|




  


 |


‡ Merger is a financial tool that is used for enhancing long-term
profitability by expanding their operations.

‡ Mergers occur when the merging companies have their mutual

consent as different from acquisitions, which can take the form
of a hostile takeover.

‡ Mergers may be horizontal, vertical, conglomerate ,depending

or the nature of the merging companies.
 
 
‡ Acquisitions or takeovers occur between the bidding and the
target company.

‡ There may be either hostile or friendly takeovers.

‡ Reverse takeover occurs when the target firm is larger than the
bidding firm.

‡ In the course of acquisitions the bidder may purchase the share

or the assets of the target company.
 j 
‡ The Tata Iron and Steel Company Limited was formed in 1907
at Mumbai.

‡ The Company manufactures rails, fishplates, bars, light

structural, heavy structural, plates, black sheets, galvanised
sheets, tin bars
 i


‡ Corus is a british steel giant, having operation in four continent

with a presence more than in 45 countries.

‡ Corus Construction & Industrial (CCI), a business unit of

Corus, has steel manufacturing facilities in Scunthorpe,
Teesside, Scotland and France.
 
 

‡ Arcelor was created in 2002 through merger of three major

European steel companies, Arbed (Luxembourg), Aceralia
(Spain) and Usinor (France). The idea was to leverage their
technical, industrial, and commercial resources in order to
create a global leader in the steel industry.
 |  
‡ Mr. Lakshmi Mittal founded Mittal Steel in 1976 in India.
After a few years, Mr. Mittal found that it would take him long
to grow to a significant size and wanted a way to grow fast.

‡ In 2005, when Mittal Steel acquired the American steel

company, ISG, it overtook Arcelor as the world¶s largest steel
maker.
 Hindalco acquired Novalis
‡ Aditya Birla Group¶s Hindalco Industries Limited, India¶s
largest non-ferrous metals company, acquired the Canada
based firm Novalis in an all-cash transaction for $6 billion.

‡ Hindalco, along with Novelis, was the world¶s largest

aluminium rolling company, one of the biggest producers of
primary aluminium in Asia, and India¶s leading copper
producer.
 ij
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 K#K$%
‡ This case study has three main objective which gives emphasis
on finding out main reason which enforces these firms to
acquire.

‡ Along with that, need to assess the financial performance of

Company after three year of merger and acquisition is felt.

‡ There has been several M&A has been witnessed by Indian

Corporate but Tata Corus deal is the biggest deal in Indian
history of Merger & Acquisition.
 i &&&
‡ After three year of the deal there is need to assess the extent of
success of this biggest ever deal in steel industry.

‡ Though it has been too early to assess percentage of success

and failure, but for in sighting the researcher and managers.

‡ This study have been conducted to find out the post merger
and pre merger scenario of these companies along with the
whole steel industry.
 i'(jj#%

‡ The study is meant to find out the history, background and

current status of the company who undergone the process of
merger and acquisition. so that it can enlighten the reader as
well as the researcher.
 ˜˜i|j#$%
‡ Exploratory Research is going to be held in this project as we
are going to study the synergy model based on the balance
sheets, cash flow and annual reports, to find out the value
creation of the company.

‡ Secondary data would be taken for the study of the models as

taking primary data is not possible.

‡ Recent secondary data has been taken for accomplishing the

project.
 #  


‡ `
 

‰ Internet sources
‰ Business Journals (ICFAI JOURNAL ON M & A)
‰ News papers
‰ Company websites
‰ Annual reports of companies
 ˜jK$K#j
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‡ The initial motive behind the completion of the deal was not
Corus¶ revenue size, but rather its market value.

‡ As the management has stated that the basic reason for

supporting this deal were the expected synergies between the
two entities.
 i &&
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‡ Hindalco¶s rationale for the acquisition is increasing scale of
operation, entry into high²end downstream market and
enhancing global presence.

‡ By acquiring Novelis, Hindalco aimed to achieve its long-held

ambition of becoming the world's leading producer of
aluminum flat rolled products.
 i &
‡ Novelis was the leader in producing rolled products in the
Asia-Pacific, Europe, and South America and was the second
largest company in North America in aluminum recycling,
metal solidification and in rolling technologies worldwide.

‡ Novelis had the most modern technology in the industry and

efficiently produced high-quality products in several countries
across the world.
 ˜      
 
|  
‡ The steel industry is highly fragmented, the top 5
manufacturers in the steel industry account for less than 25
percent of the market (to put that in perspective, the
corresponding figure for the automotive industry is 73
percent).
‡ LN Mittal believes that the consolidation will end with three of
four major companies dominating the industry around 2010.
 i &&
‡ Bigger steel manufacturers have better bargaining powers
against customers (such as as auto manufacturers) and against
suppliers (iron ore).

‡ Consolidation helps in comapanies improving their sourcing of

raw materials; access to more markets, better utilization, more
flexibility in production scheduling and better efficiency.



üHAT IS IT?
Popular definition: 1 + 1 = 3
Roundabout definition: If am I willing to pay 6 for the business
market-valued at 5 there has to be the Synergy justifying that
More technical definition: Synergy is ability of merged company
to generate higher shareholders wealth than the standalone
entities
 i &&
Synergy is the additional value that is generated by
combining two firms, creating opportunities that
would not been available to these firms operating
independently. synergy can be categorize into two
groups.
1. Financial synergy
2. Operating synergy
 

 
)|  
‡ Gains from synergy = $6,959.74
‡ Most that bidder firm can bid for target = $20,424.11
‡ % Premium over the market price = 51.69%

After the merger of Arcelor-Mittal the gains which is shown

from the synergy are $6959.74.The bidding firm can bid for
the target which is quite high amount and the premium
received by the company is 51.69% over its market price
 
j  )i


‡ Gains from synergy = $7,481.79

‡ Most that bidder firm can bid for target = $3,856.18
‡ % Premium over the market price = -206.36%

The company has gained $7481.79 from the synergy. The

bidder firm has to bit $3856.18 for achieving its target and the
premium that is received by the firm is 206.36% over its
market price
 
  ) " 

‡ Gains from synergy =$23,321.92

‡ Most that bidder firm can bid for target =$34,381.35
‡ % Premium over the market price =210.88%

The company has gained $23321.92 from the synergy which

was formed by merging the firms. The bidding firm has to bid
$34381.35 for the target firm and the premium received over
the market price is 210.88%
  K" 


 

/(  

˜    
 iurrent & Quick Ratio
year iurrent ratio
++0 
++1 
++2 +2
++3 1
++ 2

year Quick ratio

++0 +1!
++1 +00
++2 +4!
++3 +22
++ +!3
 iurrent & Quick Ratio
‡ Current ratio of Hindalco¶s consolidated balance sheet after merger its
decreases and then slowly increasing because of cost management &
operational excellence. As the current assets of companies increasing more
rapidly than the current liabilities.

‡ Quick ratio is also decreasing but in consolidated balance sheet it¶s less
than the 1:1 ratio of thumb rule. As the proportion of inventories is
increasing in current assets while the current liabilities more than current
assets. That¶s why the quick ratio is decreasing.
O erating rofit & net rofit ratio
year O erating rofit
++0 !51,
++1 35,
++2 +0,
++3 54+,
++ 0+4,

year NPR
++0 !+!,
++1 !3+,
++2 ]

++3 +1!,
++ 050,
 
 
 K 
 

 
‡ There is decline in the operating profit ratio because of the increase in
operating profit as well the net sales of the company. In 2009 the sales of
the company declined and operating profit also declined and in 2010 it
again achieved a high ratio with market.

‡ Net profit has continuously decreased from 2007 to 2009 and it¶s regained
a height in 2010. ühile the sales is appreciated from 07 to 09 but declined
in 2010.
 #  ˜  '
year DE RATIO
++0 +01
++1 +00
++2 21
++3 2+
++ 

year EPS
++0 0+
++1 01!
++2 1+5
++3 !
++ 1
 #  ˜  '
‡ Debt to equity ratio is increasing its because of Novelis acquisition and
increasing debt conditions. Due to the loan repayment its decreases in
2009-2010.

‡ EPS is increasing except 2009 when the net profit is extremely lower than
previous and last year. Share no. is also increases after merger and
acquisition. Market capitalisation has immensely increases as the Hindalco
acquires the Novelis. In recession the market capital was decreases due to
the lower share price of company.
 ˜˜i
year ROE
++0 024,
++1 +30,
++2 03,
++3 !+1,
++ 2,

year ROiE
++0 !03,
++1 1+1,
++2 201,
++3 3,
++ 5,
 ˜˜i
‡ The net profit is increasing in trend except in 2009 when recession came its
on lowest slot. So the return on equity has changed as per the net profit and
equity capital which is increases after merge.net profit of company was
minimum in 2009.

‡ Capital employed was maximum in 2008 and then decreases in 2009 again
increases in 2010, so does is with net profit of the company, it was
minimum in 2009 and maximum in 2010 and as the ROCE is the ratio of
net profit to capital employed, so it has similar impact on the ROCE ratio
of company¶s consolidated balance sheet.
 

# 

"
˜  

year DTR
++0 0
++1 !!+
++2 50
++3 !!
++ 452

year TAR
++0 +13
++1 +3!
++2 +15
++3 +41
++ +41
 

# 

"
˜  

‡ Hindalco has continuously increased its DTR to increase its operational
efficiency and its profit. As its shows the company¶s ability to recover the
amount that is market due or in other words the company has sold on
credit.

‡ As we have seen in the data the total assets turnover ratio after the merger
has shows a decline trend in past years. This is because the total assets were
reduced and the sales were also decreasing. Sales of company have
declined as the shipment of novelis has decreased.
(  

‡ Hindalco¶s acquisition of Novelis is forward kind of integration. So benefit
was obvious. As Novelis was initially a problem child so company is
growing with a slow pace.
‡ Due to the decrease prices of LME and the 2% decrease in the shipment of
Novelis the sales of Hindalco decreases.
‡ Cost synergy has achieved as the cost of sales has decreases by significant
amount.net profit and operating profit has shown a growth except the year
2009 when the recession came, it shows a decline, otherwise its increases.
‡ In 2009-10 the net profit decreases by 8% in comparison to last year, and
the operating profit increases by 2.28%.
‡ Due to the effect of external demand and supply the company has
fluctuating ratios. But as the synergy is expected the company is about to
increase at the great pace
      
*  .
*  
* i     
* 6 
"   
* |
7  6
 -  






 ˜     
‡ Company need to focus more on the cost management process to increase
the profit and decrease the cost of company.

‡ Company should keep focussing on cost optimization, operational

excellences and its integrated business approach to ensure its long term
success.

‡ üith the initiatives, strategic measures, realignment of product line to the

revised demand scenario, closure of some capacity, pruning of overhead
costs and prudent inventory management altogether the expected synergy
can be achieved soon with this merger.
‡ üith the expecting benefit of synergy company should focus more on
capacity expansion of hindalco in fastest growing market of asia and south
America.
 j  )i


 

/˜    

(  

 i

 8 7˜  

year iurrent ratio
++0 +1
++1 03
++2 !2
++3 +3
++ 

year Quick ratio

++0 +!+
++1 !1
++2 !4
++3 +41
++ +10
  

i

8 7˜  
j  )i


i

˜  9
The standard current ratio value is 2:1 However it does not mean so that higher current
ratio means good company profile. It may signify higher unused cash inventory which
again may result in inventory carrying cost .
As we have seen in the financial years that current ratio of
the Tata steels is fluctuating in the period of five years first increases then decreases, It
doesn't means that any increase or decrease in current ratio reflects the financial
performance of the company. The current ratio decreases in the year 2009 as we have
seen that current assets of the company decreases this year which leads to decline in
current ratio.

8 7˜  9
The standard Quick ratio is 1:1. There is a huge difference between the quick ratio of the
company .It also shows the decreasing trend .In the year 2008 there was high unutilized
cash, but for the financial year 2009-10 the cash was balanced .
 
  K '
 ˜  
year O erating rofit
++0 !222,
++1 !30,
++2 535,
++3 !102,
++ !41+,

year NPR
++0 12,
++1 !4!,
++2 °] ]
++3 +3,
++ 330,
  


 '
 K 
'
 j  )i


Operating Profit:
There is an increase in operating profit of Tata Steels up to 2008 this is because after the
merger there sales figure, the EBIT value of the company increased as we can see the trend
above. ühereas, in the year 2009-10, the value of the operating profit starts declining, as
we know that lower operating profit ratio indicates higher efficiency of the firm.
So, on the basis of the calculated data we can say that
the operating efficiency of Tata Steels has actually increased for the current year with a
comparison of 2008 and 2009-10.

Net Profit:
üe can see that there is a fluctuation in the Net Profit Ratio. Actually, it indicates the
firm¶s ability to transfer its sales into the net profit. So, here analyzing the consecutive the
five years data we can see that the profitability of Tata Steels has actually decrease in
2009-10 as compared to the initial years of merger.
 #  ˜  '
year DE RATIO
++0 +4
++1 +02
++2 +1
++3 !
++ +02

year EPS
++0 0!!4
++1 115
++2 0!24
++3 031+
++ 40!1
  

#  ˜  
'j  )i


Debt Equity Ratio:

Here we can see that in both debt equity ratio and in long term debt equity ratio has
increased from 2006-09 which is not favorable for the company as it indicates poor
performance of the company whereas in 2010 the ratio decreases which indicates
good sign.

EPS:
The earning per share of the company increased which is a good for the company.
ühereas in 2010 the EPS has reduced which does not indicates the good sign for
the company, this decline may be because the earnings were reduced in 2010.
 ˜˜i
year ROE
++0 !055,
++1 !3,
++2 +5,
++3 321,
++ ++,

year ROiE
++0 5!1,
++1 11,
++2 1,
++3 4+,
++ !+0,
  

˜˜ij  )
i


ROE:
ROE is defined as the amount of the net income retained as a present age of
shareholder equity .Return on equity measures a corporation profitability by reviling
how much profit a company generates with the money shareholders have invested.
Over the years Tata Steels has been witnessing a downfall in its ROE, a fact which
is also witnessed in the S/E ratio. It is a tool used to compare the profitability among
its competitors.

ROCE:
ROCE is the ratio that indicates the efficiency and profitability of the company¶s
capital investments. Over the years it has reduced because of slowdown as well as
huge inventory of stocks and new plants.
 j 

j
"
˜  

year TAR
++0 5
++1 +15
++2 +5!
++3 +5!
++ +5+

year DTR
++0 033
++1 32
++2 !!54
++3 53
++ 5042
  

j 

j
"

˜  j  )i


Total Asset Ratio:

As we have seen in the data the total assets turnover ratio after the merger has shows a
decline trend in past years. This is because the total assets were reduced and the sales were
also decreasing.

Turnover Ratio :
As its shows the company¶s ability to recover the amount that is market due or in other
words the company has sold on credit. It is very important for any company to calculate
this ratio as depending on that the company can decide about its current position to
recover the receivables.
 (  

Tata-Corus:
‡ There is a decline in the gross profit ratio after 2008, as demand of steels starts
reducing at a faster pace.
‡ The debtors turnover ratio of the company is increasing in the last 5 years, which
indicates the effectiveness of the collection Policy adopted by the company.
‡ The Debt-Equity ratio of the company is high in the financial year 2008-09 it
means that a company has been aggressive in financing its growth with debt. If a lot
of debt is set to finance increased operations ,the company generates more earnings
that it would have without this outside financing. If this were to increase the
earnings by a greater amount than the debt cost, then the shareholders benefit as
more earnings are being separate among the same amount of shareholders. The cost
of this debt financing may outweigh the return that the company generates on the
debt through investment and business activities and become too much for the
company to handle.
‡ The fluctuations in the EPS shows the volatility of the market.
 ˜    
Tata-Corus:
‡ The company should lay emphasis on the proper utilization of cash, so that the cash
is managed and utilized in a proper manner.

‡ The company should lay emphasis on the reduction of the cost while following
economies of scale which enhances the productivity and increases the demand.
˜i$˜)|jj$

 

(   
˜    
 i

8 7˜  
'ear iurrent Ratio
++2 55
++3 !3
++ !2

'ear Quick Ratio

++2 +0+
++3 +02
++ +14
  

i

 8 7
˜  
 
)|  
i

˜  9
The standard current ratio is 2:1 However it does not mean so that higher current
ratio means good company profile. It may signify higher unused cash inventory
which again may result in inventory carrying cost .
As we have seen in the financial years that current
ratio of the company is fluctuating in the period of three years first increase then
decreases, It does not means that any increase or decrease in current ratio reflects
the financial performance of the company. The current ratio decreases in the year
2009-10 as we have seen that current assets of the company decreases this year
which leads to decline in current ratio.

8 7˜  9
As per the investor norms the Quick ratio is 1:1. There is a huge difference
between the quick ratio of the company .It also shows the increasing trend.
 
 K '
 
'ear O erating Profit
++2 4!,
++3 :4+;,
++ 4+1,

'ear NPR
++2 325,
++3 +3,
++ 5!,
  


 K 
 

 
)|  
Operating Profit :
There is an increase in operating profit of Arcelor-Mittal up to 2008 this is because
after the merger there sales figure, the EBIT value of the company increased as we can
see the trend above. ühereas, in the year 2009-10, the value of the operating profit
starts declining, as we know that lower operating profit ratio indicates higher efficiency
of the firm. So, on the basis of the calculated data we can say that the operating
efficiency of the company actually increased for the current year with a comparison of
2008 and 2009-10.

Net Profit Ratio :

üe can see that there is a fluctuation in the Net Profit Ratio. Actually, it indicates the
firm¶s ability to transfer its sales into the net profit. So, here analyzing the consecutive
the three years data we can see that the profitability of the company has actually
decrease in 2009-10 as compared to the initial years of merger.
 #  '˜  
'ear DE Ratio
++2 !51
++3 0!
++ 21

'ear EPS
++2 23
++3 +3
++ 52
  

#  '
˜  
 
)|  
Debt Equity Ratio*
Here we can see that in both debt equity ratio and in long term debt equity ratio in 2008 was
34.17, this is because the debts were very high and our equity shareholders were very low.
ühereas in 2009 the company is in good position as our stakeholders were increased and in
2010 the debts further increased because the equity shareholders were further reduced.

'˜  9
The earning per share of the company increased which is a good for the company. ühereas
in 2009-10 the EPS has reduced which does not indicates the good sign for the company,
this decline may be because the earnings were reduced in 2009-10.
 ˜˜i
'ear ROE
++2 +23
++3 +++
++ ++52

'ear ROiE
++2 +15
++3 :++4;
++ ++!
  

˜˜i
 
)
|  
ROE:
ROE is defined as the amount of the net income retained as a present age of shareholder
equity. Return on equity measures a corporation profitability by reviling how much profit
a company generates with the money shareholders have invested. Over the
years has been when company is witnessing a downfall in its ROE, a fact which is also
witnessed in the S/E ratio. It is a tool used to compare the profitability among its
competitors.

ROCE:
ROCE is the ratio that indicates the efficiency and profitability of the company¶s capital
investments. Over the years it has reduced because of slowdown as well as huge
inventory of stocks and new plants.
 j 

# 
j
"


˜  
'ear Total Asset Ratio
++2 +13
++3 +50
++ +45

'ear Debtor Turnover Ratio

++2 !1
++3 !402
++ 35+
  

j 
"


# 

j
"
˜  
 
)|  

Total Asset Turnover Ratio :

As we have seen in the data the total assets turnover ratio after the merger has shows a
decline trend in past years. This is because the total assets were reduced and the sales were
also decreasing 

# 
j
"
˜  9

As it shows the company¶s ability to recover the amount that is
market due or in other words the company has sold on credit. It is very important for any
company to calculate this ratio as depending on that the company can decide about its
current position to recover the receivables.
 (  

Arcelor-Mittal:
‡ The gross profit ratio of the company reduces in the year 2009,as our sales were
reduced in this financial year and then increases in the year 2010.

‡ The debtors turnover ratio of the company increases in the year 2009 and then
reduces in the year 2010, as the Investment of the investors reduced due to
reduction in sales .

‡ The debt-equity ratio of the company reduces in the year 2009, which is not good
for the company and then the ratio increases in the year 2010.
 ˜    
9

Arcelor-Mittal:
‡ An innovative approach combining operational and financial skills and all
encompassing view of the companies operations will help in identifying and
implementing strategies that generates short term cash.

‡ The companies should lay emphasis on the increase in demand of steels which
leads to increase in sales and profitability.
 OIMITATIONS O
THE STUD'

‡ The collected data about the study could be biased as it is only limited to the case of
three companies.

‡ The present data is confined to the base of secondary data only and the findings
may not be applicable to the other companies of different countries.

‡ Culture, values and ethics vary from company to company and there is every
possibility that over time and space findings of today may become invalid
tomorrow.