Acquisition

A corporate action in which a company buys most, if not all, of the target company's
ownership stakes in order to assume control of the target firm. Acquisitions are often
made as part of a company's growth strategy whereby it is more beneficial to take over
an existing firm's operations and niche compared to expanding on its own.
TYPES OF ACQUISITION
Friendly acquisition
Both the companies approve of the acquisition under friendly terms. There is no forceful
acquisition and the entire process is cordial.
Reverse acquisition
A private company takes over a public company.
Back flip acquisition
A very rare case of acquisition in which, the purchasing company becomes a subsidiary
of the purchased company.
Hostile acquisition
The smaller company is either driven to such a condition that it has no option but to say
yes to the acquisition to save its skin or the bigger company just buys off all its share,
their by establishing majority and hence initiating the acquisition.

THE CASE

The following case is about acquisitions and results thereafter.

In this case, we are going to analyze the situation of Tata steel of India acquiring Corus of
UK in the year 2007.
This acquisition was smooth acquisition and brought huge effects to Indian steel market.
The problem are 1. To analyze the acquisition whether it was a success or a failure
2. To recommend future plans and strategy

TATA STEEL
Established in 1907
Asia's first integrated private sector steel company
Annual crude steel capacity of over 29 million tonnes per annum
World's second-most geographically-diversified steel producer
Operations in 26 countries and a commercial presence in over 50 countries
Turnover of Rs 1, 48,614 crores in FY 14
Over 80,000 employees across five continents
Fortune 500 company
Operating companies within the Group include
o Tata Steel Limited (India)
o Tata Steel Europe Limited (formerly Corus),
o Tata Steel Singapore
o Tata Steel Thailand
Vision is to be the worlds steel industry benchmark in Value Creation
and Corporate Citizenship

CORUS
Ninth largest steel manufacturer in the world
Formed through the merger of British Steel and Koninklijke Hoogovens
(Hoogovens) on October 1999
Standalone steel manufacturing capacity was 18.3 million tonnes
More than 3 times that of Tata Steel
48,600 employees
average coke consumption was lower in Corus possibly due to use of
secondary route of manufacturing steel

HISTORY AND EVOLUTION

1907:Tata Iron & Steel Co Ltd established by Jamsetji Tata.
1911:Blast Furnace operation at Sachi begins.
1912:Jamsetji Tata's plant produces its first steel ingot.
1912:8 hour day introduced to maintain employee well-being.
1920:Leave-with-pay introduced. This practice was rare pre-1940s.
1924:TISCOclose to closure as a result of 1920s Depression.
1951:Modernisation plan launch - with Kaiser Engineering support.
1971:Government attempt to nationalizeTISCOfails.
1987:Collaboration started with Timken in bearings production.
1996:JV with Inland International - creation of Tata Ryerson.
2004:Acquisition of Singapore based NatSteel for ~$486m.
2004:Creation [withSAIL] of the mjunction online trading platform.
2005:Acquisition of 40% stake in Thailand's Millennium Steel.
2005:TISCOchanged its name to Tata Steel.
2005:MoU signed for 5mt integrated plant at Jagdishpur.
2007:Tata Steel wins bid for Corus against Brazil'sCSN.
2007:Acquisition of controlling stake in 2 Vietnamese rolling mills.

2010:Partial mothballing begins at Tata'sTCPplant at Teesside.

2011:Tata Steel's Teesside Cast Products (TCP) plant sold toSSI.
2011:Llanwern hot strip mill in the UK temporarily mothballed.
2012: Blast furnace relit at former Corus Redcar steel plant.
2012:Rebuild commences of blast furnace No 4 in Port Talbot, UK.
2012: Retirement of Ratan Tata - Cyrus Mistry is new Chairman.
2013: Tata Steel Europe reports record GBP 1.2 bn loss.
2014: Plan announced to increase capacity 60% to 16 mt by 2020.

PRODUCTS & BRANDS

Steel is an essential material used in many industries
Backbone to countless products, structures and services
Shape the everyday lives of people throughout the world

Automotive

Construction

Consumer
Goods

Body, Chassis, Powertrain,

Gear Box, Wheels & Tyres

Structural frame ,
Infrastructure, Building
envelope, internal fit out
applications , partition
walls

Domestic appliances,
Lighting, Racking and
shelving,Battery cases

Galvatite, Tata Wiron, Tata

Bearings, Tenform

Colorcoat Prisma, Tata

Tiscon, Tata Wiron, Tata
Shaktee

Enamel-coated
applications, Hot rolled
coil through

Magizinc,Tata
Steelium,Tata Wiron

Packaging

Lifting &
Excavation

Hot rolled and cold rolled

sheets

Food and beverage cans

Heavy construction and

earth moving equipment,
Mining machinery

Wire rod and wire,

Sections, Plate, Bearings &
Tubes

Paint, Aerosols,
Promotional packaging

Cranes and fork lift trucks,

Agricultural and forestry
equipment

Tata Wiron, Celsius 355,

Tata Steelium

Large and intermediary

steel drums and small
pails, Bulk Container
frame

Trailers, High strength

strip, Coil, quenched and
tempered plate

Protact

Special profiles for track shoe

and forklift masts, Engineered
steel bar and tubes

Engineering

Tenform XK, Ympress

Energy &
Power

Aerospace

Shipbuilding

Rail

Defence &
Security

Product Portfolio

TATA CORUS ACQUISITION

Tata acquired Corusn 31st January 2007
US $ 12.11 Billion
Nine rounds of bidding against Companhia Siderurgica Nacional (CSN).
Biggest overseas acquisition by an Indian company
Tata Steel Vs CSN: The Bidding War
Heavy speculation surrounding takeover of Corus ever since Ratan Tata
had met Leng in Dubai, in July 2006.
On October 17, 2006, Tata Steel made an offer of 455 pence a share in cash
valuing the acquisition deal at US$ 7.6 billion
CSN offered 475 pence per share of Corus on November 17, 2006
Competition between Tata Steel and CSN led to an auction mechanism
CSN offers its final bid of 603 pence nearing $11.82 billion which was lesser
than Tata Steels winning bid of 608 pence per share totalling $12.1 billion

 A holding company was setup by Tata in Singapore to acquire Corus.

Idea was to have all foreign acquisitions under one holding company.
Singapore has a favorable Tax jurisdiction and gave Tata Steel an easy
avenue for raising global resources and funds
Corus Group Ltd.
(UK)
Tata Steel UK
(SPV)
Tata Steel Holdings Asia
(Singapore)

Tata Steel India

FINANCIAL OUTLOOK
Equity capital from Tata Steel
Long-term debt from consortium of banks
Quasi-equity funding at Tata Steel Asia
Singapore
Long-term capital funding at Tata Steel Asia
Singapore
Total

$4.10 billion
$6.14 billion
$1.25 billion
$1.41 billion
$12.90 billion

Tata Steel provided $4.1 billion from the various sources indicated above and
invested the above quantum through its wholly owned indirect subsidiary Tata
Steel UK.
Non-recourse debt financing arranged by a consortium of banks of $6.14 billion
directly at Tata Steel UK.
Balance amount of $2.66 billion has presently been raised in the form of bridge
finance in Tata Steel Asia Singapore

NEED FOR ACQUISITION

Manufacturing: Greater productivity leading to increased output and
market size
Procurement: Economies of scale leading to cost reduction through
combined buying
Research and Development: Cross fertilization of Research and
Development capabilities and operational best practices, leading to greater
innovation and operational efficiencies
Finance and Corporate: Restructuring of organization and refinancing

TATA STEEL

BENEFITS
CORUS

Emerged as the fifth largest

steel producer in the world

Expertise in low cost

manufacturing of steel..

Access to Corus' strong

distribution network in Europe
Expertise in making the grades
of steel can boost supplies to
the Indian automobile market

Use
own
RM

Make
low cost
raw
steel

Ship to
Corus

Finish
goods
at
Corus
plants

Earn
higher
margins

Financial Details for Tata Steel

Ratios
Years

2014-2013

2013-2012

2012-2011

Current Ratio

0.57

0.86

0.93

Debt Equity Ratio

0.43

0.47

0.45

Inventory Turnover
ratio

6.94

7.27

6.98

Debt Turnover Ratio

53.21

44.91

51.10

Financial Ratio

Porters Five Forces Model

Buyers Power(low)
Increasing Demand for Steel.
Low customer preference.
Suppliers Power(high)
High Raw Material Prices.
Lack of Transportation.
Fragmented Coke Suppliers.
Competitive Rivalry(very high)
Competition from Foreign Players.
Spurt in Merger and Acquisition
Activities.
Threat of New Entrants
(moderate)
High Cost of Basic Inputs and
Services.
Industry is Capital Intensive.
Threat of Substitutes(moderate)
Use of Aluminium, Plastic, Carbon
Fibre.

Internal Analysis

Balance Scorecard

Financial

Turnover at 1,34,712 crores by 2013

EBITDA is at 12,654 crores by 2013
PAT is at -7058 crores by 2013.
India leads in geographical distribution of revenue at 29% and in
capital employed by geographies by 46% for Tata Steel.

Customer

Diversified customer base.

Automotive ,Construction , Engineering , Consumer goods industries
etc are major customers.
Increasing marketing efforts in industries like Railways , Ship
Building , Defense etc.

Internal business processes

Kar Vijay Har Shikhar ,a Continuous improvement programme, a well-defined
six step process involving TQM and statistical tools for improving quality.
Some of the key themes through which process improvements are taken up are
Throughput, Value-in-use, Energy Efficiency, Opportunistic Plays, Logistics
& Supply Chain
Adoption of National Voluntary Guidelines to enforce transparency , ethics and
care for the community.
Learning and Growth
Presence of four research centers supporting cutting edge R&D in steel.
Tata Steel Group Process Improvement Teams deployment for continuous
process improvements.
Growth of the company as a whole has been affected by weak global economy
in 2013.

Internal Factor Evaluation Matrix

Weighted
score is
2.56.Tata
Steel is
internally
somewhat
strong.

External Analysis

SITUATIONAL ANALYSIS
(PESTC)
Social Factor:

In FY15 government is targeting promotion of housing for low medium income group

Reviewing road sector by setting a target of constructing 8500 kms.

Rehabilitation of people in mining areas.

Technological Factor:
Continuous casting machines.
Application of SML(Steel Mark up language)
Popularity of Steel portals.
Economic Factor:
Increase in custom duty on coal from nil to 2.5% could create negative impact on major
steel producers like JSW , TATA STEEL and SAIL which are dependent on imports.
GDP growth rate.
Political Factor:
Mining scam e.g. Goa
Recommendations on Captive Mines.

External Factor Evaluation Matrix

Factors

Weighted
score is
2.75 Tata
Steel is
externally
somewhat
strong.

Score(S)

Weighta
ge(W)

Total
weighted
value(S*W)

Technology Risks

0.15

0.15

Raw Materials Security and

Price Volatility

0.12

0.24

Forex, Credit, Liquidity and

Counterparty Risk

0.07

0.14

Regulatory and Compliance

Risks

0.06

0.12

Health, Safety and

Environmental Risks

0.11

0.33

Macro environment

0.18

0.72

Industry Cyclicality

0.15

0.45

Growth Projects

0.12

0.36

Threats

Opportunities

Competitive Market Analysis

Major players in Steel Sector

Main Producers (SAIL plants, Tata Steel and Vizag Steel/RINL),

Major Producers (Essar Steel, Jindal Steel & Power and Ispat Industries)
Other Producers
Total production value :

Sector

Production

Public Sector

12.579 M tonnes

Private Sector

38.015 M tonnes

Total

50.594(89% cap util)

Major player in Steel Sector

NAME

MAJOR PRODUCTS

TOTAL CAPACITY
(million tonnes)

REVENU
E (Billion
US$)

Tata Steel

wire rods, bars, and steel

flats

28

6.9

Jindal Steel &

Power

mild steel slabs

and sponge iron

20

3.2

Essar Steel

sponge iron, steel and

iron ore pellets

14

5.6

Rashtriya Ispat
Nigam Ltd

liquid steel

30

1.7

Bhushan Power &

Steel Ltd

iron Ore beneficiation

12 (incl of the
expansions)

1.32

Lloyds Steel

corrugated sheets and

steel coils

Steel Authority of
India Limited

Stainless steel and iron

25

7.8

Competitive Profile Matrix

Internal External Matrix

TheINTERNAL-EXTERNAL (IE) MATRIX is used to
analyzeworking conditions and strategic position of a
business.
Its based upon internal and external factors of the
organization.
The IE matrix used to plot the organization divisions in nine
cell diagram, each cell have some meaning associated which
suggest strategies.
IE matrix is a continuation of the EFE matrix and IFE matrix.

IE MATRIX

EFE
SCORE
4.0

STRONG
I
GROW

IV
HOLD

2.75

VII
HARVEST

1.0

4.0

AVERAG
E
II
AND

VIII
OR

2.56

WEAK
III
BUILD

VI
MAINTAIN

IX
DIVEST

HIGH

MEDIU
M

LOW

1.0 IFE SCORE

ANSOFF MATRIX
ANSOFF MATRIX helps a firm decide their market growth as well
as product growth strategies.
Market Penetration- when the firm has an existing product and needs a
growth strategy for an existing market.
Market Development- when the firm targets a new market with existing.
Product development firms which have a good market share in an
existing market and therefore might need to introduce new products for
expansion. Product development mainly happens when you have a good
customer base and you know that the market for your existing product
has reached saturation.
Diversification when the product is completely new and is being
introduced in a new market.

ANSOFFs MATRIX
EXISTING PRODUCTS
MARKET PENETRATION
EXISTING
MARKETS

Tata bearings
Tata tubes
Tata wiron

MARKET DEVELOPMENT
NEW
MARKE
TS

Internationalization
Alliance
Mergers

NEW PRODUCTS
PRODUCT DEVELOPMENT
Steel coils
Corrugated steel

DIVERSIFICATION
Aerospace
Shipbuilding
Defense & security

BCG MATRIX
RELATIVE MARKET SHARE
POSITION
HIGH
LOW

HIGH
INDUSTRY
SALES
GROWTH
RATE
LOW

GE MATRIX OR MCKINSEY MATRIX

GE MATRIX OR MCKINSEY MATRIX is a strategic
tool for portfolio analysis, initially developed by GE and
McKinsey.

Compares different businesses on "Business Strength" and

"Market Attractiveness" variables.
The GE matrix has nine cells. Based on its position, a strategic
business unit can make any of the three resource allocation
recommendations:
Grow
Hold
Harvest

GE/ Mc KINSEY MATRIX

HIGH

BUSINESS UNIT STRENGTH

MEDIUM
LOW

INDUSTRY ATTRACTIVENESS

GROW

HIGH

TATA WIRON
GROW

MEDIUM

TATA
BEARINGS
HOLD

LOW

MAGIZINC

GROW

TATA TISCON
HOLD

TATA TUBES
HARVEST

PROTACT

HOLD

BI-STEEL
HARVEST

TATA
GALVANO
HARVEST

NICOR

TOWS MATRIX
STRENGTH

INTERNAL

WEAKNESS

EXTERNAL

OPPORTUNITIES

SO STRATEGY (Use strengths to take advantage of

WO STRATEGY (Overcome weakness by

opportunities)

taking advantage of opportunity)

Goodwill of TATA brand

Lack of competence

Existing dealers and service networks

Lacks expertise on the new technology

Large shareholders base for capital needs

Degradation of brand value due to job

losses(recently they fired 400 employees

Loyal employees

in UK , dated-16.07.2014)

Innovation done by Tata with respect to its s

competitors.
Excellent corporate governance
ST STRATEGY (Use strengths to avoid threats)

THREATS

WT STRATEGY (Minimize weaknesses)

Using good corporate governance Tata steel is

Usage of technology so that they

controlling the international competition as

could forecast the future demands.

they have acquired Corus.

With access to Corus talent pool they are using

advanced

technology

competitive advantage

that

will

lead

to

 Turnaround is a restructuring strategy. Here, a loss-bearing company is

transformed into a profit-earning company, by making systematic efforts.
It tries to remove all weaknesses to help a sick company once again become
strong, stable and a profit-making institution.
It tries to reverse the position from loss to profit, from declining sales to increasing
sales, from weakness to strength, and from an instability to stability.
It helps the sick company to stand once again in the market.

 Tata steel before year 2007 was low in capacity and its market presence was
limited to Asia only.
It was at 56th position in steel producers.
In order to turnaround the situation it acquired Corus of U.k.
By acquiring Corus it gained huge benefits such as
Access to Europe Market.
Helped in making global presence.
Increased capacity.
Increased Product portfolio.
Access to better technology.
Access to Corus talent pool.
Thus all these benefits coupled with Tata capability to produce low cost steel
made it to 5th largest producer of steel.
This acquisition came out to be the turnaround strategy for Tata steel

The following points can be attributed:

TATA Steel Group rose to 5th position from 56th
The production capacity increased from 4million tones to 28million tones
by 2011
Standard & Poors Rating cut it credit Rating to BB from BBB and
removed them from the negative watch list
Benefits : Strong Research & Development Unit
Several Patents to its credit
Produces high end steel
Large Customer base

Quantitative Strategic Planning Matrix

TATA STEEL GLOBALLY

TATA STEEL
INDIA

Reduced growth, reduced consumption

Long steel growth remain prospective,

Cash cows

TATA STEEL
EUROPE

Fall in demand; increase in diversified

product offering

Star question
mark

TATA STEEL
ASIA

High demand, High growth

opportunity, High y-o-y growth

Star

NAT STEEL

Automation implementation, up
Question mark
gradation of production units, increased
performance, obtained multiple projects

Iron Ore Project

Canada

Ramping up of coal production,

succesful completion of Direct shipping
Ore project

Question mark
(2013)

Brownfield expansion

Increase in capacity, more

production, more dedicated
production to flat steel

Cash Cows

Global wire business

Largest wire manufacturer,

Revenue US$ 496 M

Cash Cows

TATA growth shop

Increased savings

Agrico

Present in market for over 80

yrs, high popularity, high
product diversification

Cash Cows

Tinplate Company of
India Ltd

Largest producer, high growth

opportunities y-o-y 14%

Star cash cows

TATA Sponge Iron Ltd

Improve synergies, future

alternative

Question mark
star

GreenField expansion

Future growth opportunity for

furthur product diversification

Question Mark

Business Model Analysis

Key
Partners

Key Activities

Mining
Nat Steel Extraction
Millenniu Manufacturing
m Steel
Corus
Key Resources
Access to Raw
Material
Strategic
Alliances

Cost Structure

Value
Proposition

Customer
Relationships

Customer
Segments

Trusted
Brand

Strong Base Automotive

Value
Constructio
driven
n
Highly
Engineering
Channels
Consumer
valued by all
stakeholders
goods
Traditional
supply
channels
direct to
customers

Revenue Streams

Conclusion
Tata Corus deal was one of the largest deals that India has ever seen. The deal value
was $12.1 billion.
Tata Steel became worlds fifth largest steel producer following this deal.
The acquisition of Corus by Tata Steel has many synergistic benefits
Although Tata Steel Group has succeeded in its efforts of integrating with Corus but, it
has paid a very high price for the acquisition.
Also, the synergistic advantages that were foreseen after the deal have not been fruitful up
to expectations till date. Further, the margins that were supposed to increase have gone
down even after 4 years of the deal.
So far, Tata Steel still has to wait for few more years for the deal to be profitable if
everything goes well.

Recommendations
External factor recommendations

Updating frequently on the latest technological

advancements

Improving storage facilities

Cash management and treasury management techniques

Internal factor based decisions

Improving operational efficiency.

Merging with high technology foreign companies in similar
line of business.
Incentivizing employees for long term association with the
company.

Long Term Strategic plan

28 mtpa
Fewer Intnl
Markets

2012

60+ mtpa
Strong Intnl
presence

2020

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