A case study on Tata Steel: Pre and Post Corus Acquisition, presented in ICMC, 2016, BIMTECH, an international case conference

1. Tata Steel: Pre and Post Corus
Acquisition
ICMC 2016
Authors
Shreya Mishra – Research Scholar, BIMTECH
Prof. Arunaditya Sahay – Professor and Dean (Research),
BIMTECH1

2. Synopsis
 In 2007, Tata Steel Ltd. acquired Corus Group Ltd.
 Huge debt of US$ 7.3 billion taken by Tata Steel for the acquisition
 Corus renamed as Tata Steel Europe
 Global economic crisis hit in 2008
 Steel Industry declined drastically due to the crisis
 Tata steel also was hit due to the same
 The financial performance of Tata Steel post acquisition period shows decline due
to the same
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3. Protagonist and Hook
 The protagonist in this case is Tata Steel Ltd.
 It made one of the biggest acquisitions in the history of
acquisitions by any Indian corporate, soon after which the
global economic crisis took place, which affected the steel
industry drastically hence the post acquisition period for Tata
Steel was a troublesome one.
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4. Objective
As the surveyed literature showed diametrically opposite view
about the outcome of mergers and acquisitions, the authors
were tempted to analyse the post- merger performance through
the case study of Tata Steel’s acquisition of Corus. In this study,
the Pre and Post Corus acquisition performance of Tata Steel has
been analysed.
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5. Discussion Questions
 How was Tata Steel performing before the acquisition of
Corus?
 How was Tata Steel performing after the acquisition of Corus?
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6. Analysis
68.2972.0957.5478.81
225.96
354.32
474.07
397.36
693.15
206
632.65620.5
470.4
312.3
393.85
316.85
0
100
200
300
400
500
600
700
800
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Market Price Per Share (Rs.)
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7. Increase in sales pre and post acquisition
Pre-acquisition Post-acquisition
Year Sales Percentage
Increase
Year Sales Percentage
Increase
2000 6886.28 - 2007 27,437.29 23.19
2001 7,755.37 12.62 2008 134,089.02 388.71
2002 7,604.27 -1.95 2009 149,984.94 11.85
2003 9,788.49 28.72 2010 104,229.83 -30.51
2004 12,372.53 26.40 2011 121,345.75 16.42
2005 17,414.52 40.75 2012 135,975.56 12.06
2006 22,272.14 27.89 2013 138,821.14 2.09
2014 153,212.79 10.37
2015 144,298.36 -5.82
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8. Graph of Increase in Sales
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Increase in Sales
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9. Increase in expenses pre and post
acquisition
Pre-acquisition Post-acquisition
Year Expenses Percentage
Increase
Year Expenses Percentage
Increase
2000 4,683.38 - 2007 17,933.61 28.53
2001 5,009.79 6.97 2008 114,081.1 536.13
2002 5,641.04 12.60 2009 127,214.25 11.51
2003 6,664.73 18.15 2010 93,378.28 -26.60
2004 7,701.00 15.55 2011 103,362.43 10.69
2005 10,162.88 31.97 2012 121,268.84 17.32
2006 13,952.69 37.97 2013 120,971.40 -0.25
2014 132,717.21 9.71
2015 125,875.03 -5.16
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10. Graph of Increase in Expenses
0.00
20,000.00
40,000.00
60,000.00
80,000.00
100,000.00
120,000.00
140,000.00
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Increase in Expenses
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11. Ratio Analysis pre acquisition period
Pre-acquisition Ratio Analysis Tata Steel (2000-2006)
Year Debt
Equity
Ratio
(DER)
Current
Ratio
(C.R)
Fixed Assets
Turnover
Ratio (FATR)
Interest
Coverage Ratio
(ICR)
Net Profit (N.P)
(%)
Capital
Employed
Turnover Ratio
(CETR)
2000 1.08 1.16 0.84 1.91 6.14 0.73
2001 0.96 1.55 0.52 2.24 7.14 0.81
2002 1.42 1.63 0.89 1.61 2.49 0.80
2003 1.31 1.39 1.10 4.55 10.34 1.01
2004 0.75 1.02 1.23 22.00 14.38 1.22
2005 0.39 1.10 1.51 23.48 20.51 1.46
2006 0.26 1.11 1.60 47.57 16.71 1.55
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12. Ratio Analysis pre acquisition period
Post-acquisition Ratio Analysis Tata Steel (2007-2015)
Year Debt
Equity
Ratio
(DER)
Current
Ratio (CR)
Fixed Assets
Turnover
Ratio (FATR)
Interest
Coverage Ratio
(ICR)
Net Profit Ratio
(N.P) (%)
Capital Employed
Turnover Ratio
(CETR)
2007 0.68 2.51 1.60 11.10 15.18 15.18
2008 0.66 5.46 8.02 4.60 9.19 9.19
2009 0.84 1.15 2.64 2.78 3.23 3.23
2010 0.77 1.36 1.71 1.01 -2.03 -2.03
2011 0.52 2.20 1.86 4.06 7.30 7.30
2012 0.53 0.76 1.78 3.02 3.64 3.64
2013 0.52 0.70 1.66 -0.04 -5.30 -5.30
2014 0.49 0.61 1.60 2.55 2.39 2.39
2015 0.45 0.71 1.44 0.71 -2.74 -2.74
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13. Conclusion
 There is decline in post acquisition performance
 External factors responsible for the decline in performance
 Company could not foresee the external environment changes
 Global economic crisis major reason behind the decline
 Adding to the decline in performance was the big capacity build up of steel in China at cheap cost
and lack of internet demand
 High leverage for acquisition of Corus does not seem to be justified as the financial statements
show weak Current ratio and Net Profit Ratio
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14. Recommended Reading
Dash, A. P. (2010). Mergers and acquisitions. New Delhi: J.K
International Publishing House Pvt. Ltd.
Reed, S. F., Lajoux, A. R., Nesvold, H. P. (2007) The art of M&A: A
merger acquisition buyout guide, McGraw-Hill Companies.
Kumar, B. R. (2012). Mega mergers and acquisitions: Case studies
from key industries, Palgrave MacMillan.
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