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When Tata Steel Acquired Corus Tata Steel

The biggest steel producer in the Indian private sector acquired Corus, a Dutch Steel Company in a deal worth 12 billion USD in 2007. A financial decision of this magnitude has significant implicitness for both Tata Steel and Corus as well as their employees and shareholders. Details of acquisition are as follows:

This acquisition has been a largest private sector transaction by Indian company outside of India and named Tata Steel Europe in 2010.

Tata Steel raised a debt of over $8 billion to finance the transaction. The deal will be paid for by Tata Steel UK, a special purpose vehicle (SPV) set up for the purpose. Another company of the Tata group, Tata Sons Ltd., invested$ 1 billion dollars for preference shares along with Tata Steel which will invest an equal amount.

Tata Steel, the acquirer company, arranged about 36,500 crores of rupees to finance the take-over.

Tata Steel raised this amount through debt or equity or a combination of both. Some amount came from internal accruals also. This financing decision affected the capital structure of the acquirer

Setting up Tata Steel UK as a Special Purpose Vehicle (SPV) mainly served which financial purpose?

To manage the taxation of the deal more efficiently

To separate and limit financial risk from the parent company

To improve the company's liquidity ratio

To enhance dividend yield to shareholders

✅ Correct Option: 2

A special purpose vehicle is a separate legal entity created for a specific transaction. By routing the $8 billion acquisition debt through Tata Steel UK, the borrowing and associated financial risk were ring-fenced within the SPV, separating and limiting the risk exposure of the parent company, Tata Steel. Hence option 2.

Question 42

The use of internal accruals in financing the acquisition may indicate Tata Steel's reliance on which source of finance?

Question 43

The $12 billion acquisition deal's impact on Tata Steel and Corus as well as their employees and shareholders represents which type of financial decision?

Question 44

Tata Sons Ltd. investing $1 billion in preference shares most likely aimed at:

Question 45

The financing of the Tata-Corus deal through debt and preference shares most directly impacts which aspect of Tata Steel's financial structure?

Setting up Tata Steel UK as a Special Purpose Vehicle (SPV) mainly served which financial purpose?

Solution

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