Question

An acquisition is a situation whereby one firm (acquiring firm) purchases most or all of another firm’s (acquired firm) shares in order to take control. From real national/international market, select an example of an acquisition between two firms and answer the following questions:

1. Briefly introduce the chosen acquiring and acquired firms(Industry, nationality, size, competitors...).

2. Explain the different reasons of this acquisition.

3. Was this acquisition successful? Why?

answer with references

Strategic Management

Answer 1

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.

It is one of the top steel producing companies globally with annual crude steel deliveries of 27.5 million tonnes (in FY17), and the second largest steel company in India (measured by domestic production) with an annual capacity of 13 million tonnes after SAIL.

Tata Steel has manufacturing operations in 26 countries, including Australia, China, India, the Netherlands, Singapore, Thailand and the United Kingdom, and employs around 80,500 people.Its largest plant is located in Jamshedpur, Jharkhand. In 2007 Tata Steel acquired the UK-based steel maker Corus. It was ranked 486th in the 2014 Fortune Global 500 ranking of the world's biggest corporations. It was the seventh most valuable Indian brand of 2013 as per Brand Finance.

Corus Group

British Steel Corp. was a large British steel producer, consisting of the assets of former private companies which had been nationalised on 28 July 1967 by the Labour Party government of Harold Wilson. On 5 December 1988 the company was privatised as a result of the British Steel Act 1988. Koninklijke Hoogovens was a Dutch steel producer founded in 1918, located in IJmuiden.

In October 1999, British Steel merged with Koninklijke Hoogovens to form Corus Group. At formation the steel company was the largest in Europe and the third largest worldwide.The French steel company Sogerail, specialised in rail manufacture was acquired in 1999 shortly before the merger by BSC for £83 million.

In 2001 Corus announced it was to cut 6,050 jobs between 2001 and 2003.

In 2003 Corus became the sole owner of SEGAL, a galvanizing company established 1983 as a joint venture.

In March 2006, Corus announced that it had agreed to sell its aluminium rolled products and extrusions businesses to Aleris International, Inc. for €728million (£572 million). Corus was to retain its smelting operations and supply Aleris under a long-term agreement. On 1 August, the sale to Aleris Europe was completed.The sale took place in May 2006.

In 2006 the Mannstaedt works (Troisdorf, Germany, special profiles, acquired by BSC in 1990) was sold to Georgsmarienhütte (GMH Holding).

Reason for Acquistion

Corus in 2007: On 20 October 2006, Tata Steel signed a deal with Anglo-Dutch company, Corus to buy 100% stake at £4.3 billion ($8.1 billion) at 455 pence per share. On 19 November 2006, the Brazilian steel company Companhia Siderúrgica Nacional (CSN) launched a counter offer for Corus at 475 pence per share, valuing it at £4.5 billion. On 11 December 2006, Tata preemptively upped its offer to 500 pence per share, which was within hours trumped by CSN's offer of 515 pence per share, valuing the deal at £4.9 billion. The Corus board promptly recommended both the revised offers to its shareholders. On 31 January 2007, Tata Steel won their bid for Corus after offering 608 pence per share, valuing Corus at £6.7 billion ($12 billion).
In 2005, Corus employed around 47,300 people worldwide, including 24,000 in the UK.At the time of acquisition, Corus was four times larger than Tata Steel, in terms of annual steel production. Corus was the world's 9th largest producer of Steel, whereas Tata Steel was at 56th position. The acquisition made Tata Steel world's 5th largest producer of Steel.

Failed Acquistion

Tata Steel completed acquisition of Corus on 2 April 2007, at the peak of the boom that ended with the Global Financial Crisis in 2008, from which the world economy never recovered.

The company early on Wednesday said it is exploring "all options for portfolio restructuring, including the potential divestment of Tata Steel UK, in whole or in parts". Corus was renamed Tata Steel Europe in 2010.

The decision to sell the UK business comes at a time when the global economy is staring at a further recession, this time driven by a Chinese meltdown.

Explaining the rational behind the decision, Tata Steel said in a statement: While the global steel demand, especially in developed markets like Europe, has remained muted following the financial crisis of 2008, trading conditions in the UK and Europe have rapidly deteriorated more recently, due to structural factors including global oversupply of steel, significant increase in third country exports into Europe, high manufacturing costs, continued weakness in domestic market demand in steel and a volatile currency.

In simple terms, what the company is saying is that cheap Chinese steel dumped across the globe has rendered the business unviable in the face of the continuing financial crisis impact.

For the beginners, Corus acquisition paved the way for the Tatas to enter the UK steel sector. The acquisition was preceded by an unprecedented takeover battle with Brazilian major CSN.

Here's how the battle played out: The Tata group confirmed its interest in Corus on 5 October 2006 and proposed a bid of 455 pence a share in cash on 17 October. On 17 November, CSN offered 475 pence. In response, Tatas upped the bid to 500 pence a share. Then CSN raised the bid to 515 pence a share. As the bidding war heated up, UK Takeover Panel decided to auction the company on 30/31 January. In a nail-biting finish for the seven-hour long bidding war, the Tata group won offering 608 pence a share, 34 percent higher than its original bid. The total payment was $12.1 billion (Rs 53,580 crore at the then exchange rate), of which $6 billion was debt.

Justifying the price the company paid, then group chairman Ratan Tata said in an interview to the Business Standard: Investors came in and increased the price. We have to pay for getting the company. As a prudent management, we had taken a view that we would not go beyond a point. We did not reach that point. Had we reached, we would have walked away. Overbidding or not is subjective when it comes to a judgement call.

Stock investors were not happy with Tata Steel's aggressive bidding. Right from the day the Tatas expressed their keenness to buy Corus on 5 October 2006, investors had pummelled the stock. Over the next six months the stock fell 21 percent. A day after the Indian company won the bid, the stock fell 11 percent. Over a month, it fell 20 percent.

However, at least in the case of Tata Steel, the markets seem to have been bang on target with the bearish view.

The data show how the Tata Steel Europe suffered as demand for steel continued to be weak after the global financial crisis. The company's production never hit 20 million tonne recorded in 2007-08. In fact, the output hovered around 13-15 million tonne for the last seven years. Overall, the output witnessed a 24 percent fall over eight years from 2007-08. Shipments, meanwhile, declined a sharper 41 percent.

,the European operations have lost almost $5 billion since 2010. Given the ballooning debt of the group, the sale decision does not come as a surprise.