Presentation on Mergers & Acquisitions including a case study on Tata Corus.

1. Mergers & Acquisitions
(Case Study)
June 11, 2010
11
♣
Sunny Goel II Research Associate II
Corporate Catalyst India www.cci.in
&
ASA & Associates chartered accountants www.asa.in

2. Contents
C t t
1) Introduction
a) Wh t i merger?
) What is ?
b) What is acquisition?
2) Distinction between Mergers & Acquisitions
3) Case study – TATA CORUS
a) LBOs
b) The Deal
c) Negotiations
d) Synergies
) y g
4) Snapshot – Bharti Zain
5) Causes for failure of M&A
6) Conclusion

3. Introduction
I t d ti
Important tools of corporate growth
Alternative way to achieve growth is resort to external
arrangements like M&A (inorganic growth)
Restructuring the corporation to meet global competition
Main idea – one plus one makes three
Economies of scale
Acquiring new technology
Improved market reach
Staff reduction
85% are using M&A as a core growth strategy
strategy.

4. What i M
Wh t is Merger?
?
A true merger in the legal sense occurs when both business
dissolves and fold their assets and liabilities i t a newly created
di l d f ld th i t d li biliti into l t d
third entity. This entails the creation of a new corporation.
A transaction where two firms agree to integrate their
operations on a relatively coequal basis because they
have resources and capabilities that together may
create a stronger competitive advantage
advantage.

5. Classifications of Mergers
Cl ifi ti fM
Similar kind of business
e g TATA and Jaguar &
e.g.
Combination of firms Land Roover.
related to each other in Horizontal
terms of customer Merger
groups, customer
functions or alternative
technologies.
Concent
Vertical
i
ric
Merger
Mergers
Combination of firms
Conglomerate involved in different stages
Engaged in unrelated line Mergers of production/operation as
of business activities. forward or backward
integration e g cone
e.g.
supplier with an ice cream
maker.

6. Reasons of Merger
R fM
Economies of
Scale
Economic Marketing and
Necessity Management
Eliminations
Growth and
of
Diversification
Competition
Technology Utilization of
Sharing
Sh i Tax Shields
T Shi ld

7. What i A
Wh t is Acquisition?
i iti ?
An acquisition, also known as a takeover or a
buyout, is the buying of one company (the ‘target’) by
another.
An acquisition may be friendly or hostile. In the former
case,
case the companies cooperate in negotiations; in the
latter case, the takeover target is unwilling to be bought
or the target's board has no prior knowledge of the
offer.
Acquisition usually refers to a purchase of a smaller firm
by a larger one.

8. Reasons for A
R f Acquisitions
i iti
Increased market power
Learning and Developing new capabilities
Overcoming entry barriers
Cost of new product development
p p
Increase speed to market
Lower risk than developing new products

9. Distinction between
Merger and A
M d Acquisition
i iti
When one company takes over another and clearly
establishes itself as the new owner, the purchase is
called an acquisition. From a legal point of view, the
target company ceases to exist, the buyer "swallows"
swallows
the business and the buyer's stock continues to be
traded.
In the pure sense of the term, a merger happens when
two firms, often of about the same size, agree to go
forward as a single new company rather than remain
separately owned and operated. This kind of action is
more precisely referred to as a "merger of equals". Both
companies' stocks are surrendered and new company
stock is issued in its place
place.

10. TATA - CORUS
A Case St d
C Study

11. Brief B k
B i f Background
d
Acquirer
Name: Tata Steel
Former Name: Tata Iron and Steel company Limited
Founded: 1907
Founder: J
F d Jamshedji N
h dji Nusserwanji T t
ji Tata
Headquarters: Jamshedpur, Jharkhand
Chairman: Ratan Tata
Type: Public
Industry: Steel
Parent: TATA Group

12. Brief B k
B i f Background
d
Target
Name: Corus
Founded: 1999
Formation: Merger of British Steel Corporation and
Koninklijke Hoogovens N V
K i klijk H N.V.
Headquarters: London, England, UK
CEO: Kirby Adams
Type: Subsidiary
Industry: Steel
Parent: Tata Steel

13. The D l
Th Deal
Official Announcement: April 02, 2007
Price of Deal: 608 pence per ordinary share in cash
Total value of Deal: Pound 6.2 billion (USD $12 billion)
62
Deal Competitor: Companhia Siderurgica Nacional (CSN)
Competitor’s Bid: 603 pence per share
C tit ’ Bid h
Deal process commencement: September 20, 2006
Deal process completion: July 02, 2007

14. Combined Ambition
C bi d A biti
Become a global player with a balanced presence in developed
European and fast growing Asian markets
Acquire strong position in construction, automotive and packaging
market sectors
Significant raw material security and greenfield / b
Si ifi t t i l it d fi ld brownfield
fi ld
developments
Lowest cost position in Europe and South-East Asia
Own development plans
By 2012:
EBITDA of
25%; 40
Current: million
EBITDA of tonnes :# 2
13%; 25
million
Double the tonnes :# 6
size and
profitability

15. Deal: I
D l Investment Vehicle
t t V hi l
A holding company was set up by Tata Steel in Singapore to
g p y p y g p
acquire Corus.
Idea was to have all the foreign acquisitions under one holding
company.
Singapore has favorable tax jurisdiction and gave Tata Steel an
easy avenue for raising global resources / funds.
Tata Steel
Corus
Tata Steel Asia Tata Steel
Group Ltd.
India Holdings U.K.
U.K.
(Singapore)

16. Negotiations
N ti ti
September 20, 2006: Corus steel has decided to acquire a
strategic partnership with a company that is a low cost producer
October 05, 2006: The Indian steel giant, Tata Steel wants to
fulfill its ambition to expand its further
October 06 2006: The initial offer from Tata Steel is considered
06,
to be too low both by Corus and analysts
October 17, 2006: Tata Steel has kept its offer to 455 p per share
October 20 2006: Corus accepts terms of Pound 4.3 billion
20, 43
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 Steel s bid
Steel’s
October 27, 2006: Corus was criticized by the chairman of JCB,
Sir Anthony Bamford, for its decision to accept an offer from Tata.

17. Negotiations
N ti ti
November 03, 2006: The Russian steel giant Severstal announces
officially that it will not make a bid for Corus
ffi i ll th t ill t k f C
November 18, 2006: the battle over Corus intensifies when
Brazilian group CSN approached the board of the company with a
bid of 475p per share
December 18, 2006: Within hours of Tata Steel increasing its
original bid to 500p per share, Brazil’s CSN made its formal
counter bid at 515p p share in cash, 3% more than Tata Steel’s
p per ,
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 02, 2007: Tata Steel manages to win the acquisition to CSN
and has the full voting support from Corus’ shareholders.

18. Financing
Fi i
TATA – Corus Deal - $12 billion
Equity contribution from Tata Steel - $3.38 billion
Credit Suisse leaded, joined by ABN AMRO and Deutsche
Bank in the consortium
Of the $8.12 billion of financing, Credit Suisse provided
45% and ABN AMRO and Deutsche provided 27.5% each.

19. Cultural Integration
C lt lI t ti
Tata Steel Corus
Continuous Improvement Continuous Improvement
Program – “ASPIRE” Program – “The Corus Way”
Core Values Core Values – Code of Ethics
Trusteeship Integrity
Integrity Creating value in steel
Respect for the individual Customer focus
Credibility
y Selective growth
g
Excellence Respect for our people
World class governance World class governance

20. Synergies
S i
Tata is a low cost steel producer whereas Corus was a high
value product manufacturer
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
Technology transfer and cross-fertilization of R&D
capabilities
Capturing global market

21. A
Access t Global M k t
to Gl b l Market
TATA CORUS
9%
8% 3% 49%
23% 10% Europe
India UK
Asia ex India N. America
ROW Asia
69% 29% ROW
COMBINED ENTITY
9% 37%
8% Europe
UK
Asia
N. America
ROW
24% 22%

22. Conclusion
C l i
Tata Steel can target becoming one of the top-3 steel
makers globally by 2015.
The company would have an aggregate capacity of close to
56 million tones per annum.
The company can plan for Greenfield capacities too.
Post deal for smooth functioning Tata Corus defined Group
g p
Strategy Function:
Strategy / Business Development Group – corporate development
Strategic Modeling Group – strategic models and benchmarking
Industry Group – industry monitoring, market intelligence and issuing
assumptions for other two groups

23. BHARTI - ZAIN
A Snapshot
S h t

24. Bharti Zain
Bh ti - Z i
Bharti acquired Zain for USD 10.7 bn
Bharti acquired Zain Telecom’s operation in 15 countries
Manoj Kohli, CEO & Joint Managing Director is the key person
behind the deal
Deal completed in 45 days
Execution of deal:
Financing team
Accounting team
Regulatory team
Legal team
Country visits team
Future: Bharti Airtel plan to have 100 million customers, USD
5 billion revenue and USD 2 billion EBITDA by 2013.

25. Causes f
C for F il
Failures
Payment of higher price: can dilute shareholders’ earnings (
y g p g (Overstated
/ overestimated synergies)
Cultural Clash: conflicting management styles, differing expectations,
communication channels, formal/ participative…..
Failure to integrate operations
Poor business fit: product/service of acquired company does not fit
into acquirer’s sales, distribution systems or geographic requirements
Inadequate due diligence: some of the financial and business risks of
seller may go undetected
Over leverage/ inappropriate financing structure: may create liquidity/
servicing problems
Boardroom split: lack of compatibility amongst directors of two
companies merged
Regulatory/ unexpected d l
R l t / t d delays i i
in implementation of merger: can lead
l t ti f l d
to loss of valuable employees, customer, supplier relationships
Hence proper planning and execution of M&A transaction is a
must for it to succeed and not backfire

26. Thank You