Merger

And
Acquistion

SMU-MBA FORTH SEMISTER

TATA &
CORUS

BY KRISHAN CHANDER
SMU-MBA FORTH SEMISTER

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WHAT IS MERGER ?
A meger is combination of two or more
companies where one corporation is
completely absorbed by another corporation.

What is Acquistion ?
Acquisition essentially means to acquire or
to takeover . Here a bigger company will
take over the shares and assets of the
smaller company.

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The Concept of merger and Acquistion in India was

not popular until the year 1988.
The Key factor contributing to fewer companies
involved in the mergers is the requlatory and
prohibited provisions of MRTP Act 1969
(Monopolies and Restrictive trade Practises Act,
1969).
The year 1988 witnessed one of the oldest
business aquistions or company mergers in
India.
As for now the scenario has completely
changed with increasing competition and
globalization of business. It is believed that at
present India has emerged as one of the top
countries entering into mergers and aquistions.

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Abstract: Merger and Acquisition have became exclusive trend in steel industry
globally since the beginning of the 21st century. Corporate integration in the corporate
world is accomplishing significance and concentration especially with an exciting
undertaking of intense globalization. This is the clear evidence from the importance and
increasing growth of deal values and resulted with more corporate integration in recent
times. These studies examine the key motive drivers and evaluate the impact of
mergers and acquisition in steel industry on event study approach. This event study
focused on Tata steel Corus Acquisition during the year 2007. The study used a
published financial statement which consists of secondary data. The financial
statements are analysed and tested by using correlation co-efficient and t- test. The
outcome of the analysis disclosed that there is a significant difference between pre
post merger and acquisition in capital base and level of returns. There is a significant
difference between pre post merger and acquisition EPS. The finding of this study
evolves those synergies, increased capitalization with the proof of changes in returns,
profitability based on the research findings. It can be summarized that the corporate
integration has increase the organizational performance also contributed to the growth
of the steel industry.
Mergers and Acquisitions, one of the modes of corporate restructuring. Mergers and
Acquisitions have attained considerable significance in
the Corporate World. Mergers and Acquisitions have played an important role in the
transformation of the Industrial sector of India and have brought about the
external growth of a number of leading companies. Nowadays Mergers and Acquisitions
are acting as a facilitating force towards the trend of Globalization of all
National and Regional Economies. Both M&A have become necessary and acceptable
in the recent times because of Liberalization, Globalization and
Modernization and has helped to create more focused, Competitive, viable larger
players in each Industry. The objective is to present a panoramic view on
Mergers and Acquisitions as a tool of Corporate Restructuring. The effect of Mergers
and Acquisitions on the Top Management, Shareholders and Employees has
been taken into consideration. This paper also includes the effectiveness of Merger and
Acquisitions through the involvement of employees in its process. For a
better insight, Acquisition of Corus by Tata Steel has been highlighted with special
reference to pre and post acquisition. The Financial status of Tata Steel and
Corus has also been stated after the deal. The paper gives a view about Mergers &
Acquisitions in general and Tata Steel and Corus deal in particular.

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INTRODUCTION
Mergers and Acquisitions as a tool of corporate restructuring have attained considerable
significance in the contemporary corporate scenario which is
broadly used for reorganizing the business entities. After the liberalization of Indian Industries in
1991, these were exposed to a plethora of challenges
from the national and international markets. The cut throat competition in the international
market compelled the Indian Industries to go for Mergers
and Acquisitions.
Mergers and Acquisitions also affect the employees of the organizations. Employee related to
restructuring involves converting the employees into knowledge &
Entrepreneurial employees.
Retrenching redundant employees and redeployment of employees from closed down divisions
to growing or new divisions. Restructuring also includes the
transformation of loyalist employees to professional employees and also old and lethargic
employees to young enterprising employees which in general brings
about overall development of employees.
Mergers and Acquisitions are the most popular means of corporate restructuring or business
combinations. One plus one makes three: this equation is the
special alchemy of a merger or an acquisition. The key principle behind buying a company is to
create shareholder value over and above that of the sum of the 2
companies. Two companies together are more valuable than two separate companies at least
that is the reason for Mergers and Acquisitions.
Jensen (1986, 1988) has argued that Mergers and Acquisitions are a consequence of a
breakdown in the internal governance structure of corporations.
Managers in large corporate houses use free cash flows generated by more productive and
profitable divisions to subsidise less viable divisions, rather than
returning the money to the shareholders and this leads to shareholders action that is
manifested by Mergers and Acquisitions. This view is supported by Kini,
Kracaw and Mian(2004) who are of the view that Mergers and Acquisitions is a last resort that is
observed when internal governance mechanisms of the firms
breakdown and the market is the only source of discipline for managers. But Shleifer and Vishny
(1900) are of the view that Mergers and Acquisitions are the
mechanisms used by efficiency seeking firms spin off unrelated lines of business and acquire
businesses that enhance efficiency Mergers and Acquisitions of
companies are implicit in free enterprise system because of their obvious advantages like
infusion of better management, consolidating capacities to economic
level by forward and backward linkages & healthy growth of capital market.

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OBJECTS OF MERGERS AND ACQUISITIONS DEALS

Focusing on core strength, operational synergy and efficient allocation of managerial
capabilities and infrastructure.
Consolidation and economy of scale by expansion and diversification to exploit extended
domestic and global markets
Focus on Research and Development to reap the fruits of innovation and new technology.
Acquiring constant supply of raw materials and access to scientific research and technological
developments.
Capital restructuring by appropriate mix of loans and equity funds to reduce the cost of
servicing and improving return on capital employed.
INDIA AS A FAVORABLE PLACE FOR MERGERS AND ACQUISITIONS
Dynamic government policy
Corporate investment in industries
Economic stability
Ready to experiment attitude of Indian industrialists

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PROCESS OF MERGERS AND ACQUISITION

The merger and acquisition process is carried out some steps which are as follows:1) Preliminary Assessment or Business Valuation - In the first step of mergers and
acquisitions process, the market value of the target company is assessed. In
this process of assessment not only the current financial performance of the company is
examined but also the estimated future market value is Considered. The
company which intends to acquire the target firm, engages itself in a thorough analysis of the
target firm's business history.
2) Phase of Proposal - After complete analysis and review of the target firm's market
performance, in the second step, the proposal for merger or acquisition is
given. Generally, this proposal is given through issuing non-binding offer document.
3) Exit Plan - When a company decides to buyout the target firm and the target firm agrees,
then the latter involves in exit planning. The target firm plans the
right time for exit. It considers all the alternatives like full sale, partial sale and others. The firm
also does the tax planning and evaluates the options of
reinvestment.
4) Structured Marketing - After finalizing the exit plan, the target firm involves in the marketing
process and tries to achieve highest selling price. In this step, the
target firm concentrates on structuring the business deal.
5) Origination of Purchase Agreement or Merger Agreement - In this step, the Purchase
agreement is made is case of an acquisition deal. In case of merger also,
The final agreement papers are generated in this stage.
6) Stage of Integration - In this stage, the two firms are integrated through merger or
acquisition. In this stage, it is ensured that the new joint company carries
same rules and regulations throughout the organization.

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EFFECTIVENESS OF MERGERS AND ACQUISITIONS THROUGH INVOLVEMENT OF

EMPLOYEES
1. Choose the right transition team: The transition team that reports to you needs to be made
up of people who have the right temperament and personality to
handle a transition. They need excellent people skills and the ability to finesse any situation to
the benefit of the company. Make sure the transition team is
appropriate for the area or department they talk to and can easily relate to people in various
employee groups. For example, you probably wouldnt want a
team of suits to talk to a group of housekeepers and maintenance people in a hospitality
merger. Choose a trusted employee from among their ranks and
youre far more likely to see good communication as a result.
2. Be in constant, honest communication with employees: All employees want accurate
information from management, and they want to know the truth, even
if its difficult. No matter what the news is, good or bad, your employees want to hear it, so
always be totally open and honest about what is to come. If your
employees feel out of the loop, theyll assume the worst, and you can expect a negative effect
on productivity. Both merging entities, the purchaser and the
seller, need to both consistently communicate with employees and ensure that whatever theyre
communicating is 100% accurate. For example, during a recent
acquisition, the president of an acquiring company met with all of the employees about two
months before the final deal was complete. The group was very
well-paid and had a very high level of benefits. The acquiring organization would not provide
that same level of benefits, he told the employees, but the loss
would be made up in their salaries. At the end of the deal, they brought everybody in at the
lower benefit level and at the same level of pay they had previously
received. Now the president and his management team are starting off with low credibility
because of his false attempt to reassure the employees. To help
ensure buy-in, schedule regular employee meetings or send out regular updates via e-mail or a
weekly newsletter. You need to be upfront about everything that
is happening from the beginning so you dont lose credibility with your employees and, in turn,
your customer base, who are in close, constant contact with your
front line employees. If you dont treat employees well in the course of a merger or acquisition,
six to twelve months down the road, you may find erosion of
your customer base. The cost in revenue loss of losing a key player with a great deal of
customer contact can be huge. It is not uncommon for revenue loss to
reach a million dollars a year in a mid-sized organization. This, of course, would have a huge
negative effect on any company and its ability to stay profitable.
3. Provide resources for those who will be displaced: Allow those employees who wont be
retained to exit gracefully. Offer career counseling, resume
services, contacts with outplacement firms, or anything else you can provide to meet individual
needs.
Of course, the most important resource you can provide is a severance package of some sort.
For lower level employees, two to four weeks pay may be
sufficient; for middle and senior management, six to twelve months pay may be appropriate to
help them make the career transition. The severance package

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should carry the employee the approximate amount of time you would anticipate it will take him
or her to find a new position. Many times those coordinating a
merger or acquisition wrongly assume that unemployment benefits will carry the departing
employee through their transition; however, rarely are those
benefits enough to sustain people at their current financial level. By taking these extra steps,
your departing employees are less likely to talk negatively about
the company to others, and the people who are remaining on staff will feel that the company
truly cares about all employeeseven those leaving.
4. Give assurance about change: Once the deal is done, retained employees will still
experience some fallout, and morale and productivity can take months or
even years to return to pre-deal levels, especially if a residual lack of trust remains after a badly
handled merger or acquisition. If theres been perceived
untruthfulness, management then has to establish a long history of standing by what they say
theyre going to do. Even if you have a smooth acquisition, youll
have to pay particular attention to assuring employees since change always brings
apprehension.
Help your remaining employees to deal with change, even if that change seems minor to you.
Maybe all that changes is who they report to, or the company
presidents name, but people fear change. Executives need to do everything they can to help
minimize the anxiety that people naturally have.
Help Your Employees Love Your New, Better Company: When you follow these four tips, the
benefits to both your employees and your company will be
tremendous. Everything about the deal will go more smoothly from the employees point of view,
and therefore youll have greater productivity, higher
employee morale, and better relationships between employees and customers. As a result,
company profits will hopefully soar, before, during, and after the
deal.

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IMPACT OF MERGERS AND ACQUISITIONS

On Top Management
Impact of mergers and acquisitions on top level management may actually involve a "clash of
the egos". There might be variations in the cultures of the two
organizations. Under the new set up the manager may be asked to implement such policies or
strategies, which may not be quite approved by him. When such a
situation arises, the main focus of the organization gets diverted and executives become busy
either settling matters among themselves or moving on. If
however, the manager is well equipped with a degree or has sufficient qualification, the
migration to another company may not be troublesome at all.
On shareholders
The Shareholders of the acquiring firm
The shareholders of the acquired company benefit the most. The reason being, it is seen in
majority of the cases that the acquiring company usually pays a little
excess than it what should. Unless a man lives in a house he has recently bought, he will not be
able to know its drawbacks. So that the shareholders forgo their
shares, the company has to offer an amount more then the actual price, which is prevailing in
the market. Buying a company at a higher price can actually prove
to be beneficial for the local economy.
The Shareholders of the target firm
They are most affected. If we measure the benefits enjoyed by the shareholders of the acquired
company in degrees, the degree to which they were benefited,
by the same degree, these shareholders are harmed. This can be attributed to debt load, which
accompanies an acquisition.
On workers and employees
Aftermath of mergers and acquisitions impact the employees or the workers the most. It is a well
known fact that whenever there is a merger or an acquisition,
there are bound to be layoffs. In the event when a new resulting company is efficient business
wise, it would require less number of people to perform the same
task. Under such circumstances, the company would attempt to downsize the labor force. If the
employees who have been laid off possess sufficient skills, they
may in fact benefit from the lay off and move on for greener pastures. But it is usually seen that
the employees those who are laid off would not have played a significant role under the new
organizational set up. This accounts for their removal from the new organization set up. These workers in turn would
look for re
employment and may have to be satisfied with a much lesser pay package than the previous one. Even though this
may not lead to drastic unemployment levels,
nevertheless, the workers will have to compromise for the same. If not drastically, the mild undulations created in
the local economy cannot be ignored fully.

TATA STEEL AND CORUS

Reasons behind Bid from Tata Steel
Tata was looking to manufacture finished products in mature markets of Europe.
A diversified product mix will reduce risks while higher end products will add to bottom line.
Corus holds a number of patents of Research and Development facilities.
Tata is known for efficient handling for labor and it aims at reducing employee cost and improve productivity.
It will move from 55th position to 5th in production of steel globally.

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Reasons for Tata steel to Bid to tap European mature market.
Cost of acquisition is lower than selling up of Greenfield plant and marketing and distribution channel.
Tata manufacturers low value, long and flat steel products while Corus produce high value stripped products.
Helped TATA to feature in top 10 players in
the world.
Technology Benefit, Economies of Scale
Corus holds number of patents and Research and Development facilities.
Reasons from TATA STEEL to Bid
To tap European mature market
Cost of acquisition is lower than the setting Greenfield plant and distribution channel
Tata manufacturers low value long and fast steel products while corus produced high value stripped products.
Helped Tata to feature in Top 10 Players in the world.
Technology benefit
Economies of Scale
Corus holds number of patents and Research and Development facilities.
Reasons from Corus to Bid
To extend its Global reach through Tata
To get access to Indian Ore reserves as well as virgin market for steel
To get access to low cost materials
Saturated market of Europe
Decline in market share and profit
Total debt of corus is 1.6 BnGbp
Corus needs supply of raw materials at lower cost
Though corus has revenues of $ 18.06 Bn its profit was just $ 626 million
Corus facilities were relatively old with high cost of production
Employee cost is 15% while that of Tata steel is 9%
Events of the Deal
The process has started on September 20, 2006 and completed on July 2, 2007. In the Process both the companies
have faced many ups and downs. The details
of this process has described below:
September 20, 2006 : Corus Steel has decided to acquire a strategic partnership with a Company that is a low
cost producer
October 5, 2006 : The Indian steel giant, Tata Steel wants to fulfill its ambition to Expand its business further.
October 6, 2006 : The initial offer from Tata Steel is considered to be too low both by Corus and analysts.
October 17, 2006 : Tata Steel has kept its offer to 455p per share.
October 18, 2006 : Tata still doesnt react to Corus and its bid price remains the same.
October 20, 2006 : Corus accepts terms of 4.3 billion takeover bid from Tata Steel.
October 23, 2006 : The Brazilian Steel Group CSN recruits a leading investment bank to offer advice on possible
counter-offer to Tata Steels bid.
October 27, 2006 : Corus is criticized by the chairman of JCB, Sir Anthony Bamford, for its decision to accept an
offer from Tata.
November 3, 2006 : The Russian steel giant Severstal announces officially that it will not make a bid for Corus.
November 18, 2006 : The battle over Corus intensifies when Brazilian group CSN approached the board of the
company with a bid of 475pper share.
November 27, 2006 : The board of Corus decides that it is in the best interest of its will shareholders to give more
time to CSN to satisfy the preconditions and
decide whether it issue forward a formal offer.
December 18, 2006 : Within hours of Tata Steel increasing its original bid for Corus to 500 pence per share,
Brazil's CSN made its formal counter bid for Corus
at 515 pence per share in cash, 3% more than Tata Steel's Offer.
January 31, 2007 : Britain's Takeover Panel announces in an e-mailed statement that after an auction Tata Steel
had agreed to offer Corus investors 608
pence per share in cash
April 2, 2007 : Tata Steel manages to win the acquisition to CSN and has the full voting support form Corus
shareholders
The Deal
The deal (between Tata & Corus) was officially announced on April 2nd, 2007 at a price Of 608 pence per ordinary
share in cash. This deal is a 100% acquisition
and the new Entity will be run by one of Tatas steel subsidiaries. The total value of this acquisition amounted to
6.2 billion (US$12 billion). Tata Steel the
winner of the auction for Corus declares a bid of 608 pence per share surpassed the final bid from Brazilian Steel
maker Companhia Siderurgica Nacional (CSN) of

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603pence per share. Prior to the beginning of the deal negotiations, both Tata Steel and Corus were interested in
entering into an M&A deal due to several
reasons. The official press release issued by both the company states that the combined entity will have a pro form
crude steel production of 27 million tones in
2007, with 84,000 employees across four continents and a joint presence in 45 countries, which makes it a serious
rival to other steel giants. The official
declaration of the completed transaction between the two companies was announced to be effective by Court of
Justice in England and Wales and consistent
with the Scheme of Arrangement of the Tata Steel Scheme on April 2, 2007. According the Scheme regulations, Tata
Steel is required to deliver a consideration
not later than 2 weeks following the official date of the completion of the transaction.

Highlights of Tata Steel Standalone

Particulars
Net Sales/Income
Purchase of Finished and
Raw Materials consumed
Payments to & provisions for Employees
Purchase of Power
Freight and Handling charges
Depreciation
Other Expenditures
Fixed Assets(Net Block)
Stock in Trade
Sundry Debtors
Cash & Bank Balances
Loans
Interest(Net)
HIGHLIGHTS OF CORUS
Particulars
Net Sales/Income
Purchase of Finished and semi
Raw Materials consumed
Payments to & provisions for Employees
Purchase of Power
Freight and Handling charges
Depreciation
Other Expenditures
Fixed Assets(Net Block)
Stock in Trade
Sundry Debtors
Cash & Bank Balances
Loans
Interest(Net)
GRAPH REPRESENTING NET SALES /INCOME
0
2000
4000
6000
8000
10000
12000
14000
16000
Tata Steel
EBRUARY)

COMPUTER APPLICATION
Refereed/Juried) Open Access International e-Journal - Included in the International Serial Directories

http://ijrcm.org.in/
Figures in crores
Tata Steel Change

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2008 2007
19,693 17,552 2141
semi-finished products 447 451 (4)
3430 3121 308
1590 1455 135
933 922 11
1098 1117 (19)
835 819 15
4006 3595 411
12624 11041 1583
2047 1828 220
544 632 (88)
465 7681 (7216)
18022 9645 8376
879 174 705
Figures in crores
Corus Change
2008 2007
100218 - 100218
semi-finished products 18411 - 18411
29317 - 29317
14513 - 14513
3448 - 3448
4269 - 4269
3059 - 3059
21978 - 21978
24966 - 24966
17447 - 17447
16951 - 16951
3174 - 3174
31836 - 3186
2760 2760

Post merger integration is the biggest challenge in any acquisition. But before we look at the
challenges, let us first look at the immediate synergies that TATA Steel aimed at before going for the
deal.

Synergies & Advantages

After the acquisition,
TATA-Corus combine became the 5th largest steel producer in the world with an output around a
quarter that of the largest, Arcelor Mittal.
Before the deal, TATA Steel was not ranked among the top 50 global steel producers in 2005/06,
producing just 5.3mn tonnes. Corus, by contrast was the 9th largest producer with an output of
18.2mn tonnes.
Economies of scale have a very significant impact on any steel firm.

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This deal came at a time when consolidation in the steel industry was a necessity with increase in
demand from China
A growing presence in Asia and the developed European economies would surely leverage the
economies of scale from Europe and harness growth from Asia

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The two corporations made a formidable presence a presence in 42 countries, a combined
capacity of 25mn tonnes and a collective sales turnover of Rs 1 lac cr (March 2008 estimates at the
time of the deal)
The deal came at a perfect time for TATA Steel after its successful acquisitions of Singapores
NatSteel in 2004 and Thailands Millennium Steel in 2005. Acquisition of Corus, a steel giant in the
Western markets, gave TATA access to the vast distribution network as well as the opportunity to
become a global player.
TATA is a low cost producer of steel and Corus is famous for its value additions and technology
especially in manufacturing of steel used in high rise buildings.
The acquisition paved the way for TATA to access the R&D facilities of Corus as well as to introduce
its low cost production techniques in the Western markets. This can be considered as one of the
most important synergies in the entire deal.
The deal helped the TATAs in getting 20mn tonnes of steel capacity at virtually half the price as such
a capacity would have required nothing less than $20bn - $25bn as per 2006/07 estimates.
The synergies were divided into 3 levels as per the then MD of TATA Steel, Mr. Muthuraman (who is
currently the Vice Chairman of TATA Steel)
At the first level, there were consolidations on the procurement and logistics fronts.

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At the second level, manufacturing processes of TATA Steel were replicated at Corus. Corus
predominantly used scrap to make steel while TATA used hot metal which was cheaper and
consumed less energy. Similar attempts were made to make the other processes more efficient at
Corus.
At the third level, which was for the long term, capacity would increase to 40mn tonnes by 2011 with
16mn tonnes coming from India by 2012.
Corus was been a bit stuck over recent years because its balance sheet had not been steady and
consistent. So with TATA buying it, the employees can hope of something better.
The consolidated company was to benefit from TATA Steels iron ore and coal reserves and the
specialized steel markets Corus enjoyed in the West. Along with Corus, TATA planned to have a 40
million ton capacity in the next 5 years.
The deal is also a big milestone for Indian companies boosting Indias image worldwide. This deal
made the world sit up and take note of the prowess of Indian firms.
Many believe that $ 12.1 billion is a huge sum paid by Tata.
At 608 pence per share, the enterprise value of Corus comes out to be $ 710 per ton.
To set up a new company like Corus from scratch, cost will go to $ 1200-1300 per ton.
In addition to this, take over will immediately add 19 million tons of capacity to TATA Steel and the
synergies would add to $ 300-350 million per annum
Thus, from the initial estimates, we can say that the $12.1bn is not so huge after all.
But all the synergies had their own set of challenges. These are given below.

Challenges
One of the main challenges was to recover the huge debt (about US$ 6bn) taken to go ahead with
the deal.
TATA formed a special purpose vehicle TATA Steel UK to take care of the merger and provided only
US$ 2bn in equity.
This recovery became a challenge as the industry was in a consolidation phase and hence the
forecasts in 2006/07 about the steel prices were not too favourable.
The debt equity ratio of TATA Steel soared to 1.6 from 0.3 after the acquisition.
Though the cash flows and steel demand forecasts were favourable at that time, global recession
which hit the world after a couple of years had a negative impact on the demand for steel which
further pushed the time to reach the expected results.

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TATA was self sufficient in raw materials for steel production. Corus was dependent on external
sources for the raw materials.
The deal brought the sufficiency from 100% to 20% for the TATA group.
This prompted the TATAs to search for cheap raw materials from various sources across the globe.
Acquiring cheap raw materials is a big challenge even now.

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Another challenge was integration on the cultural front.

The two firms differed a lot on the culture and perspectives but the top brass were confident.
With hindsight we can say that this problem was successfully solved as Corus renamed itself to
TATA Steel Europe on 27th September, 2010.
The logo was changed and the adoption process started with immediate effect. But the complete
brand change would take some more time
Even the current financial status (financial analysis is given in the following sections) states that this
cultural integration was achieved perfectly to realise the synergies.

Restructuring the organisation to achieve

synergies and overcome challenges
A proper integration mechanism was adopted in both the entities to smoothen the transaction. TATA
Steel formed a 7 member strategic & integration committee (3 from TATA Steel and 3 from Corus)
with Ratan Tata heading the committee. This committee oversaw the progressive integration of the
two companies and directed the overall strategy of the enlarged group. Several taskforce teams
were also created to ensure integration of specific set of activities for smoother transaction. A proper
structure for the Group Strategy Function was created that had three groups looking after Strategy

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Development, Strategic Modelling and Industry Group. The main responsibilities for the group
strategy function are listed below
To originate the group strategy portfolio management, market sector positioning, industrial foot
print, partnerships and alliances and translate the Group strategy into action plans.
To organize and support the strategic planning process across the group
To originate and assess corporate business development initiatives i.e. corporate
partnerships/alliances.
To monitor the steel industry which includes macro economic trends, steel market dynamics,
competitive arena, technology, standards and regulations
The three divisions were responsible for specific functions.
The strategy /business development group was responsible for developing the group strategy and
supporting corporate development initiatives
The strategic modelling group looked after developing and maintaining the central strategic models
and benchmarking analysis
The industry group took care of industry monitoring, market intelligence and issuing assumptions
required to support the strategic and forecasting processes across the group

The Financials after the deal

With the hindsight of 3 years, let us observe whether the deal really helped TATA Steel acquire the
synergies that they dreamt of at the start of the deal. Let us look at the financial data to get a clear
idea of what the deal achieved. We will concentrate on the financials from 2005 06 till 2009 10
(one year before the deal till present)
The following table summarises the salient financial points

Comparison of Financials before and after the

TATA - Corus deal (Values in Rs. Crores)
Financial Parameter
2005-06

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2006-07
2007-08
2008-09
2009-10
Net Fixed Assets
10788.1
14220.53
41963.12
45305.58
45795.83
Net Current Assets
1540.57
10920.36
28615.22
23620.22
13885.06
Other Assets
3848.91
16926.93
21583.28
22429.28
20074.46

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Net Total Assets

16177.58
42067.82
92161.62
91355.08
79755.35
Net Sales
20244.43
25213.31
131535.88
147329.26
102393.12
Other income
246.61
438.07
574.21
265.67
1185.85

Total Revenue (Sales)

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20491.04
25651.38
132110.09
147594.93
103578.97
Profit Before Taxes
5514.98
6313.02
16371.06
6743.24
31

Profit After Taxes (Net Profit)

3721.07
4165.61
12321.76
4849.24
-2120.84

Net Cash Flows

290.17
9695.06

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-12262.44
2119.24
639.61

Analysis of Financials
In the years before the deal (2005 06 and 2006 07),
The total assets were around Rs. 16000cr and Rs. 40000cr. This increase was due to the domestic
and international expansion of TATA Steel.
The profit margins which were around 18% and 16% though the revenues were modest.
And the cash flows were very positive (around Rs. 9600cr in 2006 07)
This shows us that TATA was ready for more expansions in the near future and its corporate strategy
was strongly focussed on acquiring the right targets
In 2007 08, when the deal was finalised,
There is a sudden jump in the total assets owing to the acquisition of the giant, Corus.
There is a big jump in the revenues but the margins fell down to 9.3%
The cash flows were in deep red due to the acquisition
After the deal,
Revenues stabilised and so did the total assets.
But 2008 was infamous for its global recession which had a negative impact on the steel demand
(fall in real estate and capital expansion of various industries).
All firms across the world concentrated on tiding the crisis rather than on expansion and the future
was bleak. This had a negative impact on the profit margins. Though the profits were in the green,
the margins dipped to 3% in 2008 09.
By 2009 10, production of steel too fell down slightly (please refer the appendices for the
production data) resulting in a further decrease of profits and margins.

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By the end of 2010, recession is more or less overcome and all countries are looking forward to a
positive growth.
TATA Steel being a global player after the acquisition of Corus had to face the full brunt of the
negative effects of recession. India was not very much affected but the major portion of revenues for
TATA Steel came from the western operations which resulted in a decrease of profits and margins.
With the future looking bright, we can expect the profits and margins to increase
Thus with the knowledge of hindsight, we can clearly see that the deal between TATA Steel and
Corus was indeed a very good move. Apart from gaining access to the western markets in such a
short time, TATA was also successful in integrating the two companies perfectly. With the kind of
track record as seen in the financials of the past 5 years, we can confidently say that the future is
indeed very positive for the group.

References
Dr. Narender Lal Ahuja, The Tata Corus Merger A visionary deal or a winners curse?, London
Business School, Ref: CS 10 001, 2008
What the Corus deal means to Tata, Business Week Online, 2nd Feb, 2007, page 22
Tatas global ambition, Sector Focus: Steel, Economic Intelligence Unit Ltd., 2006
David Lanchner, Tata forges a new giant, Institutional Investor International Edition, March 2007,
Vol 32, page 28
Robert Miller, Tatas steep price for Corus, Business Week Online, 12th Feb, 2007, page 28
Tata Steel after Corus Acquisition, Steelworld, February 2007, page 11 14
Speculation rife over Tata Corus restructuring, Metal Bulletin Daily, 11th Aug, 2008, page 182
Mahesh Nayak, Dancing with an Elephant, bt corporate, Business Today, March 9, 2008
Rashmi Malapur, Tatas Acquisition of Corus: A Quantum Leap a case study, ICFAI University
Press, 2007
Tarun Khanna, Tata Corus: Indias New Steel Giant, Working Knowledge, Harvard Business
School, Feb 14, 2007

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Annual Reports of TATA Steel from 2005 06 to 2009 10.
http://www.tatasteel.com/investors/performance/annual-report.asp
http://en.wikipedia.org/wiki/Tata_Corus_acquisition
http://en.wikipedia.org/wiki/Tata_Steel_Europe
http://en.wikipedia.org/wiki/Tata_Steel
http://en.wikipedia.org/wiki/Steel_producers

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