Report on:

Tata Steel’s acquisition of Essar Steel

Report Submitted to Prof.

Abhishek Sachan
As part of CIA I of

Mergers and Acquisitions

6th Trimester
Submitted by: Group 5
Aditi Sharma (1627134)
Sita Biswa (1627159)
Sanjana Nagpal (1627164)
Deepanjan Nag (1627112)
Nilesh Roy (1627120)
Class- Finance 2
About Tata Steel

Tata Steel Limited (formerly Tata Iron and Steel Company Limited (TISCO)) is an
Indian multinational steel-making company headquartered in Mumbai, Maharashtra, India,
and a subsidiary of the Tata Group. Its largest plant located in Jamshedpur, Jharkhand. Tata
Steel is the world’s 6th largest steel company with an existing annual crude steel production
capacity of 30 Million Tonnes Per Annum (MTPA). Tata Steel has a balanced global
presence in over 50 developed European and fast growing Asian markets, with manufacturing
units in 26 countries.

About Essar Steel

Essar Steel is a fully integrated flat carbon steel manufacturer – from iron ore to ready-to-
market products – with a current capacity of 10 million tonnes per annum (MTPA). Essar
Steel’s manufacturing facility comprises ore beneficiation, pellet making, iron making, steel
making, and downstream facilities including cold rolling mill, galvanising, pre-coated
facility, steel processing facility, extra wide plate mill and a pipe mill.

Why Tata Steel should Consider Essar Steel?

 Tata Steel is predominantly present in the east where it is looking to ramp up capacity.
It has a 13 MTPA capacity in Odisha and Jharkhand. Essar Steel, however, has a 10
MTPA integrated steel facility in the west – Hazira, Gujarat.
 Essar Steel has a large capacity in the flat steel segment with a coastal plant. A
prospective buyer therefore would consider the geographical presence and product
mix of Essar Steel and see what strategic fit that will have with the acquirer’s
management objectives for growth.
 Besides providing capacity in the west, the plant could help improve Tata Steel’s
revenues from exports. Costs of importing coking coal are also cheaper since it is
located close to a port.
 A potential buyer will need to consider the technology and raw material mix used in
Essar Steel’s plant since its steel making operations reportedly faced challenges
because of input-related issues.
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 TATA STEEL

HORIZONTAL MERGER

ESSAR STEEL

Benefits of Horizontal Merger

 Horizontal merger will give Tata Steel the benefit of economics of scale because as
size of company increases price per unit of production for product decreases as there
is elimination of duplication of machinery, increase in bargaining power with
suppliers due to massive size of merged company, less expenditure on advertising and
publicity leading to company delivering the product at lower price to its customers
than before.

 It will reduce the costs to produce its newly diversified products or services, and
reduce the amount of external competition.

Synergies

 Tata Steel can achieve cost synergies through economies of scale.

 Revenue Synergies can be created through expanding the market share i.e.
Tata Steel is predominantly present in the east whereas Essar Steel has a large
capacity in the flat steel segment with a coastal plant. Hence, Tata Steel can
therefore consider the geographical presence and product mix of Essar Steel
and see what strategic fit that will have with the Tata Steel’s management
objectives for growth.