Tata Corus acquisition
Encyclopedia
On 20 October 2006 the board of directors of Anglo-Dutch steelmaker Corus
accepted a $7.6 billion takeover bid from Tata Steel
, the Indian steel company. The following months saw a lot of negotiations from both sides of the deal. Tata Steel's bid to acquire Corus Group was challenged by CSN
, the Brazilian steel maker. Finally, on January 30, 2007, Tata Steel 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. The deal is the largest Indian takeover of a foreign company and made Tata Steel the world's fifth-largest steel group.
', formerly known as TISCO (Tata Iron and Steel Company Limited
), was the world's 56th largest and India's 2nd largest steel company with an annual crude steel capacity of 3.8 million tonnes. It is based in Jamshedpur, Jharkhand
, India
. It is part of the Tata Group
of companies. Post Corus merger, Tata Steel is India's second-largest and second-most profitable company in private sector with consolidated revenues of Rs 1,32,110 crore
and net profit of over Rs 12,350 crore during the year ended March 31, 2008.. The company was also recognized as the world's best steel producer by World Steel Dynamics in 2005. The company is listed on BSE
and NSE
; and employs about 82,700 people (as of 2007).
Corus
was formed from the merger of Koninklijke Hoogovens N.V. with British Steel Plc on 6 October 1999. It has major integrated steel plants at Port Talbot
, South Wales
; Scunthorpe
, North Lincolnshire
; Teesside
, Cleveland
(all in the United Kingdom
) and IJmuiden in the Netherlands
. It also has rolling mills situated at Shotton
, North Wales
(which manufactures Colorcoat
products), Trostre in Llanelli, Llanwern
in Newport
, South Wales, Rotherham
and Stocksbridge
, South Yorkshire
, England, Motherwell, North Lanarkshire, Scotland
, Hayange
, France
, and 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
. Group turnover for the year to 31 December 2005 was £10.142 billion. Profits were £580 million before tax and £451 million after tax.
(CSN)challenged Tata Steel's proposal for acquisition. They countered Tata Steel's offer of 455 pence per share by offering 475 pence per share of Corus.
segment of the derivative markets by deciding to raise $6.17bn of debt for the deal through a new subsidiary of Corus called '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 '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.
Corus Group
Tata Steel Europe is a multinational 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...
accepted a $7.6 billion takeover bid from Tata Steel
Tata Steel
Tata Steel is a multinational steel company headquartered in Jamshedpur, India and part of Tata Group. It is the world's seventh-largest steel company, with an annual crude steel capacity of 31 million tonnes, and the largest private-sector steel company in India measured by domestic production...
, the Indian steel company. The following months saw a lot of negotiations from both sides of the deal. Tata Steel's bid to acquire Corus Group was challenged by CSN
Companhia Siderúrgica Nacional
Companhia Siderúrgica Nacional is the second major steel-maker company in Brazil. Its main plant is located in the city of Volta Redonda, in the state of Rio de Janeiro...
, the Brazilian steel maker. Finally, on January 30, 2007, Tata Steel 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. The deal is the largest Indian takeover of a foreign company and made Tata Steel the world's fifth-largest steel group.
The involved companies
'Tata SteelTata Steel
Tata Steel is a multinational steel company headquartered in Jamshedpur, India and part of Tata Group. It is the world's seventh-largest steel company, with an annual crude steel capacity of 31 million tonnes, and the largest private-sector steel company in India measured by domestic production...
', formerly known as TISCO (Tata Iron and Steel Company Limited
Limited company
A limited company is a company in which the liability of the members or subscribers of the company is limited to what they have invested or guaranteed to the company. Limited companies may be limited by shares or by guarantee. And the former of these, a limited company limited by shares, may be...
), was the world's 56th largest and India's 2nd largest steel company with an annual crude steel capacity of 3.8 million tonnes. It is based in Jamshedpur, Jharkhand
Jharkhand
Jharkhand is a state in eastern India. It was carved out of the southern part of Bihar on 15 November 2000. Jharkhand shares its border with the states of Bihar to the north, Uttar Pradesh and Chhattisgarh to the west, Orissa to the south, and West Bengal to the east...
, India
India
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...
. It is part of the Tata Group
Tata Group
Tata Group is an Indian multinational conglomerate company headquartered in Mumbai, Maharashtra, India. Tata Group is one of the largest companies in India by market capitalization and revenue. It has interests in communications and information technology, engineering, materials, services, energy,...
of companies. Post Corus merger, Tata Steel is India's second-largest and second-most profitable company in private sector with consolidated revenues of Rs 1,32,110 crore
Crore
A crore is a unit in the Indian number system equal to ten million , or 100 lakhs. It is widely used in India, Bangladesh, Nepal, and Pakistan....
and net profit of over Rs 12,350 crore during the year ended March 31, 2008.. The company was also recognized as the world's best steel producer by World Steel Dynamics in 2005. The company is listed on BSE
Bombay Stock Exchange
The Bombay Stock Exchange is a stock exchange located on Dalal Street, Mumbai and is the oldest stock exchange in Asia. The equity market capitalization of the companies listed on the BSE was 1.63 trillion as of December 2010, making it the 4th largest stock exchange in Asia and the 8th largest...
and NSE
National Stock Exchange of India
The National Stock Exchange is a stock exchange located at Mumbai, Maharashtra, India. It is the 9th largest stock exchange in the world by market capitalization and largest in India by daily turnover and number of trades, for both equities and derivative trading. NSE has a market capitalization...
; and employs about 82,700 people (as of 2007).
Corus
Corus Group
Tata Steel Europe is a multinational 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...
was formed from the merger of Koninklijke Hoogovens N.V. with British Steel Plc on 6 October 1999. It has major integrated steel plants at Port Talbot
Port Talbot
Port Talbot is a town in Neath Port Talbot, Wales. It had a population of 35,633 in 2001.-History:Port Talbot grew out of the original small port and market town of Aberafan , which belonged to the medieval Lords of Afan. The area of the parish of Margam lying on the west bank of the lower Afan...
, South Wales
Wales
Wales is a country that is part of the United Kingdom and the island of Great Britain, bordered by England to its east and the Atlantic Ocean and Irish Sea to its west. It has a population of three million, and a total area of 20,779 km²...
; Scunthorpe
Scunthorpe
Scunthorpe is a town within North Lincolnshire, England. It is the administrative centre of the North Lincolnshire unitary authority, and had an estimated total resident population of 72,514 in 2010. A predominantly industrial town, Scunthorpe, the United Kingdom's largest steel processing centre,...
, North Lincolnshire
North Lincolnshire
North Lincolnshire is a unitary authority area in the region of Yorkshire and the Humber in England. For ceremonial purposes it is part of Lincolnshire....
; Teesside
Teesside
Teesside is the name given to the conurbation in the north east of England made up of the towns of Middlesbrough, Stockton-on-Tees, Redcar, Billingham and surrounding settlements near the River Tees. It was also the name of a local government district between 1968 and 1974—the County Borough of...
, Cleveland
Cleveland, England
Cleveland is an area in the north east of England. Its name means literally "cliff-land", referring to its hilly southern areas, which rise to nearly...
(all in the United Kingdom
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
) and IJmuiden in the Netherlands
Netherlands
The Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...
. It also has rolling mills situated at Shotton
Shotton
-Places:England* Shotton, Northumberland, a village in the County of Northumberland* Shotton, Peterlee, a village in County Durham* Shotton, Sedgefield, a village in County Durham* Shotton Colliery, a village in County DurhamWales...
, North Wales
North Wales
North Wales is the northernmost unofficial region of Wales. It is bordered to the south by the counties of Ceredigion and Powys in Mid Wales and to the east by the counties of Shropshire in the West Midlands and Cheshire in North West England...
(which manufactures Colorcoat
Colorcoat
Colorcoat is a brand owned by steel company Tata Steel Europe, and is the name given to its pre-finished steel products which are commonly used for the building envelope....
products), Trostre in Llanelli, Llanwern
Llanwern
Llanwern is an electoral ward and community in the urban-rural fringe of the City of Newport, South Wales. Llanwern ward is bounded by the M4 and Langstone to the north, Ringland, Liswerry and the River Usk to the west, the River Severn to the south and the city boundary to the east...
in Newport
Newport
Newport is a city and unitary authority area in Wales. Standing on the banks of the River Usk, it is located about east of Cardiff and is the largest urban area within the historic county boundaries of Monmouthshire and the preserved county of Gwent...
, South Wales, Rotherham
Rotherham
Rotherham is a town in South Yorkshire, England. It lies on the River Don, at its confluence with the River Rother, between Sheffield and Doncaster. Rotherham, at from Sheffield City Centre, is surrounded by several smaller settlements, which together form the wider Metropolitan Borough of...
and Stocksbridge
Stocksbridge
Stocksbridge is a small town and civil parish in the City of Sheffield, in South Yorkshire, England, with a population of 13,663. It lies just to the east of the Peak District....
, South Yorkshire
South Yorkshire
South Yorkshire is a metropolitan county in the Yorkshire and the Humber region of England. It has a population of 1.29 million. It consists of four metropolitan boroughs: Barnsley, Doncaster, Rotherham, and City of Sheffield...
, England, Motherwell, North Lanarkshire, Scotland
Scotland
Scotland is a country that is part of the United Kingdom. Occupying the northern third of the island of Great Britain, it shares a border with England to the south and is bounded by the North Sea to the east, the Atlantic Ocean to the north and west, and the North Channel and Irish Sea to the...
, Hayange
Hayange
Hayange is a commune in the Moselle department in Lorraine in north-eastern France.Outlying villages include Marspich and Saint-Nicolas-en-Forêt, Konacker and Ranguevaux.-Economy:...
, France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
, and Bergen
Bergen
Bergen is the second largest city in Norway with a population of as of , . Bergen is the administrative centre of Hordaland county. Greater Bergen or Bergen Metropolitan Area as defined by Statistics Norway, has a population of as of , ....
, Norway
Norway
Norway , officially the Kingdom of Norway, is a Nordic unitary constitutional monarchy whose territory comprises the western portion of the Scandinavian Peninsula, Jan Mayen, and the Arctic archipelago of Svalbard and Bouvet Island. Norway has a total area of and a population of about 4.9 million...
. In addition it has tube mills located at Corby
Corby
Corby Town is a town and borough located in the county of Northamptonshire. Corby Town is 23 miles north-east of the county town, Northampton. The borough had a population of 53,174 at the 2001 Census; the town on its own accounted for 49,222 of this figure...
, Stockton
Stockton-on-Tees
Stockton-on-Tees is a market town in north east England. It is the major settlement in the unitary authority and borough of Stockton-on-Tees. For ceremonial purposes, the borough is split between County Durham and North Yorkshire as it also incorporates a number of smaller towns including...
and Hartlepool
Hartlepool
Hartlepool is a town and port in North East England.It was founded in the 7th century AD, around the Northumbrian monastery of Hartlepool Abbey. The village grew during the Middle Ages and developed a harbour which served as the official port of the County Palatine of Durham. A railway link from...
in England and Oosterhout
Oosterhout
Oosterhout is a municipality and a city in the South of the Netherlands. At June, 2008, the city population was 54,015.-History:Oosterhout is mentioned for the first time in 1277, although archaeological excavations showed the existence of human settlements in the area in prehistoric times. The...
, Arnhem
Arnhem
Arnhem is a city and municipality, situated in the eastern part of the Netherlands. It is the capital of the province of Gelderland and located near the river Nederrijn as well as near the St. Jansbeek, which was the source of the city's development. Arnhem has 146,095 residents as one of the...
, Zwijndrecht
Zwijndrecht
Zwijndrecht may refer to:* Zwijndrecht, Belgium* Zwijndrecht, Netherlands...
and Maastricht
Maastricht
Maastricht is situated on both sides of the Meuse river in the south-eastern part of the Netherlands, on the Belgian border and near the German border...
in the Netherlands
Netherlands
The Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...
. Group turnover for the year to 31 December 2005 was £10.142 billion. Profits were £580 million before tax and £451 million after tax.
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 ‘Aspire’with the core values :Trusteeship,integrity,respect for individual, credibility and excellence. Corus's Continuous Improvement Program ‘The Corus Way’ with the core values : code of ethics, integrity, creating value in steel, customer focus, selective growth and respect for our people.
Counter bid by CSN
In November 2006,Brazilian steel marker Companhia Siderúrgica NacionalCompanhia Siderúrgica Nacional
Companhia Siderúrgica Nacional is the second major steel-maker company in Brazil. Its main plant is located in the city of Volta Redonda, in the state of Rio de Janeiro...
(CSN)challenged Tata Steel's proposal for acquisition. They countered Tata Steel's offer of 455 pence per share by offering 475 pence per share of Corus.
Proposed funding of the deal
Tata surprised the credit default swapCredit default swap
A credit default swap is similar to a traditional insurance policy, in as much as it obliges the seller of the CDS to compensate the buyer in the event of loan default...
segment of the derivative markets by deciding to raise $6.17bn of debt for the deal through a new subsidiary of Corus called '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
Fitch
- Places :* Fitch, North Carolina* Fitch's Covered Bridge, Delhi, New York* Fitch H. Beach Airport, an airport at Charlotte, Michigan, USA* Fitch Township, Ohio* Mount Fitch, in Massachusetts, on the Appalachian Trail* Fitchburg, Massachusetts...
Ratings to downgrade its rating of the credit swap risks in the takeover to '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.
The deal
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 "Auction"), 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.Timelines
- 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
Final deal structure
- $3.5–3.8bn infusion from Tata Steel ($2bn as its equity contribution, $1.5–1.8bn through a bridge loan)
- $5.6bn through a LBO ($3.05bn through senior term loan, $2.6bn through high yield loan)
New Board formulation
A new board was formulated with representation from both the companies to provide a common platform for strategy and integration.- Mr. R.N. Tata will be the Chairman of Tata Steel and Corus
- Mr. Jim Leng will be the deputy chairman of Tata Steel and Corus
- Mr. B Muthuraman, Mr. Ishaat Hussain and Mr. Arun Gandhi to join the Corus board