100th Annual Report 2006-2007 - Tata Steel

Directors’ Report 2006-07
608 pence per ordinary share in cash for a net consideration of
USD 12.9 billion. Corus is a leading steel company with an annual
crude steel production of 18.3 million tonnes and revenues of USD
19.2 billion in 2006. Corus’ operations are organised into three
principal divisions; Strip Products, Long Products and Distribution
and Building Systems, with manufacturing facilities located in UK
and Netherlands. It holds a strong position in the automotive,
construction and packaging sectors in Europe.
With the acquisition, the Company has emerged as the sixth
largest steel manufacturer in the world. Tata Steel is the lowest
cost steel producer in the world, catering mainly to the domestic
market. The Company has a competitive advantage of captive
iron ore mines and collieries. On the other hand, Corus has
state-of-the-art plants located in the UK and Netherlands
producing mainly high end products, with a strong R & D
capabilities. The combination of these two entities will give
the Company access to highly developed and competitive
markets of Europe, a strong product portfolio and state-ofthe-art
technology in manufacturing. The Company also sees a
strong cultural fit with Corus, which is one of the key elements
for successful integration. The Company believes that there are
several areas where synergies are possible and is confident that
these benefits will start accruing from the current year itself.
Since the acquisition is effective from 2nd April 2007, the financial
results of Corus will get reflected in the consolidated financial
statements of the Company from the current year.
Finance
In the last few years, the Company has been steadily consolidating
its financial position. No major borrowings were undertaken and
the entire funds for capital expenditure were met from internal
generation. Surplus cash reserves were temporarily invested in
money market mutual funds to facilitate liquidity.
The Company was, therefore, in a strong position to leverage
its balance sheet to meet the substantial funds required for the
acquisition of Corus. The Company proposes to infuse USD 4.1
billion as equity to part finance the transaction. The equity will
comprise of USD 700 million from internal generation, USD 500
million of external commercial borrowings, USD 640 million from
the preferential issues of equity shares to Tata Sons Ltd. in 2006-
07 and 2007-08, USD 862 million from a rights issue of equity
shares to the shareholders, USD 1000 million from a rights issue of
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