Tata Corus

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Presented to- The WLC’s Presented to- The WLC’s judgment panel judgment panel Presented by- Gaurav Manchanda Presented by- Gaurav Manchanda TATA- CORUS TATA- CORUS (MERGER) (MERGER)

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Transcript of Tata Corus

Page 1: Tata Corus

Presented to- The WLC’s Presented to- The WLC’s judgment panel judgment panel

Presented by- Gaurav ManchandaPresented by- Gaurav Manchanda

TATA- CORUSTATA- CORUS(MERGER)(MERGER)

Page 2: Tata Corus

Defining the problemDefining the problem

Lower chances of success

• Size of the target company- CORUS

• Other bidding co’s- CSN etc.

• Higher price per share

• Less opportunity to build relationships with a target’s management

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Defining the problemDefining the problem

Other problems

• Local market’s reaction

• Arranging funds as it was an all cash deal

• Management

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Objectives..Objectives..

1. To Meet the ever increasing demand

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Objectives..Objectives..

2. Global presence.

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Objectives..Objectives..

3. Higher profitability

• TATA’s current EBITDA is 13% & with production of 25 mt, it is global no. 6

• By 2012, EBITDA expected is 25%, production of 40mt, it will be global no. 2

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Objectives..Objectives..

4. Consolidation/Synergy.

• As part of its integration process being done at two levels, the steel maker expects to cross the $450 million target by the end of 2010. Synergy targets to be achieved included areas of manufacturing, procurement, research and development, IT, Finance and capital projects

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AlternatesAlternates

1. Global Expansion

• Taking the TATA trust globally.

• Joint ventures with other steel manufacturers.

• Could have searched for reserves in India, Singapore etc.

2. Profitability

• Could have diversified its investment

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Setting Up CriteriaSetting Up Criteria

Alternates Type Time Cost Mgmt Risk Remarks

Alternate 1 Subsidiary 4-5 yrsHigher costs

less experience Severe

less info of foreign markets, higher expansion cost

Alternate 2Joint Venture 1-2 yrs Shared

less control moderate

less control over management & sharing of

profits

Alternate 3Locatingreserves

6- 12 months

Higher costs full control moderate

almost no support from own govt., higher

transportation costs

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Analyzing alternatesAnalyzing alternates

1. Expansion- If Tata Steel were to create, from scratch, 19 million tons of steelmaking capacity comparable in quality to what Corus possesses, it would end up investing 70 percent to 85 percent more than it is paying now.

2. Besides, setting up a new factory, a three- to five-year project if everything goes well, has great execution risk

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RecommendationsRecommendationsAnalysts took several years to admit that Tata's car

project came from vision, not desperation. The wait may be a lot shorter this time.

It has helped TATA as:1. Instant increase in size. 2. They want to have also the latest technology,

which is not easily available.3. The third reason is acquiring a brand4. It is in the international market for marketing.5. To gain access to global steel market 6. And expand production capacity to keep pace

with growing demand for steel

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Contingency PlanContingency Plan

• The contingency plan could have been a joint venture with MITTAL steels as it is already into process of setting up a big steel unit in Orissa. Tata could have provided them with iron-ore reserves & would have expected share in its profits.

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M&A, the Indian Way

• Step 1. Cultivate local political and community leaders, and emphasize that your aim is to create higher-value jobs for the local economy. Hire a representative who is already connected to political and labor leaders.

• Step 2. Rally the rank-and-file of the acquired firm by presenting your business model as the best way to retain global competitiveness. Build the case that free enterprise is a global phenomenon and that hiding from it is useless

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the Indian Way…

• Step 3. Retain as many important operating and functional business leaders in the local company as possible. Keeping local HR leaders is important: they know the ins and outs of the local market better than anyone

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Thank YouThank You