| Mr. Ratan Tata's opening Speech Today marks the
end of a journey that commenced quite sometime ago and I think when it started Tata Steel
saw a strategic fit with Corus in the UK and Netherlands, which would give it a global
reach in Europe; synergies with low cost intermediates in India and when we made our first
bid to acquire the company, many thought it was an audacious move because an Indian
company making a bid for a European steel company much larger in tonnage size which is
something that had not happened before.
In October, we were all very pleased and made an announcement that we
had made a bid, which infact had the support of the management and the unions, and then we
went into a long period of competitive bidding ever since a Brazilian steel and ore mine
company entered the fray and I guess many of us in the company wondered whether what we
had started was frustrated.
I am glad to say that coming to the auction, which started last night
and went through the night we were able to win the auction away from the Brazilian company
and happily Corus is been, acquired by an Indian steel company. I think it's a moment of
great fulfillment for all of us in India because Tata Steel as an Indian steel company now
has global scale and has a footprint in Europe and I think it's the commencement of Tata
Steel's global strategy. This also elevates Tata Steel to the fifth largest steel company
in the world. At this point in time, I would like to recognize the tremendous efforts made
by Mr. Muthuraman as MD, Mr. Arun Gandhi who has camped in London and many others who have
made this transaction possible.
I believe that this will be the first step in ensuring that the Indian
industry can in fact step outside the shores of India in an international market place and
in fact acquit itself as a global player. I think Tata Steel will have a major role in
creating its presence in Europe and I think Mr. Muthuraman will have his hands full of
course, but I am sure we will see Corus grow and integrate with Tata Steel.
As some of you may remember, the top management of Corus will remain
with the company and therefore will be part of our integrated operations and this in
itself is an expression of faith and the confidence that the existing management has in
the management and the ownership of Tata Steel. So I look forward to a very worthwhile
unison between our two companies. We have satisfied ourselves that the company has in no
way been jeopardized in terms of the interest of the shareholders in this acquisition and
I believe that over the next few years we will all come to think that this was a visionary
move that has a long-term repercussions that are very very positive for India and for Tata
Steel.
Mr. Muthuraman's Speech
We have always been telling you that over the last three years, Tata
Steel has had a strategy for this future, in terms of creating Greenfield capacities in
India and one or two places internationally also where our raw materials and energy
sources are available. Acquisitions in countries where raw material is not available but
there are markets either developed, mature or growing markets. Infact, that is the
fundamental reason why we went and acquired NatSteel and Millennium steel in the last
couple of years. Getting more from steel in terms of branding and distribution and finding
current solutions and construction solutions and so on. Looking at logistics and how to
reduce logistics cost, so there is a set of strategic objectives that Tata Steel has
evolved for its journey from where we are today to where we want to be in the next
ten-fifteen years time. The initiatives that we took to look at Corus and to make Corus a
part of Tata Steel is in line with these objectives.
What does Corus bring to Tata Steel; one is that it brings the capacity
of nearly 19 million tonne per annum immediately unlike for example, Greenfield projects,
which have got its own merits, which have got its own compelling reasons but its takes
about three-five years and often a little bit longer in the developing countries like
India. So it brings Tata Steel 19 million tonne of capacity at once and at a cost, which
is roughly a little more than half of the cost of the Greenfield site.
Secondly, it gives us access to very matured and developed markets of
Europe where you can go downstream much more than in a developing country like India and
even to some extent China. Europe is a very mature market with the customers demanding
very high quality service and these require special capabilities, which are resident in a
company like Corus through which Tata Steel can also learn a lot of things. So apart from
brining 19 million tonne capacity all at once to Tata Steel basket, it gives access to
Tata Steel into the developed and mature markets of Europe where quality of products is
important, service is important.
Thirdly, Corus has a very highly developed R&D capability, which I
believe India in general lags, even though compared to some other Indian steel players,
Tata Steel has much better R&D facilities, I think there is much to be gained both in
terms of improving Tata Steel's own operations and understanding the products
understanding the technologies much better and deriving much more value with the existing
assets of Tata Steel, that is another strength that Corus brings to Tata Steel. So these
are some of the reasons why we believe that the strategic fit between Tata Steel and Corus
is very high. Of course it also brings in a company to Tata Steel whose management and
work practices are very similar to Tata Steel and there is a tremendous amount of cultural
fit between Tata Steel and Corus, which is of a fundamental importance to any post
acquisition, integration process. And infact, it is perhaps the most important thing in an
integration process between two large companies.
In terms of some numbers, at the price at which Tata Steel is acquiring
Corus which is 608 pence/share, the enterprise value per tonne is roughly little more than
USD 700-710 a tonne or so and today if you want to create a new Greenfield capacity, going
downstream as much as Corus has in terms of tinplate capacities, in terms of galvanizing
for automobile applications, in terms of going downstream into construction solutions, in
terms of going downstream into service sectors and facilities required for ready to use
end products. Such capacity anywhere in the world would cost somewhere between USD
1200-1300 per tonne. So in terms of EV per tonne its about $ 710 which is less than the
industry average for transactions which have taken place in the last 5 to 6 years. In
terms of EBITDA multiple it is about 9 times on the last 12 months EBITDA for the period
ended 30 September 2006, which I must admit is a little higher than the industry average
of the last 5 to 6 years but there is a good reason for it and before any of you ask me I
thought I must explain it upfront. It is very important that we have the right utilization
of the assets to bring the best out of the assets to create value which is why you are
going to have an EBITDA multiple which will be better than say 5 or 6 or 7 like that. So
to that extent it represents roughly an average of the industry EBITDA multiples of the
last few transactions of which some of them are higher and some of them are lower.
What we are trying to do with this acquisition is that after the
formalities are over which will take 3 to 4 months or so we have planned to form executive
committees and task forces between the two companies so that the integration process can
start up as quickly as possible. We have indeed identified some synergies and the synergy
number which quite often people have asked us for the last 3 to 4 months since October
20th is something which I am going to talk about today because today it's a good occasion
to talk about it - October 20th was not such an appropriate occasion to talk about
synergies. In terms of synergies, we see synergies in improvement of operating practices
in many areas. We have had a reasonably good look at it in the limited time that we had
with Corus. We see synergies in procurement of materials, we see synergies in the
marketplace, we see synergies in shared services, we see synergies in improvement of our
operations in India using what Corus has in some areas which is better than us. In terms
of total synergies we believe that it is roughly about USD 300-350 million dollars per
year, which is something, which we will be able to bring to the bottomline of the combined
entity. It will take a little bit of time; it will start at a lower value for the first 1
or 2 years. From the third year onward, we expect to realize the full synergy.
So as Mr. Tata said, this is another step in Tata Steel's journey to
what it wants to become in the next 10 to 15 years. And this is a very important and
significant step not only for Tata Steel but I believe for the country as a whole because
India has a tremendous potential and future for steel and there are many areas in which I
think we could be world leaders and I believe Tata Steel's efforts, initiatives and
success in this endeavour of acquiring Corus is something which will be a trendsetter in
what will happen to Indian steel industry.
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