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TATA – CORUS Deal Negotiation GROUP 8
Objective
Tata Steel “ To gain access to global steel market
and expand production capacity to keep pace with growing demand for steel.”
Corus“To get a low cost partner to make company profitable in the long run.”
SWOT – TATA Steel
StrengthsStrengths•Lowest Cost Producer in world•Experience of TATA group in doing global acquisitions•Stable balance sheet( Low debt to equity ratio)
OpportunitiesOpportunities•Consolidation trend in Steel Industry•CSN’s tarnished image after failure of 2002 negotiations•To get exposed to the global steel market ( will save time and learning space for them)
WeaknessesWeaknesses•Corus was triple the size of TATA steels in terms of production
ThreatsThreats•Brazilian player CSN•Russian player Severstal•No committed financers to support the possible deal
SWOT - Corus
Strengths:•World’s ninth largest and Europe’s second largest steel producer•Wide range of products•Presence of operating facilities spread in whole EU
Opportunities:•Consolidation trend in Steel Industry•To get right price at a time when market is less volatile
Weaknesses:•Corus was bleeding because of high operational costs•Section 201 tariff imposed by Bush in 2002 led to loss in Corus clientele
Threats:•Huge pension liability might have led to collapse of the deal•Disagreement of Labor and government due to possibility of job cut
Tradable – Tata Steel
Advantage of Low cost of operations Pension plan debt in Corus
Tata offered to pay it off Stability of balance sheet compared to
other bidders Despite raising massive funding for
procurement Management efficiencies and reputation
of Tata group
Tradable - Corus
International Operations Wide range of products
Almost 45 products Demand diversified among all of them
Higher profitability per tonne with the acquisition Not localised production
All over EU Gave Tata scope for expansion Could utilize existing infrastructure for expansion
plans Mining Assets
Strategic Barrier
Uncertainty over the size of the bargaining range of the deal
CSN was concurrently competing for Corus bid
It may be enough for Tata to match the 475 pence per share price Has support of Corus board
Might result in outbreak of bidding wars Highly unlikely since not as financially
stable Though there was always chance for one
Psychological barrier
Indian companies had never previously undertaken such a big merger
There was uncertainty around ability of Tata to complete the deal
Corus management was diffident Security of the future of the company was
at stake
Structural Barrier
The Special Purpose Vehicle (SPV) Tata Steel UK will have their bridge loans maturing These will be repaid by other routes like GDR’s
In certain events resources raised through GDR’s have to be approved Special Committee on Overseas Investments
under RBI considers this Then transferred to Ministry of Finance for
examination with recommendations of Special Committee
Project Report/Feasibility Report also has to be submitted
In the course of this process the risk of approval not being granted existed
BATNA
TATA Alternatives
existed in the event of takeover not succeeding
Pure merger was an option
Tata group would be looking at a 20-23% stake in combined holding
CORUS Option to go with
CSN Compromise on
pension deal This would
possibly turn tables for Tata
Negotiation Evaluation
Offer did not fully reflect the value of the company's position in a consolidating market
The quality of the steel company's earnings was likely to improve due to less volatile market conditions
The synergy benefits of the merger are not factored into the bid
Tata's bid multiple was at least 10 percent below average recent deals in the sector
Chronology
October 5: Tata says "considering" bid for Corus. October 20: Corus agrees 455p a share offer from India's Tata
Steel, valuing the group at £4.3bn. But Standard Life, the largest investor in Corus, with a 7.9% stake, says it thinks the terms are too low.
October 26: Sir Anthony Bamford, one of Britain's leading industrialists, says he agrees that Tata's first bid is too low and that it would damage Britain's manufacturing industry.
November 3: Russia's Severstal rules itself out as a rival bidder. November 17: CSN announces indicative bid of 475p a share. December 10: Tata’s moved in with a revised offer of 500 pence. December : CSN again announces revised offer of 603 pence January 31: Tata bids at 608 pence per share and seals the deal March 2007: UK court approves the marriage between Corus &
Tata Steels.
THANK
YOU