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.
The use of internal accruals in financing the acquisition may indicate Tata Steel’s reliance on which source of finance?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Reserves
Option (1) Long-term debt — Incorrect. Debt is borrowed from outsiders and must be repaid with interest. The passage mentions the debt separately. Internal accruals are the company’s own money.
Option (2) Short term advances — Incorrect. These are loans for a short period, used for working capital. A takeover is a long-term use of funds, and internal accruals are not borrowed at all.
Option (3) Reserves — Correct. Internal accruals are funds the company generates from its own operations. The profit it does not pay out as dividend is kept back as retained earnings and built up in reserves. Using them means Tata Steel paid part of the price from its own savings, with no interest and no new shareholders.
Option (4) Government subsidy — Incorrect. A subsidy is money given by the government. It is an outside source, and the passage does not mention one.
Note 1: The passage is the NCERT case study ‘When Tata Steel Acquired Corus’, which has been reproduced by NTA in the exam. The case that opens the chapter is part of the book too. Read NCERT thoroughly, the chapter-opening case studies included. 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. NTA copied the book so closely that even its typos made it into the exam.
NCERT (2026-27 Edition): “When Tata Steel Acquired Corus … 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.” “…On the basis of ownership, the sources of business finance can be broadly classified into two categories viz., ‘owners’ funds’ and ‘borrowed funds’. Owners’ funds consist of equity share capital, preference share capital and reserves and surpluses or retained earnings. …” |