History Of Tata Steel
The takeover by the Tata Steel of Corus was a landmark deal in the history of steel world. Corus before its formation into Tata Steel Europe, how it became one of the top steel producer in the world and how was Corus taken over by the Tata Steel which was at that moment one third of Corus. The discussion is about the acquisition of Corus Steel by Tata Steel, How was it done? What were the outcomes of the deal?, What was the effect of the deal on the Steel industry?, What was the effect of the deal on Indian Corporate World? And so on the total scenario of the deal between Corus and Tata Steel.
The acquisition of Corus by Tata Steel was a landmark deal in the world of Steel industry. This was the period when the steel industry was in the process of consolidation. This deal was one of the biggest deal in Steel Industry according to world steel association. It is considered that after Arcelor-Mittal, Tata- Corus deal is the second largest deal, in the same period there were several other deals done in steel industry like
takeover by POSCO to become one of the top five steel producers in the world. At the moment of take over Tata Steel was ranked at 56th position in crude steel production and Corus stood 5th position in crude steel production. After acquisition of Corus Tata steel is positioned at 7th largest crude steel producer at present. Tata Steel has a long history since it was established in 1907. Tata Steel is a part of Tata Group which the biggest corporate house in India. On the other hand Corus was formed by merger of two European companies named British Steel and Koninklijke Hoogovens both these companies to have a legacy of around more than 100years. There were few differences in both the companies Corus and Tata Steel that were like Tata Steel was not an international company though it was an 100years old company it was limited to India only and on the other hand Corus was a international company having its presence in around 40 different countries, other few differences were like Corus is a company in matured market like Europe and Tata Steel in developing country like India, Corus was having scarcity of raw material and had very less investment and control over raw material so had to depend on raw material available in open market and thus had to face price war and thus earned less profit and on the other hand Tata Steel has ample of raw material since they have their own iron ore mines.
TATA STEEL HISTORY:
Tata Steel is a part of Tata Group Companies formerly was known as TISCO or Tata Iron and Steel Company Limited.It was found by Mr.Dorabji Tata in 1907. It is world’s seventh largest steel company with an annual crude steel capacity of 31 million tonnes. Tata Steel is the largest private sector steel company in India in terms of domestic production. Currently ranked 410th on Fortune Global 500, it is based in Jamshedpur, Jharkhand, India. It is part of Tata Group of companies. Tata Steel is also India’s second-largest and second-most profitable company in private sector with consolidated revenues of Rs.132,110 crore (US$29.33 billion) and net profit of over Rs.12,350 crore (US$2.74 billion) during the year ended March 31, 2008.Tata Steel is the 8th most valuable brand according to an annual survey conducted by Brand Finance and The Economic Times in 2010.
Its main plant is located in Jamshedpur, Jharkhand, with its recent acquisitions; the company has become a multinational with operations in various countries. The Jamshedpur plant contains the DCS supplied by Honeywell. The registered office of Tata Steel is in Mumbai. The company was also recognized as the world’s best steel producer by World Steel Dynamics in 2005. The company is listed on Bombay Stock Exchange and National Stock Exchange of India, and employs about 82,700 people (as of 2007).
Tata Steel has set an ambitious target to achieve a capacity of 100 million tonne by 2015. Managing Director B. Muthuraman stated that of the 100 million tonne, Tata Steel is planning a 50-50 balance between greenfield facilities and acquisitions.
Overseas acquisitions have already added up to 21.4 million tonne, which includes Corus production at 18.2 million tonne, Natsteel production at two million tonne and Millennium Steel production at 1.2 million tonne. Tata is looking to add another 29 million tonnes through the acquisition route.
Tata Steel has lined up a series of Greenfield projects in India and outside which includes
- 6 million tonne plant in Orissa (India)
- 12 million tonne in Jharkhand (India)
- 5 million tonne in Chhattisgarh (India)
- 3-million tonne plant in Iran
- 2.4-million tonne plant in Bangladesh
- 5 million tonne capacity expansion at Jamshedpur (India)
- 4.5 million tonne plant in Vietnam (feasibility studies underway)
Main article: Tata Corus acquisition
On 20 October 2006, Tata Steel signed a deal with Anglo-Dutch company, Corus.
On 19 November 2006, the Brazilian steel company Companhia SiderÃºrgica Nacional (CSN) launched a counter offer for Corus at 475 pence per share, valuing it at Â£4.5billion.
On 11 December 2006, Tata Steel preemptively upped the offer to 500 pence, which was within hours trumped by CSN’s offer of 515 pence per share, valuing the deal at Â£4.9 billion. The Corus board promptly recommended both the revised offers to its shareholders. On 31 January 2007 Tata Steel won their bid for Corus after offering 608 pence per share, valuing Corus at Â£6.7 billion; as a result and pending acceptance and completion of the takeover, the joining of the two will create the fifth largest steel company in the world.
In August 2004, Tata Steel entered into definitive agreements with Singapore based NatSteel Ltd to acquire its steel business for Singapore $486.4 million (approximately Rs 1,313 crore) in an all cash transaction.
In 2005, Tata Steel acquired 40% Stake in Millennium Steel based in Thailand for $130 million (approx. Rs 600 crore).
In 2007 Tata Steel through its wholly owned Singapore subsidiary, NatSteel Asia Pte Ltd acquired controlling stake in two rolling mills: SSE Steel Ltd, Vinausteel Ltd located in Vietnam.
Tata Steel is facing increasing criticism that the drive for growth and profits is completely overshadowing its once famed philanthropy, and causing lasting social and environmental damage at various locations. In response, Tata cites its programs for environment and resource conservation, including reduction in greenhouse emission, raw materials and water consumption. The company has increased waste re-use and re-cycling, and reclaims land at its captive mines and collieries through forestation. Tata Steel’s chief, environment and occupational health, says, â€œOur capital investment in pollution-abatement solutions was in the vicinity of Rs 400 crore in 2003-04.â€
Dhamra Port Issue:
The Dhamra Port, a Joint Venture between Larsen & Toubro and Tata Steel, has come in for criticism from groups such as Greenpeace, Wildlife Protection Society of India and the Orissa Traditional Fishworkers’ Union. The port is being built within five kilometers of the Bhitarkanika National Park, a Ramsar wetland of international importance, home to an impressive diversity of mangrove species, saltwater crocodiles and an array of avian species. The port which is to be built by Tata Steel and Larsen & Tubro also be approximately 15 km. from the turtle nesting of Gahirmatha Beach, and turtles are also found immediately adjoining the port site. Aside from potential impacts on nesting and feeding grounds of the turtles, the mudflats of the port site itself are breeding grounds for horseshoe crabs as well as rare species of reptiles and amphibians. One such species, the amphibian Fejervarya cancrivora, is the first record for the Indian mainland.
Corus Steel /Tata Steel Europe:
For nearly 170 years iron and steel have been made on Teesside, from the time being when ironstone was discovered in the area. It is an industry that once grew in such strength, that William Gladstone named Middlesbrough â€˜an infant Hercules’. But now, an area that was once so thriving is in decline. BBC Look North’s Ian Reeve examines the history of the industry on Teesside, from 1840 to 2009, to find out how we got to this point. It all started in 1840 when pioneers Henry Bolckow and John Vaughan set up their first rolling mill and foundry. Then there was the discovery of ironstone in the Eston hills in the 1850s, and the subsequent springing up of hundreds of blast furnaces along the River Tees from Stockton to Redcar.
Such was the vigor and continuous growth of the trade that in 1862 the soon-to-be Prime Minister William Gladstone delivered his famous assessment of Middlesbrough.
It was, he said, a â€œremarkable place, the youngest child of England’s enterpriseâ€¦ an infant Hercules.â€Today Hercules is much shrunken, and could indeed become yet more emaciated. How did it come to this? The answer lies in a reduction in demand for steel around the world – the economies of China and India, where much of Corus’s steel ended up, have contracted. Cheaper steel from eastern Europe – available to buy on the open market – has compounded the problem. So with the news that Corus is the be mothballed, who knows what the future could hold for the town nicknamed Ironopolis?
Tata Steel SWOT Analysis:
- Lowest cost producer in the world.
- Extensive experience of Tata group companies in acquisitions.
- Stable balance sheet.
- Low debt in comparison to equity ratio.
- Corus is triple the size of Tata in terms of production
- Tata steel Europe was not so big that payment can be done through the means of share swapping.
- Consolidation trend in steel industry
- To get exposed to the global steel market
- CNS’s tarnished image after failure of 2002 negotiation
- Brazilain player CNS
- Russian player Severstal
- No committed financers to support the deal
HISTORY OF CORUS:
British Steel company logo (1966-1999)
British Steel Corporation was a large British steel producer, consisting of the assets of former private companies which had been nationalized on 28 July 1967 by the Labour Party government of Harold Wilson. In 1971, British Steel sponsored Sir Chay Blyth in his record-making non-stop circumnavigation against the winds and currents, known as â€˜The Impossible Voyage’. In 1992, they sponsored the British Steel Challenge, the first of a series of â€˜wrong way’ races for amateur crews. The British Steel Act 1988 was passed by the Conservative government of Margaret Thatcher to privatize British Steel. This was achieved on 5 December 1988.
Koninklijke Hoogovens was a Dutch steel producer founded on 19th April 1918. It was located in IJmuiden. This company was established by HJE Wenckebach, Geldolph Kessier and others to reduce the dependency of Dutch companies for steel on other companies of other nations. A Founding committee was formed for raising the funds for the establishment of the company. Company was formed in the name called Koninklijke Nederlandsche Hoogovens en Staalfabrieken in The Hague in September 20 1918. This company was merged with British Steel Plc in 1999 to became part of the Anglo-Dutch Corus Group steel company.
Merger and formation of Corus
British Steel merged with the Dutch steel producer Koninklijke Hoogovens to form Corus Group on 6 October 1999 forming the third largest producer of steel behind POSCO of South Korea and Nippon Steel of Japan. British Steel formed about two-thirds of the merged group.
Sale of aluminum rolled products
On 16 March 2006, Corus announced that it had signed a letter of intent to sell its aluminum rolled products and extrusions businesses to Aleris International, Inc. for Â£570m. Corus retained its smelting operations and supply Aleris under a long-term agreement. On 1 August, the sale to Aleris Europe was completed.
Corus to be mothballed in January 2010
The idea of closure is unthinkable to many, given the buildings and bridges all over the globe made with Teesside iron and steel. From the Sydney Harbour bridge, to the Tyne bridge, to the office blocks of London’s Canary Wharf, all are stamped â€˜made on Teesside.’Sir Hugh Gilzean Reid, MP and newspaper proprietor had it about right in 1881 when he mused on Teesside’s contribution to the world.â€œThe iron of Eston has diffused itself all over the world. It furnishes the railways of the world; it runs by Neapolitans and papal dungeons; it startles the bandit in his haunt in Cicilia; it crosses the plains of Africa; it stretches over the plains of India. â€œIt has crept out of the Cleveland Hills where it has slept since Roman days, and now like a strong and invincible serpent, coils itself around the world. A brief history of Corus is best recounted through a series of four vivid images. The first: tumult and euphoria over its birth. British Steel, for long a symbol of British industrial nationalism, and the Dutch Koninklijke Hoogovens merged in 1999 to create what was then the world’s third largest steel maker and Europe’s largest. At that time, it was billed as the perfect merger, if ever there was one.
The second: conflict and chaos. The Dutch and British sides did not get along well. Suggested closures on the Dutch side of the business were met with resistance. Sale of the aluminum business was proposed, and then aborted. On a bigger scale, even a merger with CSN was proposed and then aborted. As the powers pulled the company in two directions, the losses mounted. By March 2001, the first results after the merger saw an operating loss of Â£1.152 billion for the 15 months to December â€” Â£100 million higher than forecasts.
The third image is that of Philippe Varin. He took charge of Corus as its CEO in 2003, and started with a share price of 40 pence and losses of Â£458 million, 2002. Varin was fortuitous. Steel prices recovered and kept rising when he was at the helm. But he was also ruthless, slashing over Â£600 million in costs. Since 2003, share prices moved up to 390 pence that was before Tata came calling. The 608 pence offer is now history.
The final picture, from the past three years, is of a company that lived under the shadow of an acquisition. L.N. Mittal flirted with Corus before he found Arcelor. Then there was a steady stream of reports that said Russian steel makers such as Evraz and SeverStal were considering a bid for it.
Among the four images, Corus’s new owner Ratan Tata would be most interested in the third. In many ways, Varin is the architect of the Corus that Tata has paid $12.1 billion for. Corus may have a long and rich Anglo-Dutch heritage, but in the past three years of the modern Corus’s seven-year history, it was Varin who prepared the company for its eventual destiny.
Soon after taking charge, Varin launched the â€˜Restoring Success’ programme, targeting cost savings of about Â£680 million over a three-and-a-half year period. By 2005-end, Corus had effected savings worth Â£555 million, and the gap between its earnings before interest, taxes, depreciation and amortization (EBITDA) margin of 10 per cent and that of its competitors had dropped to 4.5 per cent. Its margin was about 6 percentage points lower than its competitors in the EU in 2003. Apart from cost savings, rising steel prices also helped.
A large chunk of the savings 35 per cent came from â€˜manufacturing excellence’, purchase savings and supply chain optimization. Between 2003 and 2005, the number of suppliers was cut from 16,000 to 9,000, employee productivity was raised by 5 per cent, and the ratio of on-time deliveries rose to 85 per cent from 74 per cent. By 2006-end, Corus would have effected the targeted Â£680 million in savings. Meanwhile, the sale of its aluminum business for Â£570 million to Aleris, a US-based aluminum company, effective August 2006 helped it reduce its debt burden considerably.
But most of all, it is Varin’s clean-up of Corus’ manufacturing operations that will interest Tata. When Varin took charge, Corus was running five not-so-efficient production facilities in the UK (Port Talbot in Wales, Teesside, Scunthorpe, Stocksbridge, Rotherham). Varin and his team eventually pruned it to three facilities. He consolidated the flat products business in Port Talbot. Earlier, Teesside supplied slabs to Port Talbot, while Port Talbot was itself making some slabs. Now, Port Talbot handles the entire production process for flat products. And Teesside, instead of being shut down, has been put to smart use. Corus has entered into a long-term off take agreement for 10 years with a consortium of four steel makers, including Dongkuk from South Korea and Duferco from Sweden. These companies have access to 80 per cent of the slabs produced there on a cost basis.
Corus had two plants making engineering steel â€” Stocksbridge and Rotherham â€” that essentially were a small part of its long products capacity. It shut down the Stocksbridge plant, except for remelting very high-end aerospace steel, and shifted the engineering steel capacity to Rotherham. These changes are yet to be reflected in numbers as most of it took place last year. 2007 will present the correct picture. Still, Corus’s current EBITDA margin, at 8 per cent, is much lower than Tata Steel’s current margin of 30 per cent but it is important to note that the company has come a long way on this front.
And as Kaushik Chatterjee, vice-president finance, Tata Steel, points out, between 2001 and 2002, most of the steel industry was facing losses, as steel prices were as low as $200-250 per tonne. That had done most of the damage. But â€˜Restoring Success’ has been the current Corus management’s calling card. Says a London-based analyst: â€œThe management has done a lot of things right, including working well in the cultural integration bit.â€ After all, it was under Chairman Jim Leng and CEO Varin that Corus was finally able to sell off its downstream aluminum business to Aleris.
All of this makes Varin a potential Tata ally. In fact, it is widely reported that Varin would have resigned if CSN had won the bid. But under Tata, he has given a two-year commitment and now has a place on the Tata Steel board.
Clearly, Varin has steered Corus to its new destiny. British Steel was formed in 1967 by the Labor prime minister Harold Wilson’s government, which saw Britain’s 14 principal steel producers brought together. Then, much of Britain’s industry was being nationalized. Yet by the 1980s, Corus was well into losses. In 1988, the Conservative Thatcher government passed the British Steel Act to privatize Corus. Then came the merger with Hoogovens, which, founded in 1918, had its own unique heritage. Now, Corus has an Indian owner.
Tata Steel Europe formerly Corus Group is a steel-making company headquartered in London, United Kingdom. It is the second-largest steel-maker in Europe and is a subsidiary of Tata Steel of India, one of the ten largest steel producers in the world.
Corus Group was formed through the merger of Koninklijke Hoogovens and British Steel on 6 October 1999. It was once a constituent of the FTSE 100 Index but was acquired by Tata in 2007. On 27 September 2010 Corus announced it was changing its name to Tata Steel Europe and adopting the Tata corporate identity.
SWOT Analysis of Corus:
The change in management structure due to the privatization of the British Steel company in 1999 (which created Corus as a result of the merger of British Steel and Hoogovens) led to strengthening the manufacturing company, which, prior to the merger, had suffered serious cumulative losses between 1975 and 1984. A combination of increased investment, reduced overheads, devolved decision-making and revolutionized working practices has become the foundation of making Corus into one of Europe’s largest manufacturing companies as of date. The company, spearheaded by Brian Moffat since 1993, used a range of different approaches to global development such as joint ventures (Western Europe and USA), overseas transplants (USA, Eastern Europe and possibly Asia and South America); and continued exports of high-added value products in order to further strengthen their international presence in the manufacturing business.
In the crisis-filled years that Corus suffered, critics have commented that the company has a lack of long-term vision, evidenced by their concentration on small steel ventures in the US, when all the other competitors have been making giant alliance moves in order to give them stronger market positions in developing markets. It has not used its financial strength to spread its operations globally, in this day and time when going global is a key factor to success. Poor management prior to Moffat’s administration has also caused the firm a not-so- good image with employees, as in 2000, they were forced to reduce their workforce due to radical restructuring of its bulk steel operations.
With the observed inability of Corus to spread operations globally, the opportunity therefore is to take advantage of the increasingly boundless global market in order to not only increase profits for the company, but also to gain market leadership, because it is believed that the manufacturing company has got what it takes to take on a worldwide scale. They also have the opportunity to further increase their production capacities through adoption of systems which technology nowadays offers, and also to prepare for the increased demand for their products once they decided to conquer the wider international markets. The steel prices that are likely to continue to rise in the future – partly as a result of the dynamic Chinese economy’s effect on world prices – should present an opportunity for Corus to utilize to the fullest so that they could realize their true company potentials. With Philippe Varin now in the helm after Moffat announced his resignation in 2003, opportunity offered by a new organizational structure is also evident.
The strengthening of the pound against European currencies in the second half of the 1990s created a threat for the company, since by that time much of their sales were still in Europe. It is therefore a threat to the firm at this time, when the tug against who is the stronger currency still exists in the market. There is also the threat, not only for the Corus group, but for the whole steel industry as well, of the European rules with respect to opening the market of power generation, which would mean creating an unfair distortion of competition for the industry concerned.
REASONS FOR MERGERS OF THE COMPANIES
- Corus was 1.6 Billion GBP in total debt.
- Corus needed raw material at low cost to maintain competition
- Because of the insufficient supply of raw material and high purchase price of raw material though the total revenue of Corus was $ 18.06 billion, net profit was mere $ 626 million.
- Employee cost of Corus is 15% while that of Tata is 9%.
- A diversified product range will reduce the risk while higher end product will add to bottom line.
- Corus hold number of patents and has R&D facility at various places.
- Tata is known for its efficiency in handling employees and increasing the productivity from the available resources
- Tata steel will move from its 55th position to 5th position in manufacturing steel globally.
CORUS AND TATA DEAL: AN INSTANT HOW LAW CAN CONSTRICT M&A
The Corus-Tata deal continues to make news, even as both the companies continue to
consider various options to combine. For watchers of M&A (merger and acquisition), the
deal is a case study of how Indian acquirers have to consider takeover code and other laws in a different country, such as the UK. This, apart from taking care that Indian laws are complied with. While the Indian Companies Act, 1956, usually governs mergers in India, international deals involve additional compliances with rules laid down under the FEMA (Foreign Exchange Management Act, 1999) and associated law. Further, listed companies are also subject to the rules and regulations laid down by the SEBI (Securities and Exchange Board of India). “The latter two laws can complicate any cross-border M&A,” says Mr Diljeet Titus of Titus & Co, Advocates, New Delhi. “There are often occasions when an interplay between SEBI regulations and those of FEMA can make it difficult for deals to be structured. The best example is the 3(3) notice required to be given in the case of inter-sepromoter acquisition under the SEBI takeover code,” he says, referring to Regulation 3(3) SEBI (Substantial Acquisition of Shares and Takeovers) Regulations.”The 3(3) notice mandates that a notice has to be given to the stock exchange where the shares of the company are listed four days prior to any inter-se promoter transfer of shares. “However, under the FEMA a non-resident can only acquire shares of an Indian company at market price.” Mr Titus reasons that if the four-day notice is given to the stock exchanges, it encourages speculation on the company’s share price, making it difficult for the foreign acquirer to buy the shares at market price. “Because the market price may not be the true price of the shares but just a speculative price over four days.” It is possible to make M&A less painful, feels Mr Titus. “SEBI and the RBI (Reserve Bank of India) may each establish an effective legal cell, which should be able to respond to questions raised by the parties to a merger on a timely basis,” he suggests. “A comprehensive database of FAQ (frequently asked questions) from these two organisations could help. For, many of the questions that arise in current deals may arise in future deals too.”
MERGER AND AMALGAMATION:
An amalgamation is regulated by the Companies Act, 1956 (CA56), and the company (Court) Rules, 1959 (Rules). A company may merge with another body corporate, whether or not an Indian company, provided the surviving entity of the merger is a company whithin the meaning of the CA56. A scheme of amalgamation (scheme)requires approval of the High Court (Court) of the States where the registered offices of amalgamating companies are situated. The steps for amalgamation of companies under the CA56 and the Rules are as follows:
(1)Apply to the Court by the company or any creditor or member of the company for
directions to convene a meeting of the members and/or of creditors of the company,
for purposes of considering and approving the Scheme. Notice of the application must
also be given to the Regional Director, Company Law Board, whose representation is
considered by the Court before passing final orders.
Pursuant to the Court’s directions the amalgamating companies would need to give 21
days notice of the meetings by advertisement in newspapers and then hold meetings
fo their respective members and/or creditors, according to the dates times, venues and
quorum fixed for the meetings by the Court. After approval of the Scheme by the
(1) the Chairman of each ,meeting files his meetings report with the
(2)Within seven days of submission of the chairman’s report to the Court, a final petition
is filed with the Court conforming the Scheme with a request for appropriate orders
and directions by the Court. The Court fixes a date for hearing the petition and the
notice of the hearing must be advertised in the newspapers at least 10 days before the
date fixed for the hearing.
(3) While considering the Scheme, the Court considers whether the applicant has
disclosed to the Court by affidavit all material facts relating to the company, such as
the latest financial position of the company, any investigation proceedings pending by
the Company Law Board and that the Scheme does not violate any provisions of law
is not contrary to public policy but is fair, just and reasonable.
If the Court receives no adverse representation from the Regional Director, the Court may sanction the Scheme with appropriate orders and directions necessary for its proper working, including transfer of properties or liabilities, dissolution of the transfer company without the procedure of winding up, allotting of shares, debentures or other like interests, etc. Thereafter, the amalgamating companies are required to file the order(s) of the Court sanctioning the Scheme with their respective Registrars of Companies and, upon such filing the order of the Court becomes effective and legally binding. This Court process takes 3 – 6months.
Tax Consideration: The Court order, being in effect a conveyance, is an instrument liable to stamp duty that varries from state to state. However, if
- at least 90% of the issued share capital of the transferee company is in the beneficial ownership of the transferor company, or
- transfer is between parent company and a subsidiary company, one of which is the beneficial owner of not less 90% of the issued share capital of the other, or
- transfer is between two subsidiaries where not less than 90% of the issued share capital of each is in the beneficial ownership of a common company of the other, then no stamp duty is payable, provided an exemption certificate is obtained from the officer appointed bye the State Government on their behalf.
The transferee company may carry forward losses incurred before the amalgation.
However, to do this at least 51% of the shareholders of the transferee company prior to the amalgamation should beneficially hold at least 51% of the votes on 31st March of each of the future fiscal years in which the past losses are to be carried forward.
If the transferor company is carrying forward losses, then the following conditions must be met to enable the transferee company to carry forward losses of the transferor company post-merger
1. The transferee company holds continuously for a minimum period of five years from
the date of amalgamation at least 75% of the book value of fixed assets of the
transfer or company acquired in the Scheme;
2. The Transferee Company continuous the business of the transferor company for a period of fiv e years from the date of amalgamation;
3.The transferee company, owing an industrial undertaking of the transferor company
by way of amalgamation, achieves the level of production of at least 50% of the
installed capacity of this undertaking before the end of four years from the date of
amalgamation and continoues to maintain this minimum level of production till the
end of five years from the date of amalgamation.
However, the Central Board of Direct Taxes, on an application made by the transferee
company, can in suitable cases relax the condition of achieving the level of production or the period during which it is to be achieved or both. The precondition for this is that genuine efforts are made by the transferee company to attain the prescribed level of production and there are circumstances preventing such efforts from attaining this level.
4.The transferee company furnishes to the Assessing Officer a certificate verified by an
accountant, with reference to the books of accounts and other documents showing
particulars of production, along with the return of income. These should relate to the
assessment year relevant to the previous year during which the prescribed level of productivity is achieved and to subsequent assessment years relevant to the previous years falling within five years from the date of amalgamation.
TAKEOVER BY TATA STEEL
Main article: Tata Corus acquisition
On 30 January 2007, Tata Steel, part of India’s Tata Group, purchased a 100% stake in the Corus Group at 608 pence per share in an all cash deal, cumulatively valued at USD 12.04 Billion.Tata surprised the credit default swap segment of the derivative markets by deciding to raise $6.17bn of debt for the deal through a new subsidiary of Corus called â€˜Tata Steel UK’, rather than by raising the debt itself. Tata’s security credit rating is investment grade, whereas the new subsidiary may not be. The higher risk associated with raising debt through a subsidiary with a lower credit rating prompted Fitch Ratings to downgrade its rating of the credit swap risks in the takeover to â€˜negative’. Fitch also stated that Corus’ responsibility for the debt may lead to Corus’ own unsecured debt rating being downgraded. This does not affect the rating of bonds issued by Corus which are secured debt.
On 19 November 2006, the Brazilian steel company CSN launched a counter offer for Corus at 475 pence per share, valuing it at $8.4 Billion. On 10 December 2006, Tata preemptively upped the offer to 500 pence the â€œRevised Tata Acquisitionâ€. Other than the increased offer price, the Revised Tata Acquisition was subject to the same terms and conditions as set out in the original offer.
On 11 December 2006, CSN announced a formal offer for the Company at an offer price of 515 pence per Corus Share (the â€œCSN Acquisitionâ€), valuing the deal at $ 9.6 Billion. The CSN Acquisition would also be implemented by way of a scheme of arrangement and is subject to a pre-condition that either Corus Shareholders reject the Tata Scheme or the Tata Scheme is otherwise withdrawn by Corus or lapses. The Corus board promptly recommended both the revised offers to its shareholders.
On 19 December 2006, Corus announced the following:
In the light of the competing offers for Corus by Tata Steel UK Limited (â€œTataâ€) and CSN Acquisitions Limited (â€œCSNâ€), the Company announced on 12 December 2006 that the Corus Directors intended to propose resolutions to shareholders at each of the reconvened EGM and Court Meeting to be held on 20 December 2006 to adjourn those meetings. The Company also stated that it would announce a proposed date for those adjourned meetings in due course.
Also on 19 December 2006, UK Watchdog the Panel on Takeovers and Mergers announced that the last date for each of Tata and CSN to announce revised offers for the Company, should they wish to do so, is 30 January 2007. They also warned that it would begin an auction procedure if the two remained in competition.
On 31 January 2007, following the lack of agreement on an offer, the previously mentioned auction process was triggered. Following the conclusion of the auction process at an unprecedented length of nine rounds conducted by the Panel in accordance with Rule 32.5 of the Code (the â€œAuctionâ€), Tata Steel announced the proposed acquisition of Corus Group at 608p per share, that being 5p more than CSN’s top offer of 603p. The Â£6.7 billion deal includes Â£500 million of debt. The Corus Group board recommended the acquisition to their shareholders later the same day. The deal is the largest Indian takeover of a foreign company and made Tata Steel the world’s fifth largest steel group.
Name change to Tata Steel Europe
On 27 September 2010 Corus announced that it was changing its name to Tata Steel Europe and adopting the Tata logo. The style change started with immediate effect on transactional documents but the complete branding change would take place over an unspecified period.
Since 2008, Corus and subsequently Tata Steel Europe have been structured into three divisions. These are:
- Strip Products Division
- Long Products Division – construction, industrial, engineering, rail and tubular products
- Distribution and Building Systems Division – steel products for the building industry and distribution for other products
- Tata operates four major integrated steel plants:
Port Talbot, South Wales
Scunthorpe, North Lincolnshire
IJmuiden in the Netherlands
It also has secondary rolling mills and steel product manufacturing sites situated at:
* Shotton, North Wales (which manufactures Colorcoat products)
* Trostre, Llanelli (manufactures Tinplate)
* Llanwern, Newport
* Rotherham (Aldwarke) (manufactures Engineering Steel)
* Rotherham (Brinsworth Strip Mills)
* Stocksbridge, South Yorkshire
* Motherwell, North Lanarkshire, Scotland (Dalzell Works) (manufactures Steel Plate)
* Cambuslang, South Lanarkshire, Scotland (Clydebridge Works)
* Hayange, France (Rail Mill)
* Bergen, Norway
In addition it has tube mills located at Corby, Stockton and Hartlepool in England and Oosterhout, Arnhem, Zwijndrecht and Maastricht in the Netherlands. It has service centres predominantly in Northern Europe and sales offices in around 70 countries around the world. It has a color coating line in Sakarya, Turkey. Tata is the sponsor of the Tata Steel Chess Tournament in the Netherlands and the UK triathlon team.
On 26 January 2009, Corus announced job cuts of 3500 worldwide and 2500 in the UK due the economic downturn and the reduction of steel demand. It was announced that Corus’s Rotherham plant would suffer the worst cutting over 600 jobs. On the same day it was announced that Corus would be closing down its defined benefit pension scheme to new members.
Corus’ steel products for construction include:
â€œAdvanceâ€ sections – standard structural sections such as universal beams, universal columns, piles and angle sections
â€œCelsiusâ€ sections – hot-finished hollow sections
â€œHyboxâ€ sections – cold-formed hollow sections
Slimdek – composite metal decking
Corus publish a reference guide known as the â€œBlue Bookâ€, which contains details of construction steel sections, and design information to use with Eurocode 3 and BS 5950.
Tata Steel Europe produce electrical steels via their subsidiary Cogent Power.
Tata Steel Europe also intends to produce steel roofs that generate power, using Dyesol technology.
SYNERGIES BETWEEN THE TWO COMPANIES
There were a lot of apparent synergies between Tata Steel which was a low cost steel producer in fast developing region of the world and Corus which was a high value product manufacturer in the region of the world demanding value products. Some of the prominent synergies that could arise from the deal were as follows :
Tata was one of the lowest cost steel producers in the world and had self sufficiency in raw material. Corus was fighting to keep its productions costs under control and was on the look out for sources of iron ore.
Tata had a strong retail and distribution network in India and SE Asia. This would give the European manufacturer a in-road into the emerging Asian markets. Tata was a major supplier to the Indian auto industry and the demand for value added steel products was growing in this market. Hence there would be a powerful combination of high quality developed and low cost high growth markets
There would be technology transfer and cross-fertilization of R&D capabilities between the two companies that specialized in different areas of the value chain
There was a strong culture fit between the two organizations both of which highly emphasized on continuous improvement and ethics. Tata steel’s Continuous Improvement Program â€˜Aspire’ with the core values: Trusteeship, integrity, respect for individual, credibility and excellence. Corus’s Continuous Improvement Program â€˜The Corus Way’ with the core values: code of ethics, integrity, creating value in steel, customer focus, selective growth and respect for our people.
Proposed funding of the deal and the deal Tata surprised the credit default swap segment of the derivative markets by deciding to raise $6.17bn of debt for the deal through a new subsidiary of Corus called â€˜Tata Steel UK’, rather than by raising the debt itself. Tata’s security credit rating is investment grade, whereas the new subsidiary may not be. The higher risk associated with raising debt through a subsidiary with a lower credit rating prompted Fitch Ratings to downgrade its rating of the credit swap risks in the takeover to â€˜negative’. Fitch also stated that Corus’ responsibility for the debt may lead to Corus’ own unsecured debt rating being downgraded. This does not affect the rating of bonds issued by Corus which are secured debt.
On January 31, 2007, following the lack of agreement on an offer, an auction process was triggered. Following the conclusion of the auction process (at an unprecedented length of nine rounds) conducted by the Panel in accordance with Rule 32.5 of the Code (the â€œAuctionâ€), Tata Steel announced the proposed acquisition of Corus Group at 608p per share, that being 5p more than CSN’s top offer of 603p. The final valuation of Corus was thus put at $12.04 Billion.
TIME TABLE HOW THE DEAL WAS DONE
On October 20, 2006, Tata Steel announced that it had agreed to pick up a 100% stake in the Anglo-Dutch steel maker Corus at 455 pence per share in an all cash deal, cumulatively valued at GBP 4.3 billion (USD 8.04 billion).
On November 19, 2006, the Brazilian steel company CSN launched a counter offer for Corus at 475 pence per share, valuing it at $8.4 billion.
On December 11, 2006, Tata preemptively upped the offer to 500 pence, which was within hours trumped by CSN’s offer of 515 pence per share, valuing the deal at $ 9.6 Billion. The Corus board promptly recommended both the revised offers to its shareholders.
On December 11, 2006, CSN announced a formal offer for the Company at an offer price of 515 pence per Corus Share, valuing the deal at $ 9.6 Billion.. The CSN Acquisition would also be implemented by way of a scheme of arrangement and is subject to a pre-condition that either Corus Shareholders reject the Tata Scheme or the Tata Scheme is otherwise withdrawn by Corus or lapses. The Corus board promptly recommended both the revised offers to its shareholders.
Also on December 19, 2006, UK Watchdog the Panel on Takeovers and Mergers announced that the last date for each of Tata and CSN to announce revised offers for the Company, should they wish to do so, is 30 January 2007. They also warned that it would begin an auction procedure if the two remained in competition.
On January 31, 2007 Tata Steel won their bid for Corus after offering 608 pence per share, valuing Corus at $11.3bn.
POST ACQUISITION TATA STEEL
Tata Steel has formed a seven-member integration committee to spearhead its union with Corus group. While Ratan Tata, chairman of the Tata group, heads the committee, three of the members are from Tata Steel and the other three are from Corus group. Members of the integration committee from Tata Steel include managing director B Muthuraman, deputy managing director (steel) T Mukherjee, and chief financial officer Kaushik Chatterjee. The Corus group is represented in the committee by CEO Phillipe Varin, executive director (finance) David Lloyd, and division director (strip products) Rauke Henstra.
The acquisition by Tata amounted to a total of 608 pence per ordinary share or â‚¤6.2 billion (US $12 billion) which was paid in cash. First of all, the general assumption is that the acquisition was not cheap for Tata. The price that they paid represents a very high 49% premium over the closing mid market share price of Corus on 4 October, 2006 and a premium of over 68% over the average closing market share price over the twelve month period. Moreover, since the deal was paid for in cash automatically makes it more expensive, implying a cash outflow from Tata Steel in the amount of Â£1.84 billion.
Tata has reportedly financed only $4 billion of the Corus purchase from internal company resources, meaning that more than two-thirds of the deal has had to be financed through loans from major banks. The day after the acquisition was officially announced, Tata Steel’s share fell by 10.7 percent on the Bombay stock market. Despite its four times smaller size and smaller capacity, Tata Steel’s operating profit for 2006, earning $840 million on sales of 5.3 million tones, were very close in amount to those generated by Corus ($860 million in profits on sales of 18.6 million tons).
8Tata’s new debt amounting to $8 billion due to the acquisition, financed with Corus’ cash flows, is expected to generate up to $640 million in annual interest charges (8% annual interest cost). This amount combined with Corus’ existing interest debt charges of $400 million on an annual basis implies that the combined entity’s interest obligation will amount to approximately $725 million after the acquisition.
The debate whether Tata Steel has overpaid for acquiring Corus is most likely to be certain, since just based on the numbers alone it turns out that at the end of the bidding conflict with CSN Tata ended up paying approximately 68% above the average price of Corus’shares. Another pressing issue resulting for this deal that has created a dilemma between experts and analysts opinions is whether this acquisition for the right move for Tata Steel in the first place. The fact that Tata has managed to acquire a British steel maker that has been a symbol of Britain’s industrial power and at the same time its dominion over India has been perceived as quite ironic. Only time will show whether Tata will be able to truly benefit from the many expected synergies for the deal and not make the typical mistakes made in many large M&A deal during this beginning period.
â€œI believe this will be the first step in showing that Indian industry can in fact step outside the shores of India in an international marketplace and acquit itself as a global player.â€
BENEFITS FROM MERGER:
To Tata Steel:
- Tata Steel will leapfrog from the fifty-sixth largest steel producer in the world to the fifth position.
- The company will have better geographical mix. Tata steel will have access to 40 countries across the globe, transforming it into a major global player from a domestic player.
- It will also achieve access to high-developed markets and premium customer base.
- There will be a transfer, from Europe to India, of technology, and expertise, research and development capabilities in the automotive, packaging and construction sectors, increased procurement knowledge and in effect, a better bargaining power.
To Corus, the primary benefit:
Corus does not have any significant mining interest or asset since the second half of 2002, when it sold off its minority holding in Avesta Polarit to Outokumpu. On the other hand, the link-up with a low-cost producer with access to raw materials will enable Corus to compete on a global scale.
DID TATA OVERBID FOR CORUS:
Many financial analysts felt that Tata Steel overpaid for the Corus acquisition. Immediately after the acquisition announcement, Tata Steel’s share price fell by 10.7 percent to Rs. 463.95 on the Bombay Stock Exchange. According to Martin Stanley, London based head of spread betting at the brokerage firm of GFT Global Markets, â€œThe consensus view seems to be that Tata have probably overpaid, but if further consolidation in this sector occurs going forward then this will look like very fair valueâ€ (International Herald Tribune, 1/30/07). Additional concerns were raised about the debt liability of Tata Steel which borrowed more money to fund the acquisition. According to Standard & Poor’s analyst Anushkant Taneja, â€œThe size of the Tata acquisition and the potential cash outflow in Tata Steel’s offer for Corus could have an adverse impact on its financial risk profile.â€ Standard & Poor’s rating service in India, Crisil, placed Tata Steel on the â€œnegative implicationsâ€ watch list after its Corus acquisition. The contention was that Tata Steel had overstretched itself due to execution risk and lack of experience by Indian companies in acquiring international businesses (Range, 2007, April 26).Moody’s Investor Services downgraded Tata Steel’s rating from Baa2 (investment grade)to Ba1 (speculative grade). The primary reason cited was Tata Steel’s weakened balance sheet liquidity and financial profile resulting from its largely debt-funded acquisition of Corus. Moody’s Senior V.P. Alan Greene stated Tata Steel’s current high leverage constrains its financial strength and flexibility and â€œthe main challenge facing management is to de-risk the large capital structure while not neglecting existing operations and opportunities for rapid grow thin Asia.â€ He further stated that â€œTata Steel’s ambitious capacity expansion plan will lead to higher project execution risk over several years and materially elevate financial leverage unless it is deferred.â€ (Business line, 2007, July 7).According to Sreesankar, head of research at Il&Fs investments in Mumbai, â€œThey (Tata Steel) wanted the company and they have got it. But we have to see how the finding happens and how the integration progresses. One distinction is that EBITDA (earning before income taxes and depreciation allowance) margins for Tatas are about 40 percent and for Corus is about 7percent.â€ Clearly, the financial industry analysts were skeptical about the long-term financial viability of this acquisition. According to Shriram Iyer, head of research at Edelweiss in Mumbai, â€œâ€¦the time horizons of investors and of the company may not be alignedâ€ (Leahy,2007, 16).
This proposed acquisition represents a defining moment for Tata Steel and is entirely consistent with our strategy of growth through international expansion. This creates a well balanced company, strategically well placed to compete in an increasingly competitive global environment. Ratan Tata quoted in Financial Express; 2007, February 13,the Tata Steel board of directors approved the project to acquire Corus, as it was consistent with stated objectives of growth and globalization. Although Tata Steel ended up paying more for Corus than its original bid, its management felt that there were many favorable strategic and financial outcomes to be realized. To begin with, this acquisition would position the combined group as the fifth largest steel company in the world by production output. The new entity would have a meaningful market presence in both Europe (where Corus was a well established brand name) and Asia (where Tata was a well established brand name).Combining the low cost upstream production in India with the high-end downstream processing facilities of Corus in Europe was intended to create synergies that would significantly improve the competitiveness of European operations. Tata Steel will retain access to low cost raw materials, gain exposure to high growth emerging markets, while gaining price stability in developed markets. There was tremendous potential to create cross-fertilization of research and development capabilities in the automotive, packaging and construction sectors with transfer of technology, best practices and managerial from Europe to India. (www.tatasteel.com), 2006,October 20.Tata Steel formed teams to work on synergies in areas of manufacturing, procurement, logistics, marketing, iron and steel making. There were 15-18 teams consisting of 3-4 members from both companies. Each team worked on realizing various potential synergies by sharing know-how, adopting best practices, and information to develop efficient practices aiding in cost reduction. B. Muthuraman, Managing Director of Tata Steel expected the synergies to be achieved within three years and to have a higher valuation than $350 million per year indicated at the time of the deal. Muthuraman further noted that the acquisition price for Corus placed production costs at $710 per ton, far less than $1,200 to $1,300 per ton that would have been the price for a greenfield plant with a production capacity for 19 million tons (Bremner andLakshman, 2007).During 2007, benefits of the merger for Tata were realized in manufacturing, whereas benefits for Corus were gained through reductions in taxes and shared services. In 2008, Tata made the Fortune 500 list on the basis of its revenues. In large part, this was due to the acquisition of Corus. From the very inception of the merger project, Tata Steel officials had maintained that funding the acquisition would be supported by Tata Sons and any subsequent borrowing would not be a balance sheet burden. The initial plan was to fund the acquisition of Corus through adebt-equity ratio of 53:47 for an amount of $4.1 billion. The remaining amount was to be acquired though a series of long-term loans which would be serviced through Corus’s cash flows. Corus’s revenues at the time of takeover were approximately $20 billion (Leahy, 2007,January 26).Tata Steel’s senior executives estimated that cost cutting measures alone could make the acquisition a successful one. The potential existed for production and distribution costs to be spread across Europe, India and other Asian markets. Tata Steel’s EBIDTA (earnings before interest, tax, depreciation and amortization) margin of 30 percent was significantly higher compared to Corus’ EBITDA of 10 percent. The new entity was estimated to have a combined EBIDTA margin of 14 percent (taking into account that Corus’s revenues were five times more that of Tata Steel). The EBITDA was expected to increase to 25 percent by 2012.Shortly after Tata Steel successfully outbid CSN for Corus, Tata finance director Ishaat Hussain noted that the Corus deal was a â€œmust-doâ€. â€œConsolidation [in the steel industry] will take place going forward. It [Corus] was perhaps the only significant player which we could see as a possible acquisition in this consolidating phase. That’s why Corus was so important to Tata Steel.â€ (Lea, 2007, January 31)
POST ACQUISITION TATA STEEL:
Tata Steel has formed a seven-member integration committee to spearhead its union with Corus group. While Ratan Tata, chairman of the Tata group, heads the committee, three of the members are from Tata Steel and the other three are from Corus group. The acquisition by Tata amounted to a total of 608 pence per ordinary share or â‚¤6.2 billion (US $12 billion) which was paid in cash. First of all, the general assumption is that the acquisition was not cheap for Tata. The price that they paid represents a very high 49% premium over the closing mid market share price of Corus on 4 October, 2006 and a premium of over 68% over the average closing market share price over the twelve month period. Moreover, since the deal was paid for in cash automatically makes it more expensive, implying a cash outflow from Tata Steel in the amount of Â£1.84 billion. 22
Tata has reportedly financed only $4 billion of the Corus purchase from internal company resources, meaning that more than two-thirds of the deal has had to be financed through loans from major banks. The day after the acquisition was officially announced, Tata Steel’s share fell by 10.7 percent on the Bombay stock market. Despite its four times smaller size and smaller capacity, Tata Steel’s operating profit for 2006, earning $840 million on sales of 5.3 million tones, were very close in amount to those generated by Corus ($860 million in profits on sales of 18.6 million tons). Tata’s new debt amounting to $8 billion due to the acquisition, financed with Corus’ cash flows, is expected to generate up to $640 million in annual interest charges (8% annual interest cost). This amount combined with Corus’ existing interest debt charges of $400 million on an annual basis implies that the combined entity’s interest obligation will amount to approximately $725 million after the acquisition. The debate whether Tata Steel has overpaid for acquiring Corus is most likely to be certain, since just based on the numbers alone it turns out that at the end of the bidding conflict with CSN Tata ended up paying approximately 68% above the average price of Corus ‘shares. Another pressing issue resulting for this deal that has created a dilemma between experts and analysts opinions is whether this acquisition for the right move for Tata Steel in the first place. The fact that Tata has managed to acquire a British steel maker that has been a symbol of Britain’s industrial power and at the same time its dominion over India has been perceived as quite ironic. Only time will show whether Tata will be able to truly benefit from the many expected synergies for the deal and not make the typical mistakes made in many large M&A deal during this beginning period.
IMPACT OF CORUS ACQUISITION ON INDIAN CORPORATE MORALE:
There was tremendous outpouring of nationalistic euphoria and economic patriotism inthe Indian press after this deal. During the early weeks of 2007, The Times of India the best-selling English daily newspaper, was reportedly â€œinviting its readers to discuss the new â€˜India poised for global supremacy’ Johnson, 2007, February 3). The Tata deal has fed an unmistakable undertone of triumph as the country’s status as the world’s second fastest growing economy.â€The Economic Times, India’s best selling business newspaper reported â€œFor India, this deal is not about size it’s the first step towards what we call the Global Indian Takeover.â€ (Johnson, 2007, February 3).According to Ratan Tata, who spoke at the time of the acquisition, â€œIt’s a tremendous strategic acquisition. I believe this will the first step in showing that Indian industry can in fact step outside the shores of India in an international marketplace and acquit itself as a global playerâ€ (International Herald Tribune, 2007, January 30). Kamal Nath (Johnson, 2007 January15, 4), the Indian Minister for Commerce and Industry felt that the â€œglobal perception of India is changingâ€¦it’s a two-way street nowâ€¦.not only is India seeking foreign investment, but Indian companies are emerging investors in other countries.â€ The Confederation of Indian Industry, India’s largest business association described the acquisition as â€œpath breakingâ€ which would enable emerging Indian firms to gain greater respect from the global business community. For the first time in 2006, overseas acquisitions by Indian firms exceeded the value of foreign companies buying in India. During the first six months of 2006, Indian companies had completed approximately 78 cross-border acquisitions worth $5.2 billion. For the year ending2006, outbound deals by Indian companies totaled $22.4 billion compared with $11.3 billion in purchases from abroad. (Harris 2007, March 9). Indian business executives attribute this new confidence in part to a decade of restructuring that started in 1991 when newly drafted laws a allowed greater foreign competition. Others point to the successes of Indian based firms such as Infosys Technologies, Wipro and TCS who have proven to be world class competitors from a cost/quality perspective. In the wake of Tata Steel’s acquisition of Corus, the chief executive of ICICI, India’s second largest bank, proposed that Indian firms now â€œhave the confidence to go out and buyâ€ buoyed by substantial corporate profits which have provided large cash surpluses over the last 18quarters. He believed that the Tata-Corus deal would most likely lead to a string of takeovers in the UK by Indian companies (Knight Ridder, 2007, April 27). An article published in the Wall Street Journal predicted a global shopping spree by Indian companies due to easier access to funds, an annual growth rate of over 8%, and a strong desire to engage in worldwide competition (Range, 2007). In the first two months of 2007, Indian companies seeking new technology, better overseas market access, and greater production capacity arranged or closed on foreign purchase deals worth $21 billion. Mr. P. K. Vijayaraghavan, Associate Director, PricewaterhouseCoopers Private Ltd. spoke on the importance of corporate restructuring for India and noted that Tata Steel’s acquisition of Corus was an outstanding example of Indian corporate thinking. (Business line, 2007, March 8). The easy availability of global funds drove many Indian companies toward acquisitions following the Tata Steel acquisition of Corus which spurred transactions from rivals such as Essar group taking over two steel companies in North America. India’s largest bank, State Bank of India which is government-controlled, and ICICI, India’s largest private bank responded to the surge in deal-making and investment by raising capital. â€œThe banking sector is facing a growing need for capital because of the expected rise in capital expenditure by the corporate sector over the next few years to meet funding requirements.â€ (Leahy, 2007, July 7)A proposed amendment to Competition (Amendment) Bill of 2006 and the Competition Act (2002) required companies undertaking mergers or acquisitions in India or overseas to compulsorily report the proposal to the Competition Commission of India before making such a deal. The proposal wou