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.
Tata Sons Ltd. investing $1 billion in preference shares most likely aimed at:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Ensuring control without voting rights dilution
Option (1) Increasing liquidity of Tata Steel — Incorrect. The money was raised to pay for a long-term takeover. It was not meant to add to the short-term cash position of Tata Steel.
Option (2) Ensuring control without voting rights dilution — Correct. Control considerations are one of the factors in the financing decision. Issuing more equity shares brings in new voting members, so the control of the present management gets diluted. Preference shares get a fixed rate of dividend and are repaid before equity capital. But their holders do not get normal voting rights. So the Tata group raised money without handing any say in the company to outsiders.
Option (3) Expanding Corus operations — Incorrect. The money was used to buy Corus. The passage says nothing about expanding its plants.
Option (4) Reducing working capital requirements — Incorrect. Working capital is the money tied up in day-to-day current assets. A takeover is a long-term use of funds. It does not reduce the working capital a firm needs.
Note 1: The passage is the NCERT case study ‘When Tata Steel Acquired Corus’, which has been reproduced by NTA in the exam. Note 2: The passage prints “significant implicitness”, which should read “significant implications”. The slip is NCERT’s own: the textbook prints the case this way, and NTA copies lines from NCERT word for word, even where the book is wrong. Note 3: The latest NCERT textbook (2026-27) explains control considerations: more equity dilutes management’s control, and debt does not. However, the textbook does not state that preference shareholders have no normal voting rights. This part appears to be outside the NCERT textbook. NCERT (2026-27 Edition): “When Tata Steel Acquired Corus … 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.” “(f) Control Considerations: Issues of more equity may lead to dilution of management’s control over the business. Debt financing has no such implication. Companies afraid of a takeover bid would prefer debt to equity.” |