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INDEX Sr.No 1. Content Introduction of the Acquirer Company- TATA STEEL Pg No. 3
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Valuation of Target Company Nat Steel Due Diligence and Legal Issues Financial Performance of Tata Steel Balance Sheet as on 31 MARCH, 2004
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Profit and Loss Statement of Tata Steel Ratio Analysis Os Tata Steel Profit and Loss Statement for the year ended 2003-2004 of NATSTEEL Balance Sheet as on 31ST MARCH 2004 OF NATSTEEL Benefits of Deal Cross Cultural Aspects
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1.INTRODUCTION OF THE ACQUIRER COMPANY- TATA STEEL Tata Steel Limited (formerly TISCO and Tata Iron and Steel Company Limited).TISCo was established by Jamsetji Tata August 26, 1907.It is an Indian multinational steel-making company headquartered in Mumbai, India and a subsidiary of Tata Group. The company changed its name TISCO to Tata Steel in year 2005. Tata Steel is a multinational corporation with operations in numerous countries. It largest plant is located in Jamshedpur, Jharkhand, India. Its marketing headquarter is located at Tata Centre in Kolkata. It is the tenthlargest steel producing company in the world, with an annual crude steel capacity of 23.5 million tonnes, and the largest private-sector steel company in India measured by domestic production. In August 2004, Tata Steel entered into definitive agreements with Singapore based NatSteel Ltd to acquire its steel business for Singapore $486.4 million (approximately Rs 1,313 crore) in an all cash transaction.In 2005, Tata Steel acquired 40% Stake in Millennium Steel in Thailand for $130 million (approx. Rs 600 crore).In 2007 Tata Steel through its wholly owned Singapore subsidiary, NatSteel Asia Pte Ltd acquired controlling stake in two rolling mills: SSE Steel Ltd, Vinausteel Ltd located in Vietnam. In August 2007 Tata Steel acquired the UK-based steel maker Corus in what was, to date, the largest international acquisition by an Indian company. 2.INTRODUCTION OF THE TARGET COMPANY - NATSTEEL The National Iron and Steel Mills Ltd (NISM) was incorporated on 12 August 1961 to manufacture and produce iron and steel products for Singapore, Malaysia. In 1990, NISM changed its name to NatSteel. Backed by profitable operations and a healthy balance sheet, it began to internationalize its operations. By the start of the 21st century, it had established a strategic footprint in the growing economies of the Asia Pacific as well as built a premium brand name, NatSteel, widely respected for its quality products and expertise. In 2004, NatSteel Asia (Singapore) Pte Ltd was incorporated it was the steel business in Singapore which was divested by NatSteel and later renamed as NatSteel Asia Pvt Ltd.NatSteel is a major player in Singapore and owns steel mills in China, Thailand, Vietnam, Phillipines and Australia, with a capacity of 2 million tonne per annum.
3.OBJECTIVES OF TATA STEEL FOR ACQUISTION Tata Steel has set the target of achieving a capacity of 100 million tons by 2015. Tata Steel has announced that it would enhance its overall steel capacity to 15 million tones per annum by 2010, from the level of around 4 million tones per annum. Tata Steel wanted to expand outside the Indian market to take its economics to a higher scale. For Tata Steel the growing ASEAN and Chinese markets are natural targets, with an overall population of almost 500 million. 4.VALUATION OF TARGET COMPANY- NATSTEEL CONSIDERATION CLAUSES
Subject to adjustments (Completion $486.4million(theNegotiated EnterpriseValue) Adjustments) to be made on completion of i.e. approximately 1,313 crore. the Proposed Transaction as follows: (i) in the event of any variance from a net working capital of S$225 million; (ii) deduction of net debt; (iii) deduction of minority interest; and (iv) deduction of all other liabilities (other than interest bearing debt).
Assuming that the Completion Adjustments were made based on a proforma balance sheet as at 31 December 2003 for the Companys steel businesses, the cash consideration received by the Company would be approximately S$466 million. The Completion Adjustments, which will be based on NatSteel Asias consolidated balance sheet as at the date of completion of the Proposed Transaction, may result in the final cash consideration paid to NatSteel being above or below S$466 million. Prior to Completion, the Company will continue to operate and retain the cash generated by the Companys steel businesses (if any).
5.DUE DILIGENCE AND LEGAL ISSUES Following the execution of the Subscription Agreement, Tata Steel had carry out a defined due diligence exercise of the NatSteel Asias, NatSteel Asia Singapores, the Regional Steel Assets and the Singapore Steel Assets (together the Natsteel AsiaGroup) condition (financial or otherwise), business operations, and prospects. If, as a result of the defined due diligence, there exists any matter that could result in a diminution of the Negotiated Enterprise Value on Completion by: I. Between 5 to 20 percent can notify Natsteel of the downward adjustment in the Negotiated Enterprise Value; or II. More than 20 percent then Tata steel have an option to terminate the Subscription Agreement and consequently the Proposed transaction.x In the event that there is a dispute between Tata Steel and NatSteel as to the computation and quantum in the diminution in Negotiated Enterprise Value, both parties shall negotiate in good faith, failing which, an independent investment bank shall be requested to calculate the diminution in the Negotiated Enterprise Value.
6.FINANCIAL PERFORMANCE OF TATA STEEL BALANCE SHEET AS ON 31st MARCH, 2004 (Rupees in Crores) Pre Acquisition (2003-04) FUNDS EMPLOYED SHARE CAPITAL RESERVES AND SURPLUS TOTAL SHAREHOLDERS' FUNDS . LOANS Secured Unsecured TOTAL LOANS DEFERRED TAX LIABILITY PROVISION FOR EMPLOYEE SEPARATION COMPENSATION TOTAL FUNDS EMPLOYED APPLICATION OF FUNDS : FIXED ASSETS INVESTMENTS NET CURRENT ASSETS MISCELLANEOUS EXPENDITURE . TOTAL ASSETS (Net) 7857.85 2194.12 84.22 155.97 10292.16 9865.05 4069.96 428.88 253.27 14617.16 25.54 85.49 409.24 62.38 42.02 3010.16 363.12 3373.28 839.96 1563.06 2191.74 324.41 2516.15 957.00 1388.71 -27.19 -10.66 -25.41 13.93 -11.15 369.18 4146.68 4515.86 553.67 9201.63 9755.30 49.97 121.90 116.02 Post Acquistion (2005-2006) Percentage Increase/Decrease
10292.16
14617.16
42.02
Pre Acquisition (2003-04) INCOME SALE OF PRODUCTS AND SERVICES OTHER INCOME EXPENDITURE PROFIT BEFORE TAXES AND EXCEPTIONAL ITEMS PROFIT BEFORE TAXES LESS:-TAXES PROFIT AFTER TAXES AMOUNT AVAILABLE FOR APPROPRIATIONS BALANCE CARRIED TO BALANCE SHEET.. 8. RATIO ANALYSIS OF TATA STEEL 12061.47 11920.96 140.51 (7954.26) 2888.64 2665.96 (919.74) 1746.22 2053.67 1416.25
Post Acquistion (2005-2006) 15394.15 15139.39 254.76 (10101.42) 5292.73 5239.96 (1733.58) 3506.38 5296.59 2976.16
Percentage Increase/Decrease 27.64 27.00 81.31 27.00 83.22 96.55 88.48 100.80 157.90 110.14
Earning per share (EPS) :-There are several common stock ratios that convert key bits of information about the company; to a per share basis. They are used to assess the performance of the company for stock valuation purposes. Net profit after tax Preferred dividend _______________________________________ Number of common shares
COMMENT:- After acquisition of Natsteel the EPS of Tata steel has been increased from 47.32 to 63.35.This indicates that the increase is good for the investors and company.
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Price Earning Ratio (P/E):-This is an extension of the EPS and it relates the earnings to the price of the stock as follows. Market price of common stock ___________________________________ EPS Pre acquisition 7.25% Post Acquisition 8.47%
COMMENT:- There has been increased in the P/e RATIO of Tata steel from 7.25 to 8.47 which shows the goodwill of Tata steel in the market.
Return on Equity (ROE):- A measure of overall profitability of the firm, ROE captures, in a single ratio, the amount of success the firm is having in managing its assets, operations, and capital structure. Return on equity - or return on investment (ROI) Net profit after taxes ___________________________ Stockholder's equity Pre acquisition 28.12% Post Acquisition 40.76%
COMMENT:- This ratio helps investors to know the productivity of investment in the company, thus Tata steel provides a remarkable returns to its shareholders which is beneficial for the company.
Dividend Payout Ratio:-A low dividend payout ratio indicates large portion of profits are retained & used for growth. There is not much difference in the dividend payout ratio pre & post acquisition Dividend per share ____________________________ Earnings per share Pre acquisition 23.84% Post Acquisition 23.40%
COMMENT:- There has been a consistency in the dividend payment to its shareholders which indicates that the company retain its profits more than distributing among its shareholders .
9. PROFIT AND LOSS STATEMENT for the year ended 2003-2004 of NATSTEEL
Particulars
Sales Cost of sales Gross profit Other operating income Distribution costs Administrative expenses Other operating expenses Profit from operations Investment and interest income Finance costs Share of results of associated companies before taxation Profi t before taxation and exceptional items Exceptional items Profi t before taxation Income tax expense Profi t from ordinary activities after taxation Minority interests Net profit for the financial year Earnings per share - Basic - Fully diluted
The Group 2004 S $000 2,073,987 (1,914,188) 159,799 13,456 (29,180) (72,139) (16,440) 55,496 11,956 (6,210) 51,623 112,865 36,449 149,314 (16,910) 132,404 (10,029) 122,375 32.8 cents 32.8 cents
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Particulars
SHARE CAPITAL SHARE PREMIUM ACCOUNT RESERVES SHAREHOLDERS EQUITY DEFERRED INCOME MINORITY INTERESTS CURRENT ASSETS - Inventories - Receivables and prepayments - Cash and bank balances NON CURRENT ASSETS - Property, plant and equipment - Investment properties - Subsidiaries - Associated companies - Long term investments - Long term receivables - Intangible assets - Deferred tax assets TOTAL ASSETS CURRENT LIABILITIES - Amounts due to bankers - Trade and other payables - Taxation NON CURRENT LIABILITIES - Provision for retirement benefits - Deferred tax liabilities - Other unsecured notes - Long term loans Other non current liabilities TOTAL LIABILITIES NET ASSETS
The Group 2004 S $000 186,779 6,881 776,442 970,102 12,692 50,863 207,816 332,968 341,390 882,174 307,546 11,929 145,301 56,859 14,963 21,171 7,975 565,744 1,447,918 131,036 167,298 16,846 (315,180) 10,712 28,336 27,706 27,464 10,712 (99,081) (414,261) 1,033,657
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11.BENEFITS OF DEAL With this transaction, NatSteel Asia had well-positioned to weather the volatilities in the steel industry because it will be part of a much larger, fully integrated steel group with extensive resources .As part of Tata Steel, NatSteel Asia will be able to benefit from a much larger footprint in the steel industry as well as have access to significant resources enabling TATA STEEL to further expand within Asia.NatSteel's business provides Tata Steel access to key Asian steel markets including China. 12.CROSS CULTURAL ASPECTS CULTURE OF TATA STEEL The Tata Group has always been driven by five core values:
Integrity: We must conduct our business fairly, with honesty and transparency. Everything we do must stand the test of public scrutiny.
Understanding: We must be caring, show respect, compassion and humanity for our colleagues and customers around the world, and always work for the benefit of the communities we serve.
Excellence: We must constantly strive to achieve the highest possible standards in our day-to-day work and in the quality of the goods and services we provide.
Unity: We must work cohesively with our colleagues across the group and with our customers and partners around the world, building strong relationships based on tolerance, understanding and mutual cooperation.
Responsibility: We must be responsible and responsive to the countries, communities and environments in which we work, always ensuring that what comes from the people goes back to the people many times over.
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CULTURE OF NATSTEEL NatSteel Holdings' culture is based on feedback and open communication. To foster open discussion and debate, they implemented: Focus groups Surveys Quality circles Suggestion boxes Performance review Department dialogue sessions Union meetings Direct feedback
In particular, two very powerful tools are the employee engagement survey and our online HR feedback channel where every employee can give comments or ask questions and receive a prompt response. We value trust, respect, integrity and compassion. We have built a friendly work environment conducive to teamwork, where employees have a voice and where management can benefit from staff feedback to enact better employment practices and policies. And as a People Development Standard bearer, NatSteel Holdings is further committed to training and development to optimise employees potential. All this is part of our constant quest to better ourselves through process and product improvements. We are committed to producing quality products and services that meet and exceed the requirements of customers.
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