Failure of Tata-Corus Acquisition

Failure of Tata-Corus Acquisition
History of Tata Steel & Corus:
Tata steel, initially known as Tata Iron and Steel Company (TISCO) is an
Indian multinational steel making corporation, founded by Jamsedji Tata and
established by Dorabji Tata on 26th August 1907 headquartered in Mumbai. The
company changed its name from TISCO to Tata steel in 2005. It has
manufacturing operations in 26 countries and commercial presence in 56
countries. The company is one of the largest steel making companies globally
and second largest steel company in India next only to Steel Authority Of India.
Corus was formed on 6th October 1999 with the merger of British Steel
and Koninklijke Hoogovens. At the time of its formation, it was the largest steel
company in Europe and 3rd largest worldwide. It had major manufacturing sites
in Netherlands, U.K., France, Germany etc. The product mix consisted of strip
steel products, long products, aluminium and Distribution and building system.
It opened its bid for 100% stake in the late 2006.
The process of acquisition started on September 20, 2006 with Corus
deciding to acquire strategic partnership with low-cost producer and completed
on July 2, 2007.
Causes/factors for the takeover:
TATA:-
 It wanted to be a global player in steel making Industry.
 It had constraints in its steel quality especially matching up to international
standards.
 Improper R &D and Technology.
 To get access to wide range of products of Technology, patents and R&D
facilities through acquisition.
CORUS:-
 To get access to raw materials at low costs.
 To bail out themselves from debts and financial crisis. The debt value
amounted to 1.6billion.
 Due to inadequate profits in spite of high revenues.
 Saturated market in Europe.
After the acquisition:
 Tata steel became 5th largest steel maker in the world.

 The production capacity increased from 4million tons to 28million tons by
2011.
 Over 8billion$ was raised through debt.
 Integration of low-cost Indian markets with high margin global markets.
 Boosted Indian economy, since an Indian company acquired a foreign corp.
4times its size.
 It brought Tata to the global platform, provided access to new markets, R&D
facilities, high end technology.
Reasons for Failure:
1. In the global steel industry, the consumption of steel drastically decreased in

2007 compared to 2006 due to the recession. The recession hit the
automobile, locomotive and other steel using industries very hardly resulting
in decreased demand for steel given the close link between these industries.
2. Neglecting the power dynamics was one of the key reasons for failure.
During the recession, the raw material suppliers had an upper hand. As a
result, the cost of raw materials significantly rose resulting in high cost of
production.
3. The acquisition was not cheap for Tata as it paid 49% premium over the
closing midmarket share price of Corus on 4th October 2006. Moreover,
since the deal was paid for in cash automatically makes it more expensive,
implying a cash outflow from Tata steel in the amount of 1.84billion euros.
It was a clear sign of their aggressive approach towards acquiring Corus at
any cost.
4. Tata has reportedly financed only $4 billion of the Corus purchase from
internal company resources, meaning that more than two-thirds of the deal
had to be financed through loans from major banks. It borrowed heavily
from Indian public sector banks and this tax payer’s money is yet to be
returned to the Indian banks, which again raise concerns about banks policy
over lending such huge amounts to MNCS. Therefore, Public turned out to
be the ultimate losers.
5. After taking over, Tatas let the incumbents of Corus run the business
operations independently for 2 years, as a result no significant integration
plans had been implemented costing the company very dearly. Lack of
diligence in key situations and fixing the issues ate the business from within
the organization.
Conclusion:
What was once a biggest foreign acquisition by Indian company till then,
soon got sucked into the whirlpool of failures and backlashed by series of
recession consequences and excessive supplies from third world countries. Here
in this case, Tata competed with CSN to acquire Corus, showing little concern
over the timing and price per share given its already existing financial trouble
with large debt burden. The charm of owning a foreign company did not last for
long. Though there is continuous increase in demand for steel in India, Tata
steel significantly weighed down by its UK business. The money it borrowed
from Indian public sector banks never came back. This case became an eye
opener to each and every business organization and how an impressive track
record holder like Tata could also become failure when glory overtakes
rationality in business.
Submitted By: Soumyaranjan Behera

Roll No: 19PMIR004

Failure of Tata-Corus Acquisition

Uploaded by

Copyright:

Available Formats

Failure of Tata-Corus Acquisition

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Failure of Tata-Corus Acquisition

Uploaded by

Copyright:

Available Formats

Failure of Tata-Corus Acquisition

History of Tata Steel & Corus:

Causes/factors for the takeover:

 Tata steel became 5th largest steel maker in the world.

Reasons for Failure:

1. In the global steel industry, the consumption of steel drastically decreased in

Submitted By: Soumyaranjan Behera

You might also like