A

Case Study
On
Acquisition “Tatasteel And Natsteel”

Presented By:
Ashwin Chaudhary (Roll No 5)
Mohsinkhan Belim (Roll No 2)
 Introduction:

Company History - Tata Steel

 Tata Steel is among the top ten steel producers
in the world with an existing annual crude steel
production capacity of 30 Million Tonnes Per
Annum (MTPA).

 Established in 1907, it is the first integrated steel

plant in Asia and is now the world`s second
most geographically diversified steel producer
and a Fortune 500 Company.

 Tata Steel has a balanced global presence in

over 50 developed European and fast growing
Asian markets, with manufacturing units in 26
countries.
 Contd..
 Tata Steel, through its joint venture with Tata
BlueScope Steel Limited, has also entered the steel
building and construction applications market.

 The iron ore mines and collieries in India give the

Company a distinct advantage in raw material
sourcing.Tata Steel has signed an agreement with
Steel Authority of India Limited to establish a 50:50
joint venture company for coal mining in India. Also,
Tata Steel has bought 19.9% stake in New Millennium
Capital Corporation, Canada for iron ore mining.

 Tata Steel’s vision is to be the global steel industry

benchmark for Value Creation and Corporate
Citizenship.

 Tata Steel India is the first integrated steel company in

the world, outside Japan, to be awarded the Deming
Application Prize 2008 for excellence in Total Quality
Management.
Company History - 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 internationalise 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.
Importants facts about deal

 Tata Iron & Steel, on 16 August 2004, announced the

acquisition of Singapore-based NatSteel for a
consideration of Rs.1,313 crore. With this, Tata Steel
would now have its footprint in seven Asian countries
including Vietnam, Singapore and Thailand.

 The acquisition of NatSteel is part of Tata Steel's vision of

expanding its overall steel capacity to 15 million tpa,
through domestic capacity enhancements and overseas
acquisitions

 The Jamshedpur works is expected to have a capacity to

7 million tpa by 2010. The balance would be distributed at
coastal locations in India and at least one overseas
location. The company is studying the feasibility of
setting up overseas units in China, Singapore, Malaysia,
Vietnam and Ukraine.

 Tata Steel is 100% owners of Nasteel Asia and hence

there are no other investors in Natsteel Asia.

 Tata Steel has announced that it would enhance its

overall steel capacity to 15 million tpa by 2010, from the
present level of around 4 million tpa.
 Funding Structure for deal

 Tata Iron and Steel Company (Tata Steel)

has entered into definitive agreements with
Singapore based NatSteel Ltd to acquire its
steel business for Singapore $486.4 million
(approximately Rs1,313 crre) in an all cash
transaction.

 Under the terms of agreement, the

enterprise value is subject to certain
adjustments including those for any net
debt, minority interest, other liabilities and
for working capital variance relative to $225
million, a Tata Steel statement said.
Contd..
 The acquisition also includes a 26 per cent equity of
NatSteel in Southern Steel Berhad, a 1.3 million tonne steel
maker in Malaysia. Commenting on the transaction, Tata
Steel managing director B Muthuraman said, "NatSteel's
business provides Tata Steel access to key Asian Steel
markets including China.“

 The transaction is expected to close in five to six months,

after obtaining all regulatory approvals. The steel business
of NatSteel reported a turnover of $1.4 billion and a profit
before tax of $47 million. Overall, Natsteel reported a
turnover of $1.7 billion. The acquisition is a significant step
in Tata Steel's globalisation initiative and will act as a
"beachhead investment" for Tata Steel in the high growth
geographies of China and South East Asia. Through this
transaction, Tata Steel will increase its manufacturing
footprint to seven new countries in Asia.
Strategic rationale for
acquisition
 The acquisition of NatSteel is part of Tata Steel's
vision of expanding its overall steel capacity to 15
million tpa, through domestic capacity
enhancements and overseas acquisitions
 Tata Steel will have to compete with local suppliers
and similarly Natsteel will have to pay prices that
are attractive for Tata Steel.There are also transfer
price guidelines, which will govern a lot of this. But
there are positions that you can take when you
know that you have a upstream back up or a down
stream facility and that is quite powerful.
 The acquisition of NatSteel is part of Tata Steel's
vision of expanding its overall steel capacity to 15
million tpa, through domestic capacity
enhancements and overseas acquisitions
Valuation for acquisition

 The acquisition also includes a 26 per cent equity of

NatSteel in Southern Steel Berhad, a 1.3 million
tonne steel maker in Malaysia.
 We are in the very early stages of all that. What we
are spending now is in acquisitions, Nat steel,
Millennium, expansion of Jamshedpur by a million
and then 1.8 million.
 The acquisition of Singapore-based NatSteel for a
consideration of Rs.1,313 crore.
 Tata Steel has announced that it would enhance its
overall steel capacity to 15 million tpa by 2010, from
the present level of around 4 million tpa.
Balance sheet [Value in Rupees Crores]

Year Ends (Months) 200903(12) 200803(12) 200703(12) 200603(12)

Equity capital 730.79 730.78 580.67 553.67

Preference capital 5,472.66 5,472.52 0.00 0.00

Reserves and surplus 23,501.15 21,097.43 13,368.42 9,201.63

Loan funds 26,946.18 18,021.69 9,645.33 2,516.15

Current liabilities 11,899.95 9,755.78 8,279.70 6,913.83

Net block 10,994.54 8,256.11 8,543.12 8,707.32

Investments 42,371.78 4,103.19 6,106.18 4,069.96

Total current assets 11,591.66 38,196.34 14,671.91 4,997.00

Ratios [Value in Rupees Crores]

Year Ends (Months) 200903(12) 200803(12) 200703(12) 200603(12)

OPM (%) 37.68 41.94 39.61 38.88

NPM (%) 21.09 23.43 23.53 22.78

Reported EPS 69.7 63.85 72.74 63.35

Return on net worth 21.1 21.52 30.71 36.9

Debt/Equity 1.34 1.08 0.69 0.25

Financial charges coverage ratio 6.37 9.25 29.45 36.46

Current ratio 0.97 3.92 1.77 0.72

Dividend per share 16 16 15.5 13

Future out look

 Tata Steel has announced that it would enhance its overall steel
capacity to 15 million tpa by 2010, from the present level of
around 4 million tpa.

 The Jamshedpur works is expected to have a capacity to 7

million tpa by 2010. The balance would be distributed at coastal
locations in India and at least one overseas location. The
company is studying the feasibility of setting up overseas units in
China, Singapore, Malaysia, Vietnam and Ukraine.

 Within India, Tata Steel is examining the viability of a steel unit at

Dhamra, where it plans to set up a minor port in partnership with
Larsen & Toubro. Indicating that Orissa was a good location as
any for a new steel plant, Muthuraman said the port at Dhamra
would handle existing Tata Steel cargo as well as steel export
shipments.

 Tata Steel and L&T will invest Rs 1,400 crore in the first phase of
the port project to build a facility in three years to handle around
13 million tonnes of cargo.

 To enhance its fuel and coke supply, Tata Steel will invest Rs
350 crore in the first phase to set up a 600,000 tonnes per
annum coke over battery at Haldia in West Bengal.
 Conclusion

 NatSteel will spin off its entire steel business into a wholly owned
subsidiary, NatSteel Asia Pte Ltd ("NatSteel Asia") subsequent to
which Tata Steel will acquire 100% of the equity interest in
NatSteel Asia.

 NatSteel is the dominant steel producer of Singapore and owns

steel mills in China, Thailand, Vietnam, the Philippines and
Australia. The business is focussed on long products and has a
cumulative capacity to produce about 2 million tons per annum of
rebars, wire rods, pre-stressed concrete wires and strands.

 The investment also includes a 26% equity interest owned by

NatSteel in Southern Steel Berhad, a 1.3 million tonne steelmaker
in Malaysia.

 The investment is a significant step in Tata Steel's globalisation

initiative and will act as a beachhead investment for Tata Steel in
the high growth geographies of China and South East Asia.
Through this transaction, Tata Steel will increase its
manufacturing footprint to 7 new countries in Asia.

 The acquisition has a strong strategic fit with Tata Steel's current
expansion plans and there are likely to be significant synergy
benefits in the future as a consequence of the transaction.
Cantd..
 For the year ended 31 March 2004, Tata Steel produced
and sold 4 million tons of flat and long products recording
a turnover and a net profit. For the quarter ended June
30, 2004, Tata Steel reported turnover and a net profit.
 Tata Steel is currently implementing a 1 million ton
expansion project at its works in Jamshedpur, India,
which will raise its capacity to 5 million tons per annum by
September 2005.
 Further expansion to 7.4 million tons per annum in
advanced stage of planning and will be commissioned in
2008-09.
 Besides steel products, which include hot rolled, coil cold
rolled coil, galvanised sheets, rebars, wire rods, and
wires.
 Tata Steel is a major player in India in ferro-alloys
industry with a significant global presence. Tata Steel
shares are listed on the Stock Exchange, Mumbai and the
National Stock Exchange of India.