both worked to revive the companys business. They were able to cut costs to
the tune of 600 million and reduced operating losses from 425 million in 2002 to 199 million
in 2003. Corus was able to earn an operating profit of 612 million in the year 2004.14 The duo
resorted to major job cuts, purchase and supply chain optimization, and also reduced the
companys debt by selling its aluminum business to a US based company, Aleris, for 570 million.
These strategic moves and favorable global conditions like increasing steel prices due to increased
demand from China and favorable pound-dollar exchange rate helped the company to stage a
turnaround.15 When Varin took charge, the share price of Corus was quoting at an all time low of
11
12
13
13
14
15
History Of Koninklijke Hoogovens, www.corus.com.

British Steel was formed after the nationalization of private steel companies in Britain in 1967, through the Iron and
Steel Act. The company was privatized in 1988.
Jayanta Mallick, D Murali, Steel in the Melting Pot of Mergers, The Hindu Business Line, October 16, 2006.
In 2002, CSN openly held talks with Corus about a possibility for a merger but backed off mid way because of Corus
poor financial performance and also uncertainties in the then global economic scenario and international financial
markets.
Corus Annual Report, 2004.
Jeremy Warner, Varin Has Done Well With Corus, But When The Steel Cycle Turns, What Will He Do for an
Encore, The Independent, March 17, 2006.

The history of Corus can be traced back to the early 20th century when Koninklijke Hoogovens
(Hoogovens) was founded by the Government of Netherlands in The Hague on September 20,
1918. The major objective of establishing Hoogovens was to enable the Dutch industry become
less dependent on imports of steel. Moreover, the Netherlands had good access to the sea for the
supply of raw materials and export of finished goods. The company was established at IJmuiden, a
town on the North Sea coast with good access inland via the North Sea Canal.
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40 pence. From April 2003 onwards, the share price moved up and it stood at 390 pence before the
companys merger with Tata Steel.
In 2006, Corus reported an annual turnover of 9 billion. The company had four divisions -aluminum, distribution & building products, long products and strip products (Refer Exhibits IV
for consolidated income statement of Corus and Exhibit V for consolidated balance sheet of
Corus). By 2006, Corus had slipped to the ninth position among the largest producers of steel in
the world.

There was a heavy speculation surrounding Tata Steels proposed takeover of Corus ever since
Ratan Tata had met Leng in Dubai, in July 200616. On October 17, 2006, Tata Steel made an offer
of 455 pence a share in cash valuing the acquisition deal at US$ 7.6 billion. Corus responded
positively to the offer on October 20, 2006. Agreeing to the takeover, Leng said, 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.17
In the first week of November 2006, there were reports in media that Tata was joining hands with
Corus to acquire the Brazilian steel giant CSN18 which was itself keen on acquiring Corus. On
November 17, 2006, CSN formally entered the foray for acquiring Corus with a bid of 475 pence
per share. In the light of CSNs offer, Corus announced that it would defer its extraordinary
meeting of shareholders to December 20, 2006 from December 04, 2006, in order to allow counter
offers from Tata Steel and CSN.
On December 10, 2006, Tata Steel revised the acquisition bid to 500 pence per share. Defending
this revised bid, Ratan Tata said, We remain convinced of the compelling strategic rationale of
this partnership and the revised terms deliver substantial additional value to Corus shareholders.19
CSN reacted quickly, making a counter bid of 515 pence a share on December 11, 2006. Otavio
Lazcano, Chief Financial Officer, CSN gave the rationale for placing a higher bid by saying. This
is a project focused on industrial growth that complements both the markets and the product
portfolios of both companies.20 Corus again approved this bid and Leng offered his reasons of
doing so. He said, It is ... consistent with our strategic objective of securing access to raw
materials, low-cost production and growth markets. The combination of the two businesses will
create a strong platform from which to compete and grow in an increasingly global market and [is]
consistent with our strategic objective.21
In the light of offers and counter offers from Tata Steel and CSN, the Takeover Panel22, Britains
watch dog on mergers and acquisitions set the deadline of January 30, 2007 for both the companies
to make their final offer (Refer Exhibit VI for Takeover Regulations in the UK). The panel also
16
17
18
19
20
21
22
Kausik Datta, Ishita Ayan Dutt, Tatas to Float $2 bn Bond for Corus Buy, Business Standard, October 06, 2006.
Hugo Duncan, Corus Agrees 4.3 Billion Takeover by Indian Rival, The Independent, October 20, 2006.
Baiju Kalesh, Corus Bankers Back Tatas in Bid to Buy CSN, The Times of India, November 01, 2006.
Surojit Chatterjee, Tata Steel Raises Corus Bid to $9.2 Billion, Watches CSNs Move, International Business
Times, December 11, 2006.
Surojit Chatterjee, CSN Tops Sweetened Offer for Corus, Bid War Enters End Game, International Business Times,
December 13, 2006.
Surojit Chatterjee, CSN Tops Sweetened Offer for Corus, Bid War Enters End Game, International Business Times,
December 13, 2006.
The Panel on Takeovers and Mergers (the Takeover Panel) is a regulatory body based in London, UK. It was set up
in 1968 and is charged with the administration of the City Code on takeovers and mergers. Its role is to ensure that all
the shareholders are treated equally during takeover bids. The Panel is a non-statutory body. It has no legal power to
enforce its decisions. It is the de facto arbiter of takeover bids and has the support of government and other
organizations with statutory involvement.

TATA STEEL VS CSN: THE BIDDING WAR
108-010-1
stipulated that if no outright winner emerged, an auction would be conducted. Even by January 30,
2007, none of the companies had declared their final offer. The Takeover Panel then asked for an
auction to be held at 4:30 PM GMT on January 31, 2007, after the closing hours of the London
Stock Exchange (Refer Exhibit VII for the auction rules that governed acquisition of Corus).
On January 31, 2007, Corus shares rose by 6.8% to 601.5 pence on the London Stock Exchange
(Refer Exhibit VIII for Corus stock price chart between September 2002 and March 2007).
However, the Indian investors were unhappy about the premium that Tata Steel had agreed to pay
to acquire Corus. Tata Steels shares fell by 10.7% to Rs. 463.95 on the Mumbai Stock Exchange
(Refer Exhibit IX for Tata Steels stock price chart between September 2002 and June 2007). In a
press conference on the day the auction concluded, Ratan Tata said that the market was being
harsh about the deal. He said, One makes the mistake of taking a short term view of a corporation
and its life. It would take several years for us to build a 19 million ton enterprise from scratch,
leave alone establishing it in Europe.24

FINANCING THE ACQUISITION

By the first week of April 2007, the final draft of the financing structure of the acquisition was
worked out and was presented to the Corus Pension Trusties and the Works Council by the senior
management of Tata Steel. The enterprise value of Corus including debt and other costs was
estimated at US$ 13.7 billion (Refer Table I for fund raising mix for the Corus acquisition). Tata
Steel decided to go in for an all cash deal25 rather than opting for a share-swap26. To raise the
required funds, Tata Steel opted for a mix of debt (US$ 6.14 billion) and equity (US$ 7.56 billion).
It was planned that the acquisition would be completed through Tata Steels UK Special Purpose
Vehicle (SPV)27 named Tata Steel UK. Tata Steel UK planned to raise US$ 6.14 billion through a
mix of high-yield mezzanine28 and long term debt funding. Most of these loans were secured by
the cash flows and assets of Corus.
To provide for immediate funding of the acquisition, Tata Steel Asia (Tata Steels Singapore SPV)
raised US$ 2.66 billion through bridge loans29. Banks like ABN Amro, Deutsche Bank, Lloyds and
Standard Chartered Bank, agreed to provide bridge loans to the company. Payment for these bridge
23
24
25
26
27
28
29
Did Tata Steel Overheat in its Zeal to Win Corus? Knowledge@Wharton, February 08, 2007.
Chris Noon, Ruth David, Tata Prevails in Corus Battle, www.forbes.com, January 31, 2007.
This is a mode of financing an acquisition by paying cash to the shareholders of the acquired company in lieu of their
shares. The acquired companys shares get de-listed after the acquisition.
This is a mode of financing an acquisition where in acquiring company uses its own stock to pay for the acquired
company. The shareholder of the acquired company receives a certain number of shares of the acquiring companys
stock for each share of stock they previously held in the acquired company.
SPV is also referred to as a bankruptcy-remote entity whose operations are limited to the acquisition and financing
of specific assets. The SPV is usually a subsidiary company with an asset/liability structure and legal status that
makes its obligations secure even if the parent company goes bankrupt.
A hybrid of debt and equity financing that is typically used to finance the expansion of existing companies.
Mezzanine financing is debt capital that gives the lender the rights to convert to an ownership or equity interest in the
company if the loan is not paid back in time and if the full amount is not paid. It is generally subordinated to debt
provided by senior lenders such as banks and venture capital companies.
A short-term loan that is used until a person or a company secures permanent financing or removes an existing
obligation. This type of financing allows the user to meet current obligations by providing immediate cash flow. The
loans are short-term (up to one year) with relatively high interest rates and are backed by some form of collateral such
as real estate or inventory. A bridge loan is also known as interim financing, gap financing or swing loan
(www.investopedia.com).

After nine rounds of bidding on January 31, Tata Steel emerged winner in the auction with its final
bid of 608 pence per share of Corus. Justifying his stand and as a reply to the criticisms about the
price paid being too high, Ratan Tata said, We had taken a view that we would not go beyond a
point... We did not reach that point. Had we reached that point, we would have walked away.
Overbidding or not is subjective when it comes to a judgment call.23
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loans upon their maturity was by way of non-recourse30 facilities which were being arranged by a
syndicate led by ABN Amro, Citigroup and Standard Chartered Bank. The refinancing facility
comprised of quasi-equity instruments worth US$ 1.25 billion and long term loans of US$ 1.41
billion.
The first rights issue of Tata Steel was to be in the ratio of 1:5 at a price of Rs 300 per share. This
issue was expected to generate US$ 862 million. Tata Steel also planned a second rights issue of
convertible preference shares in the ratio of 1:7, having an interest rate of 2 percent, convertible
into equity shares after two years at a price in the range of Rs 500 to Rs 600 per share. The price
was to be determined at the time of the rights issue. This issue was expected to provide a total
amount of US$ 1.4 billion. Tata Sons planned to invest money for any unsubscribed portion of
both these rights issues.
Table I

Fund Raising Mix for the Corus Acquisition

Mode
Amount
(In US$ Billion)
Tata Steel UK Non-recourse Debt
6.14
Tata Steel Asia (Singapore SPV)
2.66
Tata Steel Equity Contribution
4.90
Break-up of Tata Steel

Equity contribution
(In US$ Million)
Cash Reserves
700
External Commercial Borrowings
500
Preference Shares to Tata Sons
640
Rights Issue
862
Convertible Preference Shares
1400
Foreign Issue of Equity Instruments
798
Sub-total
4900
Grand Total
13.70
Source: Tatas Plan Fund Raising Mix for Corus, The Economic Times, April 18, 2007 and other sources.
30
31
32
Non-recourse debt refers to secured loan that is secured through the pledge of collateral, without personal liability of
the borrower. In case the borrower defaults on the payments, lender can recover through the collateral and if the
amount is not sufficient to cover the outstanding loan, the borrower is not responsible to pay the remaining amount.
This loan is normally used to finance commercial real estate and projects that need high capital expenditure.
Tata Sons is the promoter of the Tata group and all its key companies. Tata Sons was established in 1868 by Jamsetji
Tata as a trading concern. Tata Sons holds a majority stake in the Tata group companies.
Funding of Corus Transaction, www.tatasteel.com, April 17, 2007.

Tata Steels own contribution in the Corus deal amounted to US$ 4.9 billion. The company
invested US$ 1.84 billion to acquire Corus through its cash reserves of US$ 700 million, external
commercial borrowings of US$ 500 million and an issue of equity shares of Tata Steel to Tata
Sons31 which fetched US$ 640 million32. The company planned to raise the remaining US$ 3.06
billion through two rights issues and a foreign issue.
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Tata Steel also planned a foreign issue of an equity-related instrument to generate an amount of
US$ 798 million. The type of instrument to be issued in the foreign issue had not been decided as
of July 2007. According to industry experts, the most likely option was an issue of ADRs or
GDRs33.

Financial experts said that Tata Steel opted for an all cash deal as compared to a share swap
deal as the latter would have been less attractive to the Corus shareholders. Stressing this, Jayesh
Desai, Head Investment Banking, Ernst & Young said, Foreign sellers are not yet confident about
accepting payments in the form of equity in Indian companies. For them it would amount to
foreign direct investment, which brings regulatory issues. As for many private equity funds, they
dont yet understand the Indian market well and so are reluctant to accept stock.37
Another reason for the all cash deal was that a share swap would have diluted Tata Steels
equity base. Commenting on this, Dhanraj Bhagat, Practice Director, Grant Thornton said, Indian
promoters are wary of equity swaps because they could dilute their equity base significantly if the
acquisition price is high. Moreover, the cost of equity at around 15% is higher than that of debt at
around 8%, so paying in cash brings down the cost of the acquisition. Sellers are reluctant to
accept stock because theyre not sure about the valuations of the buying firm.38
THE INTEGRATION EFFORTS

Industry experts felt that Tata Steel should adopt a light handed integration approach, which
meant that Ratan Tata should bring in some changes in Corus but not attempt a complete overhaul
of Corus systems (Refer Exhibit XI and Exhibit XII for projected financials of Tata-Corus). N
Venkiteswaran, Professor, Indian Institute of Management, Ahmedabad said, If the target
company is managed well, there is no need for a heavy-handed integration. It makes sense for the
Tatas to allow the existing management to continue as before. Some level of planned restructuring
can come in later. This way there will be no bloodletting.39
33
34
35
36
37
38
39
ADR is a negotiable certificate issued by a US bank representing a specified number of shares (or one share) in a
foreign stock that is traded on a US exchange. ADRs are denominated in US dollars, with the underlying security held
by a US financial institution overseas. GDR is a negotiable certificate held in the bank of one country (for eg., UK)
representing a specific number of shares of a foreign stock (in this case, of Tata Steel) traded on an exchange of
another country (UK). (www.investorwords.com).
It is a swap designed to transfer credit exposure of fixed income products between parties. It is the most widely used
credit derivative. It is an agreement between a protection buyer and a protection seller whereby the buyer pays a
periodic fee in return for a contingent payment by the seller upon a credit event (such as a certain default) happening
in the reference entity. Most CDS contracts are physically settled, where upon a credit event, the protection seller
must pay the par amount of the contract against the protection buyers obligation to deliver a bond or loan of the name
against which protection is being sold.
A bond is considered investment grade if its credit rating is BBB- or higher given by Standard & Poors or Baa3 or
higher given by Moodys or BBB (low) or higher which is given by DBRS. Generally, they are bonds that are judged
by the rating agency as likely enough to meet payment obligations that banks are allowed to invest in them.
Debt Traders Lose Their Shirt Over Tata Steel-Corus Deal, The Economic Times, October 26, 2006.
How Indian Companies Fund Their Overseas Acquisitions, Knowledge@Wharton, December 14, 2006.
How Indian Companies Fund Their Overseas Acquisitions, Knowledge@Wharton, December 14, 2006.
Neelima Mahajan, It Takes a Whole Lot to Sing a Perfect Chorus, The Times of India, February 01, 2007.

The public announcement of the fund raising mix for the acquisition met with mixed reactions in
the market. The participants of Credit Default Swap (CDS)34 segment of the derivative markets
were amazed on Tata Steels decision to raise about 45 percent of the required finances for the
acquisition through Tata Steel UK, rather than by raising the debt itself. Financial experts pointed
out that Tata Steels security credit rating was investment grade35 whereas Tata Steel UK had a
lower security credit rating. Due to the higher risk associated with raising debt through Tata Steel
UK, Fitch Ratings decided to downgrade its rating of the credit swap risks in the takeover to
negative36. (Refer Exhibit X for a note on Fitch Ratings).
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Ratan Tata emphasized that Corus would not be Indianised. He said, The top management of
Corus will remain with the company and therefore will be part of our integrated operations. The
CEO of Corus will remain as the CEO of Corus.40 Tata Steel also maintained three Corus people
(P. Varin, R. Henstra, D. Lloyd) on the Tata-Corus board. Tata Steel said that culturally, there was
a strong fit with regard to the values of both companies (Refer Table II for a comparison of the
business cultures of both the companies).
Table II

Business Cultures of Tata Steel and Corus A Comparison

Tata Steel
Corus
Continuous improvement program

ASPIRE
Continuous improvement program

The Corus Way
Core Values:
Core Values Code of Ethics:
Trusteeship
Integrity
Integrity
Creating value in steel
Respect for the individual
Customer focus
Credibility
Selective growth
Excellence
Respect for our people
World class governance
World class governance
Source: Tata Steel Annual Report, 2006-07.
THE SYNERGIES
Most experts were of the opinion that the acquisition did make strategic sense for Tata Steel. After
successfully acquiring Corus, Tata Steel became the fifth largest producer of steel in the world, up
from fifty-sixth position. There were many likely synergies between Tata Steel, the lowest-cost
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 benefits to Tata Steel was the 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 outcome of large scale consolidation would be the synergies of joint procurement.
Economies of scale would give more strength during raw material purchase negotiations and also
while implementing product price changes. All these synergies, was expected to increase the
merged entitys profitability further.
40
41
Ratan Tata to Head Corus Merger Panel, The Economic Times, May 21, 2007.

To take care of the merger integration efforts, Tata Steel formed a seven member committee
headed by Ratan Tata. The committee began its task of determining strategic priorities of TataCorus in the near future. They also identified areas that had clear business benefits in order to drive
integration efforts towards those areas. Between June 2007 and October 2007, the committees
verification and draft implementation plans were to be kept ready while detailed synergy targets
were to be included in business unit/site plans for the second half of 2007 and the annual plan for
2008-10.41
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According to industry experts, Tata Steel would have two options with regard to steel production
after the acquisition. The first option would be to continue with its primary steel production close
to its iron-ore deposits, and then ship semi-finished steel for finishing at Corus plants which were
close to foreign consumer markets. The second option would be to shift a part of Corus steelmaking capacities 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 Steels supplies to the
growing Indian automobile market.
Corus Consultancy Services based in Newport, South Wales, provided iron, steel and metal related
consultancy, right from the stage of ore 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. Muthuraman
said, Apart from steel, there are a lot of other strengths Corus has, that can be tapped by Tata
Steel, in consultancy and other areas. Well try to increase these synergies.43
THE PITFALLS
Though the potential benefits of the Corus deal were widely appreciated, some analysts had doubts
about the outcome and effects on Tata Steels performance. They pointed out that Corus EBITDA
(earnings before interest, tax, depreciation and amortization) at 8 percent was much lower than that
of Tata Steel which was at 30 percent in the financial year 2006-07. Questions posed by financial
experts were primarily related to the valuation and funding of the deal. Corus ended up being
valued at approximately 7.7 times the EV (enterprise value) to EBITDA, which was considered an
overvaluation (Refer Exhibit XIII for an explanation on EV, EBITDA and the EV/EBITDA).
Commenting on the valuation, Navin Jindal, Vice-Chairman and Managing Director, Jindal Steel
and Power Limited said This is not an attractive price but, if the Tatas have liquidity it will be a
good investment in the long run.44
Analysts expressed concerns that the Corus acquisition would result in significant equity dilution
of Tata Steel. The company would also become highly leveraged due to the significant increase in
debt in its capital structure. The US$ 6.14 billion debt that was raised to finance the acquisition
had been secured by the assets of Corus and would be serviced by the cash flows generated by
Corus. Post-acquisition, Tata-Corus would have a net debt-equity ratio45 of 2.74:1 as against 1:1
Tata Steel had been maintaining.
42
43
44
45
Muthuramans Speech at a Press Conference for Corus Acquisition on January 31, 2007, www.tatasteel.com.
TCS, Other Tata Companies to Benefit, The Economic Times, February 03, 2007.
India Inc. Hails Tatas Win, The Times of India, January 31, 2007.
It is a measure of a companys financial leverage calculated by dividing its total liabilities by stockholders equity. It
indicates what proportion of equity and debt the company is using to finance its assets. Debt Equity Ratio = Total
Liabilities/Share Holders Equity.
10

Tata Steels optimism regarding the synergies that could be generated after merger with Corus was
strong. B Muthuraman (Muthuraman), Managing Director, Tata Steel said, In terms of synergies,
we see synergies in improvement of operating practices in many areas. We have had a reasonably
good look at it in the limited time that we had with Corus. We see synergies in procurement of
materials, we see synergies in the marketplace, we see synergies in shared services, we see
synergies in improvement of our operations in India using what Corus has in some areas which is
better than us. In terms of total synergies, we believe that it is roughly about US$ 300-350 million
dollars per year, which is something, which we will be able to bring to the bottomline of the
combined entity. It will take a little bit of time; it will start at a lower value for the first 1 or 2
years. From the third year onward, we expect to realize the full synergy.42
108-010-1
Financial experts pointed out the risk taken by Tata Steel as it piled the debt burden on Corus.
There was danger that if the business performance of Corus declined, the companys cash inflows
would reduce leading to a default on the loan taken. According to the credit rating agency Standard
& Poors (S&P)46, the move was financially risky for Tata Steel. According to S&P analyst
Anshukant Taneja, The size of the acquisition and the potential cash outflow in Tata Steels offer
for Corus could have an adverse impact on its financial risk profile.47
THE ROAD AHEAD

Before the acquisition, the major market for Tata Steel was India. The Indian market accounted for
sixty nine percent of the companys total sales. Almost half of Corus production of steel was sold
in Europe (excluding UK). The UK consumed twenty nine percent of its production. After the
acquisition, the European market (including UK) would consume 59 percent of the merged entitys
total production (Refer Table III for the spread of Tata-Corus markets before and after the
acquisition).
Table III
Spread of Markets Before and After the Acquisition
Before the Acquisition
Tata
After the Acquisition
Corus
Tata-Corus
India
69%
Europe
49%
Europe
37%
Asia (ex. India)
23%
UK
29%
Asia
24%
North America
10%
UK
22%
Asia
9%
North America
8%
ROW
3%
ROW
9%
Rest of the World (ROW) 8%
Source: Tata Steel Annual Report, 2006-07.
Tata Steels immediate plan after completing the integration was to conduct a joint synergy
analysis and establish a plan or a timeline for delivery. Since Tata Steel had quite a few
brownfield48 and greenfield projects in the offing, they were to be pursued further. The
achievement of an EBITDA of 25% was also targeted. Moreover, the company aimed at a robust
capital structure and financial flexibility.
As a result of the Corus acquisition, Tata Steel got access to the developed markets of Europe.
According to Muthuraman, Europe is a very mature market with the customers demanding very
high quality service and these require special capabilities, which are resident in a company like
Corus through which Tata Steel can also learn a lot of things. So apart from bringing 19 million
46
47
48
S&P is a division of McGraw-Hill that publishes financial research and analysis on stocks and bonds. It is one of the
top three companies in this business, along with Moodys and Fitch Ratings.
A type of investment where a company or government entity purchases or leases existing production facilities to
launch a new production activity.
11

It was also pointed out that after the Corus deal, Tata Steel would no longer remain as the lowest
cost producer of steel in the world. Tata Steels critical cost advantage was its access to raw
materials. Data suggested that Tata Steels captive iron reserves in India would last about 50 years
given the companys earlier annual production capacity of 5.3 million tones of steel. However, the
iron reserves would decrease rapidly with the Tata-Corus production capacity of 27 million tons of
steel per annum. Corus itself did not have access to any iron ore or coal reserves.
108-010-1
ton capacity all at once to Tata Steel basket, it gives access to Tata Steel into the developed and
mature markets of Europe where quality of products is important, service is important.49

In mid-2007, Tata Steel formed 18 teams each consisting of three to four members from both
companies to work on various potential synergy areas like iron and steel making, manufacturing,
marketing, logistics and procurement of consumables. These teams were to come up with a report
on the synergy potential and priorities and it was planned that by October 2007, detailed synergy
targets would be set for the combined entity.51 The objective was to develop efficient practices by
sharing information, know-how and best practices of both the companies with the ultimate aim of
cost reduction.
49
50
51
Muthuramans Speech at a Press Conference for Corus Acquisition on January 31, 2007, www.tatasteel.com.
Tata Steel Annual Report 2006-07.
Tata Steel Annual Report 2006-07.
12

The merged entity aimed at transferring European technology and the expertise of the research and
development wing of Corus to India to develop new products and capture growth in India and
Asia. By the year 2015, Tata-Corus targeted that production should increase to more than 50
MTPA50 from about 27 MTPA in early 2007.
S.No.
Company
1
Arcelor Mittal
109.7
2
Nippon Steel
32.9
3
POSCO
30.5
4
JFE Steel
29.9
5
Tata Corus
27.0
6
Baosteel
22.7
7
US Steel
19.3
8
Nucor
18.4
9
Riva
17.5
10
ThyssenKrupp
16.5
Source: V. Sridhar, Burden of Steel, Frontline, November 04-17, 2006.
13


108-010-1
Exhibit I
Top Ten Players in the Global Steel Industry

Crude Steel Production
(In million tons)
108-010-1
Exhibit II
Tata Steel Consolidated Income Statement (2003-07)
2007
2006
2005
2004
2003
1. Sales / Income From

Operations
197,625.70
171,442.20
158,768.70
119,209.60
97,932.70
Less: Excise Duty
(22,105.50)
(20,048.30)
(13,779.20)
(12,185.70)
(10,719.70)
Net Sales / Income from

operations
175,520.20
151,393.90
144,989.50
107,023.90
87,213.20
(105,787.50)
(92,078.80)
(84,535.90)
(72,069.80)
64,193.40
74,069.40
61,862.70
61,933.90
36,359.20
23,019.80
4. Other Income
4,336.70
2,547.60
1,480.30
1,405.10
503.90
5. Interest ( net)
(1,739.00)
(1,184.40)
(1,868.00)
(1,221.70)
3,048.20
6. Depreciation
(8,192.90)
(7,751.00)
(6,187.80)
(6,251.10)
5,554.80
7. Profit before Tax and

Exceptional Items
(3+4-5-6)
64,137.50
52,927.30
53,878.10
28,886.40
14,920.70
(1,521.00)
(527.70)
(905.30)
(2,226.80)
(2,295.70)
(20,395.00)
(17,335.80)
(18,231.20)
(9,197.40)
(2,618.80)
10 Net Profit (+) / Loss

(-) (7-8-9)
42,221.50
35,063.80
34,741.60
17,462.20
10,006.20
11. Paid-up Equity Share

Capital (Face Value :
Rs 10 per Share )
5,806.70
5,536.70
5,536.70
3,691.80
3,679.70
133,684.20
73,266.70
Rs. 73.76
Rs. 63.35
Rs. 62.77
Rs. 47.32
Rs. 27.43
403,316,773 405,186,773 406,463,440 271,966,962
270,653,105
2. Total Expenditure

3. Operating Profit (1-2)
8. Exceptional Items
Employee Separation
Compensation
9. Tax
12. Reserves excluding

revaluation reserves
13. Basic and Diluted
Earnings per Share
(not annualized )
(after Exceptional
items)
14. Aggregate of Public
Shareholding
Number of shares
Nos.
% of shareholding
69.48%
73.21%
Source: Tata Steel Annual Reports, 2004-07.
14
73.44%
73.71%
73.59%

(In Rs. Million)
108-010-1
Exhibit III
Tata Steel Consolidated Balance Sheet (2003-07)
(In Rs. Million)
2007
2006
2005
2004
2003
Total Share Capital
5806.70
5536.70
5536.70
3691.80
3691.80
Equity Share Capital
5806.70
5536.70
5536.70
3691.80
3679.70
0.00
0.00
0.00
0.00
0.00
13,3684.20
9,2016.30
6,5062.50
4,1466.80
2,8163.00
0.00
0.00
0.00
0.00
5.40
13,9490.90
9,7553.00
7,0599.20
4,5158.60
3,1860.20
Secured Loans
3,7589.20
2,1917.40
2,4681.80
3,0101.60
3,6676.30
Unsecured Loans
5,8864.10
3244.10
2715.20
3720.50
5579.80
Total Debt
9,6453.30
2,5161.50
2,7397.00
3,3822.10
4,2256.10
23,5944.20 12,2714.50
9,7996.20
7,8980.70
7,4116.30
16,0294.90 15,4071.70 13,1792.60 12,5058.30
12,1927.10
Preference Share Capital

Reserves
Revaluation Reserves

Networth
Total Liabilities
Application Of Funds
Gross Block
Less: Accum.
Depreciation
7,4863.70
6,6998.50
5,9396.80
5,4116.20
4,8499.90
Net Block
8,5431.20
8,7073.20
7,2395.80
7,0942.10
7,3427.20
Capital Work in Progress
2,4974.40
1,1577.30
1,8726.60
7636.40
2010.80
Investments
6,1061.80
4,0699.60
2,4326.50
2,1941.20
1,1945.50
Inventories
2,3329.80
2,1747.50
1,8724.00
1,2490.80
1,1529.50
6316.30
5394.00
5818.20
6513.00
9584.70
7,6813.50
2883.90
2467.20
2507.40
3731.20
Total Current Assets
106,459.60
30,025.40
27,009.40
21,511.20
24,845.40
Loans and Advances
40,259.50
19,944.60
21,606.30
15,080.00
20,000.80
146,719.10
49,970.00
48,615.70
36,591.20
44,846.20
Deffered Credit
0.00
0.10
0.90
1.60
0.00
Fixed Deposits
209.80
334.10
553.20
1,016.70
1,146.30
Current Liabilities
53,892.20
45,523.90
42,972.40
39,000.00
35,942.30
Provisions
30,375.40
23,614.40
25,244.20
20,689.90
22,171.10
Sundry Debtors
Cash and Bank Balance
Total CA, Loans &

Advances
15

Sources of Funds
108-010-1
Total CL & Provisions
84,267.60
69,138.30
68,216.60
59,689.90
58,113.40
Net Current Assets
62,451.50
-19,168.30
-19,600.90
-23,098.70
-13,267.20
2,025.30
2,532.70
2,148.20
1,559.70
0.00
235,944.20 122,714.50
97,996.20
78,980.70
74,116.30
Miscellaneous Expenses
Total Assets
Contingent Liabilities
Book Value (Rs)
50,729.60
22,094.50
19,111.20
15,080.10
13,162.20
240.22
176.19
127.51
122.32
86.54


Source: Tata Steel Annual Reports, 2004-07.
16
108-010-1
Exhibit IV
Corus Consolidated Income Statement (2004-06)
2006
2005
2004
9,733.00
9,155.00
9332.00
-9,276.00
-8,512.00
-8750.00
457.00
643.00
582.00
-202.00
-127.00
-123.00
Finance Income
34.00
31.00
12.00
Share of post-tax profits of join ventures and associates
24.00
1.00
21.00
313.00
548.00
527.00
-119.00
-116.00
-119.00
194.00
432.00
408.00
35.00
19.00
33.00
229.00
451.00
441.00
223.00
452.00
447.00
6.00
-1
-6
229.00
451.00
441.00
Basic Earnings per ordinary share
21.01p
48.14p
46.40
Diluted Earnings per ordinary share
20.38p
46.21p
43.48
Basic Earnings per ordinary share
3.91p
2.70p
3.94
Diluted Earnings per ordinary share
3.72p
2.49p
3.65
Group Turnover
Total Operating Costs
Group Operating Profit/Loss
Finance Costs
Profit before taxation

Taxation

Profit after taxation from continuing operations

Profit after taxation from discontinued operations
Profit after taxation
Attributable to:
Equity holders of the parent
Minority Interests
Earnings per share

From Continued operations:
From discontinued operations:
Source: Corus Annual Report, 2006.
17

(In Million)
108-010-1
Exhibit V
Corus Consolidated Balance Sheet
(In Million)
2006
2005
2004
Goodwill
72.00
83.00
85.00
Other tangible assets
58.00
56.00
39.00
Property plant and equipment
2,758.00
2,820.00
2,793.00
Equity accounted investments
89.00
95.00
109.00
Other investments
62.00
113.00
66.00
Retirement benefit assets
451.00
157.00
311.00
Deferred tax assets
178.00
172.00
174.00
3,668.00
3,496.00
3,577.00
Inventories
1,890.00
1,954.00
1,732.00
Trade and other receivables
1,683.00
1,512.00
1,363.00
7.00
21.00
19.00
Other Financial Assets
85.00
Short term investments
8.00
11.00
823.00
871.00
589.00
1.00
3.00
4,412.00
4,446.00
3,714.00
8,080.00
7,942.00
7,291.00
-159.00
-384.00
-379.00
-2017.00
-1844.00
-1,742.00
-89.00
-79.00
-117.00
-38.00
-2.00
-5.00
-18.00
-81.00
-117.00
-141.00
-2,348.00
-2,467.00
-2,397.00
Long term borrowings
-1,236.00
-1,308.00
-1,063.00
Deferred tax liabilities
-123.00
-126.00
-137.00

Current assets
Current tax assets
Cash and short term deposits

Assets held for sale
Total Assets
Current liabilities
Short term borrowings
Trade and other payables
Current tax liabilities
Other Financial Liabilities
Retirement benefit obligations
Short term provisions and other liabilities
Non-current liabilities
18

Non-current Assets
108-010-1
Retirement benefit obligations
-210.00
-436.00
-455.00
Provisions for liabilities and charges
-94.00
-116.00
-122.00
Other non-current liabilities
-70.00
-46.00
-26.00
Deferred income
-65.00
-65.00
-33.00
-1,798.00
-2,097.00
-1,836.00
-4,146.00
-4,564.00
-4,233.00
3,934.00
3,378.00
3,058.00
1,725.00
1,697.00
1,696.00
389.00
173.00
168.00
2,338.00
331.00
283.00
201.00
Consolidated reserves
1,485.00
1,199.00
-1,378.00
Equity attributable to equity holders of the

parents
3,930.00
3,352.00
3,025.00
4.00
26.00
33.00
3,934.00
3,378.00
3,058.00
Total liabilities
Net Assets
Called up share capital

Share Premium Account
Statutory Reserve

Other reserves
Minority interests
Total Equity
Source: Corus Annual Report, 2006.
19

Equity
108-010-1
Exhibit VI
Takeover Regulations in the UK

Other relevant sources of law and regulation applicable to M&A transactions include the
Companies Act 1985 (replaced by the Companies Act 2006), which governs schemes of
arrangement (see question 2.1) and the compulsory acquisition (squeeze out) procedure. The
Financial Services and Markets Act 2000 (known as FSMA), which regulates investment
business and securities markets generally is also relevant, in particular, as it regulates financial
promotions, the public offering of securities and market abuse. Prospectus rules and Listing
Rules made by the Financial Services Authority (FSA) may also be relevant to a securities
exchange offer, where the securities to be issued are to be listed, as they may affect the freedom
of action of the target.
There are two methods used to undertake an M&A transaction in the UK. These are: (i) a
takeover offer, under which the bidder makes a general offer to all target shareholders to
purchase all (or very rarely some) of their shares in the target; and (ii) a scheme of arrangement,
which is a court supervised process that involves a shareholder vote.
Under either method, a bidder may pay in cash or through the issue of securities or a
combination of both (although in certain circumstances the bidder may be required to provide,
as a minimum, the opportunity for the target shareholders to choose cash). The takeover offer
may be quicker than a scheme of arrangement, and can be successful with a lower level of
support from target shareholders. A scheme of arrangement provides an all or nothing result, as
the bidder will, if it is successful, acquire all the shares of the target; while if it fails, it will
acquire none.
The main hurdle in the acquisition in UK or EU (European Union) is to achieve a sufficient
level of target shareholder support. This is easier if the recommendation of the target board is
obtained. It is necessary for the bidder to arrange committed financing before a bid is launched
(by a formal announcement). This can represent a major hurdle for a bid dependent on
significant leverage. It also becomes problematic because of legal impediments on using the
targets assets as collateral for any acquisition finance. The prohibition on financial assistance
can be overcome but it is a constraint on the structuring and implementation of leveraged bids.
The other main hurdle is to obtain regulatory approval. In addition to target shareholder
acceptance or approval, the principal consents required will be regulatory (anti-trust and other
regulatory approvals, if any). As with any M&A transaction, change of control requirements in
the targets contractual arrangements may be relevant, and it may be necessary for the bidder to
obtain its own shareholders approval. It is a general principle of the Takeover Code that all
target shareholders must be afforded equal treatment. This is translated into detailed rules
requiring that the same consideration be offered to all and prohibiting special deals with any
target shareholders.
The principal documentation involved in a takeover offer include: a press announcement
confirming the bidders intention to make an offer (setting out the consideration to be offered
and all conditions to which the offer is subject); an offer document (containing the formal offer,
with all terms and conditions and financial and other information on the bidder and the target); a
form of acceptance (by which the offer can be accepted); and a circular from the target board to
20

The process for M&A transactions in the UK involving public companies is primarily regulated
by the City Code on Takeovers and Mergers, known as the Takeover Code. The Takeover Code
contains a detailed set of rules governing most practical aspects of the process. The Takeover
Code is administered and enforced by the Panel on Takeovers and Mergers, which operates an
interventionist regime under which the participants in the M&A process have frequent access to
the Takeover Panels secretariat (the Panel Executive) that provides day-to-day guidance (and
formal rulings) on the application of the Takeover Code.
108-010-1
its shareholders (setting out its views on the offer and the substance of the independent advice
received). Target employees may insist that a statement setting out their views on the offer also
be appended. If the transaction is undertaken through a scheme of arrangement, the
documentation is almost identical in terms of content but in place of the offer document there is
a circular to target shareholders and a notice convening meetings of shareholders with proxy
forms in place of the form of acceptance.
If the consideration includes securities, a prospectus (or equivalent document) will be required.
Regulatory filings may require substantial documents and considerable preparation time. These
are not, however, public documents.


Source: www.iclg.co.uk.
21
108-010-1
Exhibit VII
Auction Rules that Governed the Acquisition of Corus

It was also announced that ninth round would take place only if the offeror who has the lower cash
bid at the beginning of that round lodged increased cash bid in that round. Such a cash bid was to
be at least 5 pence higher than the cash bid at the beginning of that round. It is expected that the
increased bids (if any) lodged during the auction procedure will not be publicly announced by any
of the parties.
If the auction procedure is not completed within the stipulated time period, the Panel Executive
makes an announcement setting out the prices of the offers to be announced by each offeror
following the conclusion of the auction procedure and expects to freeze the auction procedure at
that time and to announce the prices of the highest cash bids (if any) lodged by each offeror at that
point.
The Panel Executive reserves the discretion to amend the auction procedure as appropriate.
Following the conclusion of the auction procedure, neither offeror is permitted to revise the price
of its offer from that established by means of the auction procedure, or to introduce any new
alternative offer.
Compiled from www.economictimes.com, www.corusgroup.com and other sources.
22

Much before the commencement of the auction, the maximum number of rounds and all the rules
of the auction are announced by the Takeover Panel. All the concerned companies (the bidders and
the company to be acquired) have to convey their consent to these rules to the Takeover Panel. For
example, in the takeover auction for Corus, it was decided that the auction procedure would
consist of a maximum of nine rounds, comprising up to eight rounds in which each offeror was
able to lodge a fixed price bid in cash followed by a final round if the auction procedure had not by
then concluded. In the final round, each offeror was able to lodge either a fixed price bid in cash or
a cash bid calculated by a formula according to which the offeror could lodge a bid at a specified
amount in cash more than the other offeror subject to a specified maximum cash amount.

Source: www.finance.yahoo.com.
Exhibit IX
Tata Steel Stock Price Chart (September 2002 June 2007)
Source: www.finance.yahoo.com.
23

108-010-1
Exhibit VIII
Corus Stock Price Chart (September 2002 March 2007)
108-010-1
Exhibit X
Fitch Ratings
Fitch Ratings Ltd was founded by John Knowles Fitch in 1913 in as the Fitch Publishing Company
in New York City. Head quartered in New York City and London, Fitch Ratings Ltd is now an
international credit rating agency. It has defined various parameters for grading debt bonds issued
by companies and these grading are used world-wide to rate the bonds.
Investment Grade
AAA : the best quality companies, reliable and stable
AA : quality companies, a bit higher risk than AAA
BBB : medium class companies, which are satisfactory at the moment
Non-Investment Grade (also known as junk bonds)
BB : more prone to changes in the economy
B : financial situation varies noticeably

CCC : currently vulnerable and dependent on favorable economic conditions to meet its
commitments
CC : highly vulnerable, very speculative bonds
C : highly vulnerable, perhaps in bankruptcy or in arrears but still continuing to pay out on
obligations
D : has defaulted on obligations and Fitch believes that it will generally default on most or all
obligations
NR : not publicly rated.
Source: www.investopedia.com.
24

A : economic situation can affect finance
108-010-1
Exhibit XI
Tata-Corus Profile
Corus
Combined
Market Capitalization
6,510
44.2%
8,227
55.8%
14,737
Sales (in USD Million)
5,067
20.5%
19,367
79.5%
24,374
EBITDA (in USD Million)
1,480
43.0%
1,962
57.0%
3,442
Net Income (in USD Million)
840
49.4%
861
50.6%
1,781
Crude Steel Production

(in million tones)
5.3
22.6%
18.2
77.4%
23.5
Adapted from Tata Steel Annual Report 2006-07.

Exhibit XII
Tata Corus Consolidated Financial Performance
Jan March 2006
Jan March 2007
Rs. Billion
USD
Million
Rs. Billion
USD
Million
Turnover
254.11
5,845
312.96
7,199
EBITDA
26.72
615
42.31
973
EBITDA Margin
11%
11%
14%
14%
Profit Before Tax
17.50
403
24.64
567
Net Profits
11.98
276
17.17
395
Adapted from Tata Steel Annual Report 2006-07.
25

TATA Steel
108-010-1
Exhibit XIII
A Note on EV, EBITDA and EV/EBITDA
Enterprise Value (EV) is a measure of a companys value, often used as an alternative to
straightforward market capitalization. EV is calculated as market cap plus debt, minority
interest and preferred shares, minus total cash and cash equivalents.
EBITDA can be used to analyze and compare profitability between companies and industries
because it eliminates the effects of financing and accounting decisions. However, this is a nonGAAP measure that allows a greater amount of discretion as to what is (and is not) included in
the calculation. This also means that companies often change the items included in their
EBITDA calculation from one reporting period to the next.
EV/EBITDA also known as Enterprise Multiple is a ratio used to determine the value of a
company. The enterprise multiple looks at a firm as a potential acquirer would, because it takes
debt into account an item which other multiples like the P/E ratio do not include. Enterprise
multiple is calculated as:
Enterprise Multiple = Enterprise Value

EBITDA
A low Enterprise Multiple ratio indicates that a company might be undervalued. The enterprise
multiple is used for several reasons:
1) It is useful for transnational comparisons because it ignores the distorting effects of individual
countries taxation policies.
2) It is used to find attractive takeover candidates. Enterprise value is a better metric than market
capitalization for takeovers. It takes into account the debt which the acquirer will have to assume.
Therefore, a company with a low enterprise multiple can be viewed as a good takeover candidate.
However, it should be remembered that enterprise multiples can vary depending on the industry.
Therefore, one has to compare the multiple to other companies or to the industry in general. Higher
Enterprise Multiples are characteristic to high growth industries and lower multiples to industries
with slow growth.
Compiled from www.investopedia.com, www.answers.com and other sources.
26

EBITDA = Revenue Expenses (excluding tax, interest, depreciation and amortization)
108-010-1
Suggested Readings and References:

1. Corus Group: A Profile, BBC News Online, January 30, 2001.
2. Tata Steel Acquires Thailand's Millennium Steel, domain-b.com, December 15, 2005.
3. Jeremy Warner, Varin Has Done Well With Corus, But When The Steel Cycle Turns,
What Will He Do for an Encore, The Independent, March 17, 2006.
4. Kausik Datta & Ishita Ayan Dutt, Tatas to Float $2 Billion Bond for Corus Buy, Business
Standard, October 06, 2006.
6. Jayanta Mallick, D.Murali, Steel in the Melting Pot of Mergers, The Hindu Business Line,
October 16, 2007
7. Radhika Kamat Tata Steel: Challenges Ahead in Corus Acquisition The Hindu Business Line,
October 19, 2006.
8. Hugo Duncan, Corus Agrees 4.3 Billion Takeover by Indian Rival, The Independent,
October 20, 2006.

9. Corus Accepts Takeover Bid by Tata Steel, www.rediff.com, October 20, 2006.
10. Jennifer Ryan Tata Debt for Corus
www.bloomberg.com, October 25, 2006.
Leaves
Derivative
Trades
in
Lurch
11. Debt Traders Lose Their Shirt Over Tata Steel-Corus Deal, The Economic Times,
October 26, 2006.
12. Tata and Corus, Economist, October 26, 2006
13. Pedal to the Metal: Challenges of Tata Steels Corus Takeover, Knowledge@Wharton,
October 31, 2006.
14. Corus Bankers Back Tatas in Bid to Buy CSN The Times of India, November 1, 2006.
15. V Sridhar, Burden of Steel, Frontline, November 04 17, 2006
16. Tatas Corus bid Hits Roadblock, www.tribuneindia.com, November 18, 2006.
17. CSN Begins Due Diligence on Corus; Tata Steel Scrip Down, The Hindu Business Line,
November 21, 2006.
18. Surojit Chatterjee, Tata Steel Raises Corus Bid to $9.2 Billion, Watches CSNs Move,
International Business Times, December 11, 2006.
19. Surojit Chatterjee, CSN Tops Sweetened Offer for Corus, Bid War Enters End Game,
International Business Times, December 12, 2006.
20. How Indian Companies Fund Their Overseas Acquisitions, Knowledge@Wharton,
December 14, 2006.
21. Shareholders of Tata Mum on Corus Pricing The Times of India, December 14, 2006.
22. RPT-UK Takeover Panel to Launch Auction for Corus, www.reuters.com, January 26,
2007
23. Corus: Tata, CSN Battle to be Settled by Auction, www.tribuneindia.com, January 27,
2007.
24. Tata-CSN Battle Enters Final Round, The Economic Times, January 27, 2007.
25. India Inc. Hails Tatas Win, The Times of India, January 31, 2007.
27

5. Tatas set M&A Street Ablaze with Corus Deal The Economic Times, October 09, 2006.
108-010-1
26. Chris Noon, Ruth David, Tata Prevails in Corus Battle, www.forbes.com, January 31,
2007.
27. Mr. Muthuramans Speech, Transcript of Press Conference for CORUS Acquisition,
www.tatasteel.com, January 31, 2007,
28. Neelima Mahajan, It Takes a Whole Lot to Sing a Perfect Chorus, The Times of India,
February 01, 2007.
29. Tata Win Booster for Corporate Indias Confidence, The Economic Times, February 01,
2007.
30. TCS, Other Tata Companies to Benefit, The Economic Times, February 03, 2007.
32. Did Tata Steel Overheat in its Zeal to Win Corus? Knowledge@Wharton, February 08,
2007.
33. D. Murali, Corus Vs Hutch: The Inevitable Comparison The Hindu Business Line,
February 09, 2007.
34. Prasun Sonwalkar, Arvind Padmanabhan, Tata-Corus Deal - Tata Acquires Corus for $12
Billion: Indias Biggest Overseas Takeover, www.iacfpa.org, February 09, 2007

35. Pallavi Roy, Mobis Philipose, This is Corus, Businessworld, February 19, 2007.
36. Corus to be Unlisted from April: Tata Steel Mid-Day, March 05, 2007.
37. C. P. Chandrashekhar, Tata's Gamble: Triumph or Nemesis? One World South Asia,
March 15, 2007.
38. Tata Steel Completes Acquisition of European Steelmaker Corus, International Herald
Tribune, April 03, 2007.
39. Tata Steel Completes Acquisition of Steelmaker Corus, www.cnbc.com, April 03, 2007.
40. Tatas unwrap details on Corus Funding The Times of India, April 11, 2007.
41. Tatas more bullish on Corus Synergy The Hindu Business Line, April 17, 2007.
42. Tatas Plan Funding Mix for Corus The Economic Times, April 18, 2007.
43. Tatas More Bullish on Corus Synergy, The Hindu Business Line, April 18, 2007.
44. Tata Steel Raising $2.3 b for Corus Payment, The Hindu Business Line, April 18, 2007.
45. Funding of Corus Transaction, www.tata.com, April 18, 2007.
46. Citi and StanChart move in on Corus Debt www.projectfinancemagazine.com, May
2007.
47. Ratan Tata to Head Corus Merger Panel, The Economic Times, May 21, 2007.
48. Mr Ratan Tata to Head TATA Corus Integration Committee, www.steelguru.com, May
22, 2007.
49. Corus Group Employees Council
www.abcmoney.co.uk, May 31, 2007.
investigating
Tata
Steel
Financing
50. Sambit Saha Tata Steel stalks Canadian Giant The Telegraph, June 03, 2007.
51. A
Background
of
the
www.indiansteelalliance.com.
Indian
Steel
Industry:
52. Mergers & Acquisitions in U.K., 2007, www.iclg.co.uk.

28
An
Introduction

31. Reinvention of Family Business The Economic Times, February 08, 2007.
108-010-1
53. Mergers & Acquisitions in India, 2007, www.iclg.co.uk.

54. PLC Cross Border
www.practicallaw.com.
Mergers
and
Acquisitions
Handbook,
2006-2007,
55. Tata Steel Annual Reports, 2003-07.

56. www.en.wikipedia.org.
57. www.investopedia.com.
58. www.investorwords.com.
59. www.tata.com.
60. www.tatasteel.com
61. www.corusgroup.com.
62. www.csn.com.br.
63. www.forbes.com.

64. www.steel.gov.in
29

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108-010-1

Tata Steels Acquisition of Corus

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Rest of the world

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ICMR Center for Management Research

Tata Steels Acquisition of Corus

- Vivek Gupta, Managing Director, AT Kearney (India), in February 2007.

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- S. Mukherji, Managing Director, ICICI Securities, in February 2007.

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History Of Koninklijke Hoogovens, www.corus.com.

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TATA STEEL VS CSN: THE BIDDING WAR

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FINANCING THE ACQUISITION

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Fund Raising Mix for the Corus Acquisition

Tata Steel UK Non-recourse Debt

Tata Steel Asia (Singapore SPV)

Tata Steel Equity Contribution

Break-up of Tata Steel

External Commercial Borrowings

Preference Shares to Tata Sons

Convertible Preference Shares

Foreign Issue of Equity Instruments

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THE INTEGRATION EFFORTS

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Business Cultures of Tata Steel and Corus A Comparison

Continuous improvement program

Continuous improvement program

Core Values Code of Ethics:

Creating value in steel

Respect for the individual

Respect for our people

World class governance

World class governance

Source: Tata Steel Annual Report, 2006-07.

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THE ROAD AHEAD

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After the Acquisition

Asia (ex. India)

Rest of the World (ROW) 8%

Source: Tata Steel Annual Report, 2006-07.

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Source: V. Sridhar, Burden of Steel, Frontline, November 04-17, 2006.

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Top Ten Players in the Global Steel Industry

CG&R Assignment

CG&R Assignment