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 $12 billion acquisition deal’s impact on Tata Steel and Corus as well as their employees and shareholders represents which type of financial decision?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Investment decision
Option (1) Dividend decision — Incorrect. The dividend decision is about how much of the profit is paid to shareholders and how much is kept back. Buying another company is not about sharing profit.
Option (2) Financing decision — Incorrect. The financing decision is about where the money comes from: debt, equity, preference shares or retained earnings. The passage uses this term for the way Tata Steel raised the 36,500 crores. But the deal itself, buying Corus, is a use of funds, not a source of funds.
Option (3) Investment decision — Correct. The investment decision is about how the firm’s funds are invested in different assets. A long-term investment decision is called capital budgeting. It commits large funds for a long time and cannot be undone except at a heavy loss. Buying Corus for 12 billion USD is such a decision, and its effect falls on both companies, their employees and their shareholders.
Option (4) Working capital decision — Incorrect. Working capital decisions deal with short-term assets such as stock, debtors and cash. A takeover is a long-term commitment.
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.
NCERT (2026-27 Edition): “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:” “Investment Decision A firm’s resources are scarce in comparison to the uses to which they can be put. A firm, therefore, has to choose where to invest these resources, so that they are able to earn the highest possible return for their investors. The investment decision, therefore, relates to how the firm’s funds are invested in different assets.” “Investment decision can be long-term or short-term. A long-term investment decision is also called a Capital Budgeting decision. It involves committing the finance on a long-term basis. For example, making investment in a new machine to replace an existing one or acquiring a new fixed asset or opening a new branch, etc. …” |