AACase StudyCase Study

OnOn Acquisition “Tatasteel And Natsteel” Acquisition “Tatasteel And Natsteel”

Presented By:Presented By:Ashwin Chaudhary (Roll No 5)Ashwin Chaudhary (Roll No 5)Mohsinkhan Belim (Roll No 2)Mohsinkhan Belim (Roll No 2)

Introduction:Introduction:

Company History - Tata SteelCompany History - Tata Steel

Tata Steel is among the top ten steel producers Tata Steel is among the top ten steel producers in the world with an existing annual crude steel in the world with an existing annual crude steel production capacity of 30 Million Tonnes Per production capacity of 30 Million Tonnes Per Annum (MTPA).Annum (MTPA).

Established in 1907, it is the first integrated Established in 1907, it is the first integrated steel plant in Asia and is now the world`s steel plant in Asia and is now the world`s second most geographically diversified steel second most geographically diversified steel producer and a Fortune 500 Company.producer and a Fortune 500 Company.

Tata Steel has a balanced global presence in Tata Steel has a balanced global presence in over 50 developed European and fast growing over 50 developed European and fast growing Asian markets, with manufacturing units in 26 Asian markets, with manufacturing units in 26 countries.countries.

Contd..Contd.. Tata Steel, through its joint venture with Tata Tata Steel, through its joint venture with Tata

BlueScope Steel Limited, has also entered the steel BlueScope Steel Limited, has also entered the steel building and construction applications market.building and construction applications market.

The iron ore mines and collieries in India give the The iron ore mines and collieries in India give the Company a distinct advantage in raw material Company a distinct advantage in raw material sourcing.Tata Steel has signed an agreement with sourcing.Tata Steel has signed an agreement with Steel Authority of India Limited to establish a 50:50 Steel Authority of India Limited to establish a 50:50 joint venture company for coal mining in India. Also, joint venture company for coal mining in India. Also, Tata Steel has bought 19.9% stake in New Millennium Tata Steel has bought 19.9% stake in New Millennium Capital Corporation, Canada for iron ore mining.Capital Corporation, Canada for iron ore mining.

Tata Steel’s vision is to be the global steel industry Tata Steel’s vision is to be the global steel industry benchmark for Value Creation and Corporate benchmark for Value Creation and Corporate Citizenship.Citizenship.

Tata Steel India is the first integrated steel company in Tata Steel India is the first integrated steel company in the world, outside Japan, to be awarded the Deming the world, outside Japan, to be awarded the Deming Application Prize 2008 for excellence in Total Quality Application Prize 2008 for excellence in Total Quality Management.Management.

Company History - NatsteelCompany History - Natsteel

The National Iron and Steel Mills Ltd (NISM) The National Iron and Steel Mills Ltd (NISM) was incorporated on 12 August 1961 to was incorporated on 12 August 1961 to manufacture and produce iron and steel manufacture and produce iron and steel products for Singapore, Malaysia.products for Singapore, Malaysia.

In 1990, NISM changed its name to “NatSteel”. In 1990, NISM changed its name to “NatSteel”. Backed by profitable operations and a healthy Backed by profitable operations and a healthy balance sheet, it began to internationalise its balance sheet, it began to internationalise its operations. By the start of the 21st century, it operations. By the start of the 21st century, it had established a strategic footprint in the had established a strategic footprint in the growing economies of the Asia Pacific as well growing economies of the Asia Pacific as well as built a premium brand name, NatSteel, as built a premium brand name, NatSteel, widely respected for its quality products and widely respected for its quality products and expertise.expertise.

In 2004, NatSteel Asia (Singapore) Pte Ltd was In 2004, NatSteel Asia (Singapore) Pte Ltd was incorporated — it was incorporated — it was thethe steel business in steel business in Singapore which was divested by NatSteel and Singapore which was divested by NatSteel and later renamed as NatSteel Asia Pvt Ltd.later renamed as NatSteel Asia Pvt Ltd.

NatSteel is a major player in Singapore and NatSteel is a major player in Singapore and owns steel mills in China, Thailand, Vietnam, owns steel mills in China, Thailand, Vietnam, Phillipines and Australia, with a capacity of 2 Phillipines and Australia, with a capacity of 2 million tonne per annum.million tonne per annum.

Importants facts about dealImportants facts about deal

Tata Iron & Steel, on 16 August 2004, announced the Tata Iron & Steel, on 16 August 2004, announced the acquisition of Singapore-based NatSteel for a acquisition of Singapore-based NatSteel for a consideration of Rs.1,313 crore. With this, Tata Steel consideration of Rs.1,313 crore. With this, Tata Steel would now have its footprint in seven Asian countries would now have its footprint in seven Asian countries including Vietnam, Singapore and Thailand.including Vietnam, Singapore and Thailand.

The acquisition of NatSteel is part of Tata Steel's vision of The acquisition of NatSteel is part of Tata Steel's vision of expanding its overall steel capacity to 15 million tpa, expanding its overall steel capacity to 15 million tpa, through domestic capacity enhancements and overseas through domestic capacity enhancements and overseas acquisitionsacquisitions

The Jamshedpur works is expected to have a capacity to The Jamshedpur works is expected to have a capacity to 7 million tpa by 2010. The balance would be distributed at 7 million tpa by 2010. The balance would be distributed at coastal locations in India and at least one overseas coastal locations in India and at least one overseas location. The company is studying the feasibility of location. The company is studying the feasibility of setting up overseas units in China, Singapore, Malaysia, setting up overseas units in China, Singapore, Malaysia, Vietnam and Ukraine.Vietnam and Ukraine.

Tata Steel is 100% owners of Nasteel Asia and hence Tata Steel is 100% owners of Nasteel Asia and hence there are no other investors in Natsteel Asia.there are no other investors in Natsteel Asia.

Tata Steel has announced that it would enhance its Tata Steel has announced that it would enhance its overall steel capacity to 15 million tpa by 2010, from the overall steel capacity to 15 million tpa by 2010, from the present level of around 4 million tpa. present level of around 4 million tpa.

Funding Structure for dealFunding Structure for deal

Tata Iron and Steel Company (Tata Steel) Tata Iron and Steel Company (Tata Steel) has entered into definitive agreements with has entered into definitive agreements with Singapore based NatSteel Ltd to acquire its Singapore based NatSteel Ltd to acquire its steel business for Singapore $486.4 million steel business for Singapore $486.4 million (approximately Rs1,313 crre) in an all cash (approximately Rs1,313 crre) in an all cash transaction. transaction.

Under the terms of agreement, the Under the terms of agreement, the enterprise value is subject to certain enterprise value is subject to certain adjustments including those for any net adjustments including those for any net debt, minority interest, other liabilities and debt, minority interest, other liabilities and for working capital variance relative to $225 for working capital variance relative to $225 million, a Tata Steel statement said.million, a Tata Steel statement said.

Contd..Contd..

The acquisition also includes a 26 per cent equity of The acquisition also includes a 26 per cent equity of NatSteel in Southern Steel Berhad, a 1.3 million tonne steel NatSteel in Southern Steel Berhad, a 1.3 million tonne steel maker in Malaysia. Commenting on the transaction, Tata maker in Malaysia. Commenting on the transaction, Tata Steel managing director B Muthuraman said, "NatSteel's Steel managing director B Muthuraman said, "NatSteel's business provides Tata Steel access to key Asian Steel business provides Tata Steel access to key Asian Steel markets including China.“markets including China.“

The transaction is expected to close in five to six months, The transaction is expected to close in five to six months, after obtaining all regulatory approvals. The steel business after obtaining all regulatory approvals. The steel business of NatSteel reported a turnover of $1.4 billion and a profit of NatSteel reported a turnover of $1.4 billion and a profit before tax of $47 million. Overall, Natsteel reported a before tax of $47 million. Overall, Natsteel reported a turnover of $1.7 billion. The acquisition is a significant step turnover of $1.7 billion. The acquisition is a significant step in Tata Steel's globalisation initiative and will act as a in Tata Steel's globalisation initiative and will act as a "beachhead investment" for Tata Steel in the high growth "beachhead investment" for Tata Steel in the high growth geographies of China and South East Asia. Through this geographies of China and South East Asia. Through this transaction, Tata Steel will increase its manufacturing transaction, Tata Steel will increase its manufacturing footprint to seven new countries in Asia.footprint to seven new countries in Asia.

Strategic rationale for Strategic rationale for acquisitionacquisition

The acquisition of NatSteel is part of Tata Steel's The acquisition of NatSteel is part of Tata Steel's vision of expanding its overall steel capacity to 15 vision of expanding its overall steel capacity to 15 million tpa, through domestic capacity million tpa, through domestic capacity enhancements and overseas acquisitionsenhancements and overseas acquisitions

Tata Steel will have to compete with local suppliers Tata Steel will have to compete with local suppliers and similarly Natsteel will have to pay prices that and similarly Natsteel will have to pay prices that are attractive for Tata Steel.There are also transfer are attractive for Tata Steel.There are also transfer price guidelines, which will govern a lot of this. But price guidelines, which will govern a lot of this. But there are positions that you can take when you there are positions that you can take when you know that you have a upstream back up or a down know that you have a upstream back up or a down stream facility and that is quite powerful. stream facility and that is quite powerful.

The acquisition of NatSteel is part of Tata Steel's The acquisition of NatSteel is part of Tata Steel's vision of expanding its overall steel capacity to 15 vision of expanding its overall steel capacity to 15 million tpa, through domestic capacity million tpa, through domestic capacity enhancements and overseas acquisitionsenhancements and overseas acquisitions

Valuation for acquisitionValuation for acquisition

The acquisition also includes a 26 per cent equity of The acquisition also includes a 26 per cent equity of NatSteel in Southern Steel Berhad, a 1.3 million NatSteel in Southern Steel Berhad, a 1.3 million tonne steel maker in Malaysia. tonne steel maker in Malaysia.

We are in the very early stages of all that. What we We are in the very early stages of all that. What we are spending now is in acquisitions, Nat steel, are spending now is in acquisitions, Nat steel, Millennium, expansion of Jamshedpur by a million Millennium, expansion of Jamshedpur by a million and then 1.8 million. and then 1.8 million.

The acquisition of Singapore-based NatSteel for a The acquisition of Singapore-based NatSteel for a consideration of Rs.1,313 crore. consideration of Rs.1,313 crore.

Tata Steel has announced that it would enhance its Tata Steel has announced that it would enhance its overall steel capacity to 15 million tpa by 2010, from overall steel capacity to 15 million tpa by 2010, from the present level of around 4 million tpa. the present level of around 4 million tpa.

Balance sheetBalance sheet       [Value in Rupees Crores][Value in Rupees Crores]

Year Ends (Months)Year Ends (Months)   200903(12)200903(12)   200803(12)200803(12)   200703(12)200703(12)   200603(12)200603(12)

Equity capitalEquity capital   730.79730.79   730.78730.78   580.67580.67   553.67553.67

Preference capitalPreference capital   5,472.665,472.66   5,472.525,472.52   0.000.00   0.000.00

Reserves and surplusReserves and surplus   23,501.1523,501.15   21,097.4321,097.43   13,368.4213,368.42   9,201.639,201.63

Loan fundsLoan funds   26,946.1826,946.18   18,021.6918,021.69   9,645.339,645.33   2,516.152,516.15

Current liabilitiesCurrent liabilities   11,899.9511,899.95   9,755.789,755.78   8,279.708,279.70   6,913.836,913.83

Net blockNet block   10,994.5410,994.54   8,256.118,256.11   8,543.128,543.12   8,707.328,707.32

InvestmentsInvestments   42,371.7842,371.78   4,103.194,103.19   6,106.186,106.18   4,069.964,069.96

Total current assetsTotal current assets   11,591.6611,591.66   38,196.3438,196.34   14,671.9114,671.91   4,997.004,997.00

RatiosRatios       [Value in Rupees Crores][Value in Rupees Crores]

Year Ends (Months)Year Ends (Months)   200903(12)200903(12) 200803(12)200803(12) 200703(12)200703(12) 200603(12)200603(12)

OPM (%)OPM (%)   37.6837.68 41.9441.94 39.6139.61 38.8838.88

NPM (%)NPM (%)     21.0921.09 23.4323.43 23.5323.53 22.7822.78

Reported EPSReported EPS     69.769.7 63.8563.85 72.7472.74 63.3563.35

Return on net worthReturn on net worth     21.121.1 21.5221.52 30.7130.71 36.936.9

Debt/EquityDebt/Equity     1.341.34 1.081.08 0.690.69 0.250.25

Financial charges coverage ratioFinancial charges coverage ratio   6.376.37 9.259.25 29.4529.45 36.4636.46

Current ratio Current ratio   0.970.97 3.923.92 1.771.77 0.720.72

Dividend per shareDividend per share   1616 1616 15.515.5 1313

Future out lookFuture out look

Tata Steel has announced that it would enhance its overall steel Tata Steel has announced that it would enhance its overall steel capacity to 15 million tpa by 2010, from the present level of around 4 capacity to 15 million tpa by 2010, from the present level of around 4 million tpa.million tpa.

The Jamshedpur works is expected to have a capacity to 7 million tpa The Jamshedpur works is expected to have a capacity to 7 million tpa

by 2010. The balance would be distributed at coastal locations in India by 2010. The balance would be distributed at coastal locations in India and at least one overseas location. The company is studying the and at least one overseas location. The company is studying the feasibility of setting up overseas units in China, Singapore, Malaysia, feasibility of setting up overseas units in China, Singapore, Malaysia, Vietnam and Ukraine.Vietnam and Ukraine.

Within India, Tata Steel is examining the viability of a steel unit at Within India, Tata Steel is examining the viability of a steel unit at Dhamra, where it plans to set up a minor port in partnership with Dhamra, where it plans to set up a minor port in partnership with Larsen & Toubro. Indicating that Orissa was a good location as any for Larsen & Toubro. Indicating that Orissa was a good location as any for a new steel plant, Muthuraman said the port at Dhamra would handle a new steel plant, Muthuraman said the port at Dhamra would handle existing Tata Steel cargo as well as steel export shipments.existing Tata Steel cargo as well as steel export shipments.

Tata Steel and L&T will invest Rs 1,400 crore in the first phase of the Tata Steel and L&T will invest Rs 1,400 crore in the first phase of the

port project to build a facility in three years to handle around 13 million port project to build a facility in three years to handle around 13 million tonnes of cargo.tonnes of cargo.

To enhance its fuel and coke supply, Tata Steel will invest Rs 350 To enhance its fuel and coke supply, Tata Steel will invest Rs 350

crore in the first phase to set up a 600,000 tonnes per annum coke crore in the first phase to set up a 600,000 tonnes per annum coke over battery at Haldia in West Bengal.over battery at Haldia in West Bengal.

ConclusionConclusion

NatSteel will spin off its entire steel business into a wholly owned NatSteel will spin off its entire steel business into a wholly owned subsidiary, NatSteel Asia Pte Ltd ("NatSteel Asia") subsequent to subsidiary, NatSteel Asia Pte Ltd ("NatSteel Asia") subsequent to which Tata Steel will acquire 100% of the equity interest in NatSteel which Tata Steel will acquire 100% of the equity interest in NatSteel Asia.Asia.

NatSteel is the dominant steel producer of Singapore and owns steel NatSteel is the dominant steel producer of Singapore and owns steel mills in China, Thailand, Vietnam, the Philippines and Australia. The mills in China, Thailand, Vietnam, the Philippines and Australia. The business is focussed on long products and has a cumulative capacity business is focussed on long products and has a cumulative capacity to produce about 2 million tons per annum of rebars, wire rods, pre-to produce about 2 million tons per annum of rebars, wire rods, pre-stressed concrete wires and strands.stressed concrete wires and strands.

The investment also includes a 26% equity interest owned by The investment also includes a 26% equity interest owned by NatSteel in Southern Steel Berhad, a 1.3 million tonne steelmaker in NatSteel in Southern Steel Berhad, a 1.3 million tonne steelmaker in Malaysia.Malaysia.

The investment is a significant step in Tata Steel's globalisation The investment is a significant step in Tata Steel's globalisation

initiative and will act as a beachhead investment for Tata Steel in the initiative and will act as a beachhead investment for Tata Steel in the high growth geographies of China and South East Asia. Through this high growth geographies of China and South East Asia. Through this transaction, Tata Steel will increase its manufacturing footprint to 7 transaction, Tata Steel will increase its manufacturing footprint to 7 new countries in Asia.new countries in Asia.

The acquisition has a strong strategic fit with Tata Steel's current The acquisition has a strong strategic fit with Tata Steel's current expansion plans and there are likely to be significant synergy benefits expansion plans and there are likely to be significant synergy benefits in the future as a consequence of the transaction.in the future as a consequence of the transaction.

Cantd..Cantd..

For the year ended 31 March 2004, Tata Steel produced For the year ended 31 March 2004, Tata Steel produced and sold 4 million tons of flat and long products recording and sold 4 million tons of flat and long products recording a turnover and a net profit. For the quarter ended June a turnover and a net profit. For the quarter ended June 30, 2004, Tata Steel reported turnover and a net profit. 30, 2004, Tata Steel reported turnover and a net profit.

Tata Steel is currently implementing a 1 million ton Tata Steel is currently implementing a 1 million ton expansion project at its works in Jamshedpur, India, expansion project at its works in Jamshedpur, India, which will raise its capacity to 5 million tons per annum by which will raise its capacity to 5 million tons per annum by September 2005. September 2005.

Further expansion to 7.4 million tons per annum in Further expansion to 7.4 million tons per annum in advanced stage of planning and will be commissioned in advanced stage of planning and will be commissioned in 2008-09.2008-09.

Besides steel products, which include hot rolled, coil cold Besides steel products, which include hot rolled, coil cold rolled coil, galvanised sheets, rebars, wire rods, and rolled coil, galvanised sheets, rebars, wire rods, and wires. wires.

Tata Steel is a major player in India in ferro-alloys industry Tata Steel is a major player in India in ferro-alloys industry with a significant global presence. Tata Steel shares are with a significant global presence. Tata Steel shares are listed on the Stock Exchange, Mumbai and the National listed on the Stock Exchange, Mumbai and the National Stock Exchange of India.Stock Exchange of India.