The Tata & Corus M&a Deal

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  • Topic: Tata Group, Corus Group, Steel
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  • Published : March 17, 2013
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The Tata–Corus Merger:
A Visionary Deal or a
‘Winner’s Curse’?

During the last decade, Tata Steel took forward plans to hone their growth as a steel manufacturer through a series of global acquisitions. In turn, their initiatives allowed them to grow far beyond the domestic market and service the growing global demands for steel. For both India and Tata Steel, the biggest foreign acquisition to date was that of the Corus Group, a European steel manufacturer headquartered in the UK. Finalizing the deal proved challenging, as Tata Steel entered a bidding war with the Brazilian steel manufacturer Companhia Siderurgica Nacional (CSN). Finally, a revised offer that was 30 per cent more than their initial bid enabled the acquisition of the European entity. Many financial analysts were in agreement that the final bid put forward by Tata Steel was over and beyond Corus’ earnings, which ultimately led to a substantial drop in their share prices by as much as 9 per cent. Apart from the debt that Tata acquired as a consequence of completing the acquisition, there were additional managerial challenges to consider, which frequently arose with this type of venture. Would the acquisition of Corus create more wealth for Tata shareholders or was it merely destined to become a ‘winner’s curse’?

1.1 Background
Tata Steel, formerly named The Tata Iron and Steel Company, was established by Sir Jamsetji Tata in 1907. The century that followed commenced with modest investments in India to expand and modernize their main facility, located in the town of Jamshedpur. Over the years, their production capacity grew steadily from 1 million tonnes per 99780230300637_02_cha01.indd 1 780230300637_02_cha01.indd 1 110/13/2011 3:04:03 PM 0/13/2011 3:04:03 PM PROOF2 The Tata–Corus Merger

annum (MTPA) (Rodriguez, 2007), allowing Tata Steel to become India’s largest private-sector steel company by 2006. In the global market, however, the company only ranked fifty-sixth in terms of its production capacity (Dutt, 2007).

Competing in a global arena required Tata Steel to implement various strategies, including a number of foreign acquisitions that enhanced their global market presence, such as Singapore’s NatSteel in 2005 and Thailand’s Millennium Steel in 2006. Alongside the expansion and modernization of their home-country base plant in Jamshedpur, these acquisitions resulted in a total production capacity of 8.1 MTPA in 2006 from Tata’s globally dispersed plants. Specifically, this output was a result of 4.4 MTPA from the Jamshedpur plant, 2 MTPA from NatSteel and 1.7 MTPA from Millennium Steel, which enabled them to pursue consumers in a number of East Asian countries and Australia (Tata Steel, 2008). However, these investments alone did not suffice to make them a dominant global player, particularly with the consolidation of the global steel industry (Khanna, Palepu and Bullock, 2009). For example, in 2004, when Mittal Steel – a company owned by Indian born Lakshmi Mittal and based in the Netherlands – acquired one of the largest steel producers, Arcelor, for US $38.3 billion in 2006, they became the largest steel-producing company in the world, and a possible inspiration for Tata Steel (International Iron and Steel Institute, 2007).

Consequently, the company put forth a plan to raise production to 30 MTPA locally by 2010 and 50 MTPA globally soon after. Attaining this goal would be difficult if the company were to rely solely on organic growth, as the creation of new plants was a time-consuming and expensive strategy. Therefore, a major global acquisition became a more attractive and quicker option to achieve their milestones. Expansion following the latter route was further encouraged by contemporary changes in local governmental policies, which promoted foreign investment by Indian companies. For example, by 2005, the Reserve Bank of India increased the limit of overseas investments from 100 to...
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