Recently reported in Businessweek -
Tata Steel bagged Anglo-Dutch steelmaker Corus Group (CGA) in a $13.7 billion deal, which draws to a close a protracted bidding war with Brazilian rival Companhia Siderurgica Nacional (SID), or CSN.
 

Some interesting facts:

• This is the first big step that the Indian industry has taken in the international marketplace and equipped itself as a global player,” said Rata Tata, the patriarch and chairman of the Tata Group.
• This deal is less than half the size of Mittal Steel’s $23 billion acquisition of Luxembourg-based European steel giant Arcelor last year
• Tata’s initial bid was $8 billion but has blown its budget to $13.7 billion which draw attention of credit rating agencies such as Standard & Poor’s, which placed Tata on its CreditWatch list with “negative implications” back in October.
• However, the deal will give Tata Steel roughly 19 million tons of extra capacity and position Tata Steel into the No. 5 position among big global steelmakers.
• Investors, meanwhile, dumped Tata Steel shares with unrelenting fury in trading on the Bombay Stock Exchange, where the benchmark stock index fell about 1%. Tata Steel shares were pounded down 11%.
   

Tata Steel:

• Tata Steel employed about 39,650 people as of March 2005, according to the company’s latest corporate sustainability report. It is the biggest private steel firm in India.
• The Indian firm, part of the wider Tata group that includes a wide range of business interests from tea to software to automobiles, has 3.8 billion dollars in annual turnover while Corus has 18 billion dollars. Tata Group is  one of India’s biggest and most powerful diversified conglomerates with interests in everything from IT outsourcing to auto manufacturing and some $36 billion in assets
• Tata Steel Managing Director B. Muthuraman said that the acquisition price values Corus steel-making capacity at about $710 per ton, which is far cheaper than starting from scratch. A present greenfield [plant] with downstream products and construction solutions would work out to $1,200 to $1,300 per ton.
• To Tata Steel, the Corus acquisition fits in with its strategy of achieving global reach in Europe and synergies with low-cost intermediaries in India.
• The deal will be financed with a mix of equity and debt, with a roughly $4.1 billion contribution coming from Tata Steel and group holding company Tata Sons.
• As for servicing the debt, “Corus’ own cash flows are more than adequate to service the funding requirements.”

For Corus itself:

• Corus, which was spawned by the 1999 merger of Dutch firm Hoogovens and British Steel, employs 47,300 people globally, including 24,000 in Britain and 11,400 in the Netherlands.
• It is Europe’s second-largest steel maker and the world’s ninth-largest, producing around 18 million tonnes per year.
   

As a Combined Entity:

• The combined entity will have annual output of around 25 million tonnes and more than 87,000 employees.
• The combination would create a high quality, low-cost growth platform in Asia combined with a leading European steel player.
• Tata Steel does have the advantage of operating in one of the potentially biggest steel markets. India is embarking on a huge drive to upgrade its transportation infrastructure, and the economy is expected to grow around 10% this year, on par with the world’s fastest-growing economy and No. 1 steel consumer, China.
• Tata Steel, the flagship company of the Tata business empire, is set to become the world’s fifth-largest steelmaker, vaulting from 56th place, after beating Brazilian rival CSN in a bidding contest for Corus.
• Ratan Tata, 68, will be named chairman of the Corus board in a management revamp once the takeover is completed, the Hindustan Times reported
• Corus chairman Jim Leng will be deputy chairman and serve as a director on the Tata Steel board.
   

Some challenges to reckon with this M&A:

• To improve efficiency particularly in Corus as it’s deemed to be less competitive as it margin is #10% compared to Tata Steel’s margins of # 30% . Hence, there is a need to close the gap, there needs to be synergies in manufacturing, logistics, and products.
• Lack of good understanding of outsiders particularly credit watch agencies on this deal which might pose difficulties for Tata Steel in terms of financial risk profile which affects its share prices,etc. ( On Dec. 11, as the bidding war with CSN intensified with bids nearing $10 billion, S&P Singapore analysts Anshukant Taneja and Joey Chew warned: “The size of the acquisition and the potential cash outflow represented by Tata Steel’s latest or future offers for Corus could have an adverse impact on its financial risk profile.” [S&P, like BusinessWeek, is a unit of The McGraw-Hill Cos. (MHP)] On Jan. 31, S&P said it would keep Tata Steel on CreditWatch with “negative” implications as it crunches the numbers on the deal.)
• Britain’s largest steel trade union, Community has demanded a meeting with Indian tycoon Ratan Tata, seeking assurances he will remain committed to expanding Corus Group Plc. (Community, which describes itself as the dominant union in Corus representing 80 percent of its UK employees, also sought British government backing for the steel industry’s attempt to ward off “accelerated or slow demise” and protect jobs. ( refer to its website: www.community-tu.org/ter ))
  

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