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The company was established in 1907 and it is a part of the Tata Group of Companies. It is the seventh largest private sector steel company in the world. It was formerly known as Tata Iron and Steel Company Limited and its headquarters is in Mumbai with the main plant in Jamshedpur, Jharkhand. It is the second largest private company in India with revenues of Rs 132,110 crore and net profit of Rs. 12,350 crore during March 2008. The manufacturing networks of the company are in eight markets of South East Asia including Thailand and Singapore. The company produces products such as hot and cold rolled coils and sheets, tubes, rods, strips and bearings, Ferro alloys and cargo handling services.
It is ranked 258th on Fortune Global 500 and now it has crude steel capacity of 31 million tons and it has a target of achieving 100 million tons by 2015. The annual production is about 6.4 million tons. The company is one of the low cost producers in the world. It was ranked first as the lowest cost producer of steel in 2000. It was ranked as the best steel producer by the World Steel Dynamics (WSD) in 2005. The company produces steel mainly for automobile sector and construction sector. The company's history has reported excellent labor and employee practices.
The company was formed as a result of British Steel Plc merging with Koninklijke Hoogovens on 6th October 1999. British Steel formed about two third of the merged group. Corus produced steel and aluminium products and its headquarters is in London, England. The revenue of the company comes around £10,142 million in 2005 and it has network of sales offices and service centres worldwide. The manufacturing units are in UK, France, Norway, Germany, Netherlands and Belgium. It is the ninth largest producer of crude steel in 2006 and the annual production is more than 18 million tons. The company has about 50,000 employees worldwide.
The company has three divisions which include Strip products division, Long products division and Distribution and building systems division. It has a portfolio of high end steel products and it is the biggest steel producer in UK. The company has a very strong presence in European markets. The major customers of the company are the automobile and aerospace industries.
Competitor CSN: Head to head comparison
Steel Production (million tons/year)
Revenues ($ billions)
Hot rolled Cold rolled Galvanized steel, tubes, sheets and wires
Hot rolled, Cold rolled, Galvanized steel, tubes and sheets
The Tata Steel had an annual steel production of 8.7 million tons whereas CSN had an annual steel production of 5.8 million tons. Both these companies have relatively higher annual steel productions and these companies were one of the leading steel producers in the world.
These two companies had higher revenues in the steel industry. Tata Steel had $4.6 billion whereas CSN had $3.8 billion. Hence the revenues are almost equal for both these companies.
The products produced by these companies were almost similar. Tata Steel and CSN produced almost same kind of products such as Hot rolled steel, Cold rolled steel, Galvanized steel, tubes and sheets and hence there was immense competition among these two companies.
The number of manufacturing locations is different in number in case of these two companies. Tata Steel had 11 manufacturing locations whereas CSN had only 3 manufacturing locations. Tata Steel had an advantage over CSN in terms of these manufacturing locations.
The operating margin of Tata Steel was about 40% and that of CSN was about 32%. Thus these two companies had more or less similar operating margins. Thus Tata Steel and CSN are almost similar in many aspects such as revenues, kinds of products manufactured and operating margins which results in greater competition among these two companies.
Chronology of events
Oct 5, 2006 - Tata Steel decides its first offer @ 455p/share
Oct 20, 2006 - Corus accepts terms of â‚¤ 4.3 billion takeover bid from Tata Steel
Oct 23, 2006 - The Brazilian Steel Group CSN seeks advice on counter-offer
Oct 27, 2006 - Corus is criticized by chairman of JCB, for accepting an offer from Tata.
Nov 3, 2006 - The Russian giant Severstal announces officially that it won't bid for Corus
Nov 18, 2006 - CSN approaches Corus board with a bid of 475p per share
November 27, 2006 - The board of Directors of Corus decides in the best interest of its shareholders to give some more time to CSN to satisfy the pre conditions and
decide whether to issue a formal offerÂ
Dec 18, 2006 - Tata Steel increases bid to 500p/share, CSN counters at 515p/share
Jan 31, 2007 - Britain's Takeover Panel announces Tata Steel offer of 608p/share in cash
Apr 2, 2007 - Tata Steel wins the acquisition & full voting support from Corus' shareholders
A Strategy & Integration Committee was formed with Mr. Ratan Tata as Chairman. Three top executives each from Tata Steel and Corus were part of it. The main objectives of the Committee were
â€¢ Determine future strategic priorities
â€¢ Drive integration for clear business benefit
The Focus of the group was on Manufacturing, purchasing & performance. Accenture helped in Analysis of performance related issues. Joint exploration of new iron-ore sources in Africa, Aust. & Brazil were the main operational priorities. Approaching the market as one large buyer were the main objectives.
Integration: Production and Manufacturing
The main issue with cultural integration is to deal with the sensitive issue of possible job cuts in Corus's manufacturing plants.
The core values of the companies are
TATA STEEL - Continuous improvement programme- "ASPIRE"
Respect for the individual.
World class governance
Corus - Continuous improvement programme-"The Corus Way"
Code of ethics
Creating value in steel
The respect for our people
World class governance
Greenfield projects of Tata Steel in India are valued at $900 a tonne whereas Corus was valued at $700 a tonne, which justified getting a capacity of 20 million tonne. Tata Steel won the auction for Corus with a bid of 608 pence per share against the bid from Brazilian Steel maker Companhia Siderurgica Nacional (CSN) of 603 pence per share. Although it was viewed as a visionary move, Experts and analysts felt that the acquisition was expensive and could affect the company balance sheet in near future.
Picture: Top, from L to R, Messrs B. Muthuraman, Managing Director of Tata Steel, Ratan N. Tata, Chairman of Tata Sons, James Leng, Chairman of Corus, and Philippe Varin, Chief Executive of Corus.(* Source - BusinessLine , Sunday, Feb 04, 2007)
According to a Macquarie Research report Corus is valued at $480 a tonne. This is because 6.5 tonne out of 20 million steel capacity is integrated and rest consists of download activities. DSP Merrill Lynch had also valued, Corus in this range.
According to Kaushik Chatterjee, CFO, Tata Steel besides the sheer size the financing was beset by certain limitations like
Unknown nature of European market
Confidentiality restrictions as both are listed companies.
Indian companies restricted, by Indian corporate regulations, to fund 200% of its net worth.
Restrictive nature of financing
Tata Steel managing director B. Muthuraman has also admitted that the EBITDA (earnings before interest, tax, depreciation and amortization costs) of nine for this deal is pretty higher than industry average of five to six.
(Currency: Rs Millions)
Tata Steel Ltd.
(Currency: Rs Millions)
Financing the Deal
Credit Suisse helped Tata Steel raise the finance as ABN AMRO and Deutsche Bank appointed to advice on transaction and finance the deal were not able to commit the required debt. Credit Suisse was the lead financing bank along with ABN AMRO and Deutsche Bank. Tata Steel, UK, a wholly owned subsidiary, was a Special Purpose Vehicle (SPV) routing the acquisition.
The Final deal structure is given below
Around $3.88bn equity contribution from Tata Steel
$8.12bn through financing
Credit Suisse - 45%
ABN AMRO - 27.5%
Deutsche Bank- 27.5%
Corus financing structure
*Source - Annual Report, Tata Steel, 2006-07
The company plans to put US$4.1billion as equity to partly finance acquisition. It would consist of USD 700 million raised internally and USD 500 million through external commercial borrowing. Also USD 640 million from preferential shares to Tata Sons in 2006-07 and 2007-08. 1000 million USD from rights issue of convertible preference shares and another USD 500 million from foreign issue of equity related instrument.
The Tata Steel has started integration at two levels
Maximizing synergies amongst business functions
The overall philosophy of integration process has been "One Enterprise - Two Entities"
*Source - Annual Report, Tata Steel, 2007-08
The above figure shows the net turnover, operating profit and PAT before and after the acquisition.
Production and R&D
The steel industry is highly fragmented and cannot control costs of raw materials and finished products. By taking over other players and becoming bigger on global scene they can have more bargaining power over suppliers, customers and increase operational flexibility. Tata Steel is one of the lowest cost steel producers in India and Corus was struggling to keep costs under control. This will allow controlling costs and improving operations and make Corus more competitive. The low cost intermediate products from India will be processed into high quality end products at European plants improving competitiveness of Corus in European markets.
The acquisition will result in cross fertilization of R&D activities and technology transfers from Europe from to India. This will further result in domain expertise in areas of automotive, packaging and construction sector. Economies of scale would also result at raw material procurement stage.
Distribution & Management
Tata Steel has a strong retail and distribution network in India and this would allow its European counterpart to source its products to Indian markets. European plants produce value added products and with increasing automobile market in India the demand for finished products would be higher. This would be mutually beneficial for both parties.
The top management at Corus was retained and believed that both companies are culturally close and this would help integrate the processes and culture over a period of time. This would result in higher profits for the merged entity.
The companies are culturally similar as both focus on continuous improvement and ethics. Tata Steel's program "Aspire" and Corus's "The Corus Way" would create mutual respect and trust between the employees and allow the companies to come culturally closer.
Tata Steel has grown in geographical terms. They can now procure raw materials from Western nations as well as has new markets to source products. The below figures shows how they have expanded to new geographies, tapping new markets.
Geographic distribution of Revenue 2006-2007
*Source - Annual Report, Tata Steel, 2007-08
Significant amount of debt taken
Financial risks associated with high cost debt
Under watch by Credit Rating Agencies
Possible downgrading of credit rating
Exchange Rate risk
Regulatory and Compliance issues
Safety and Environment issues
Vested interests cross borders M&A
Cultural differences -Retain personnel
Expected slowdown in steel consumption growth
Increased exports from China will impact prices
Industry is still fragmented
Maintaining rich product mix and higher value added products whose volatility is lower
Conflicting management policies
Restructuring at Corus
Sensitive issue of possible job cuts in Corus's manufacturing plants
Strategy & Integration committee set up
Raw material linkage
Spare slab capacity
Large difference in operations margin
Backward integration and Joint Ventures
Growth Execution Risk
Undertaken several Greenfield projects
Balancing of various stakeholders needs
Corporate Sustainability Management System and Triple Bottom Line performance reporting
Tata effectively applied the Tobin's Q approach:
Relates the market value of a firm to the replacement value of the assets in place
Tobin's Q = Market value of assets /Replacement value of assets
If Tata Steel were to build from scratch 19 mt of steel making capacity that too of Corus's quality it was estimated that the cost would have been 70-80% more than they originally paid with 3-5 years of project horizon that would mean handling huge execution risks.
To quote Mr Ratan Tata :
"..it will take us several years to build up a 19 MT enterprise from scratch, leave alone establishing it in Europe with scratch"
"The market is taking both a short term view and a harsh view"
"..we had taken a view that we will not go beyond a point. We did not reach that point. Had we reached, we would have walked away"
Post acquisition integration
The integration Committee made 20 separate groups for identifying "Best Practices"
Focus lies on Manufacturing, Purchasing, Finances & Performance.
Hired Accenture Business Consulting to resolve performance related issues.
Jointly exploring new iron-ore sources in Africa, Australia and Brazil.
Cost savings to the tune of $70 million achieved in procurement.
Target was to achieve $450 million cost savings every year after 2010
Over the years
But the events did not take the planned course. Tata-Corus thus landed in troubles.
Tata Corus slashed 2,500 jobs in UK and further 1,000 in Netherlands following collapse from builders and carmakers. (www.bloomberg.com - 26th January 2009)
Tata Corus has closed down its Teesside Cast Product (TCP) plant after four international buyers pulled out from purchasing 80% of its production (www.moneycontrol.com - December' 2009)
Tata Steel posted worst than expected consolidate results for the financial year '09 due to weak steel prices and lower production at Corus Group (www.economictimes.com)
Mr J J Irani in a latest interview quoted "Corus timing wasn't right. It was a big inorganic step, which increased our production fourfold. But nobody knew that steel prices will collapse like this".
To end we can conclude that Tata Corus was the biggest step not just in Indian Industries history but and important step of consolidation taken for the global steel industry. Though faced with adverse market conditions the group had to take some harsh steps but, it has survived all the hardships and the future ahead looks brighter.