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The Race For Bhushan Group Firms: How Tata Steel Outbid Others

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Tata Steel’s Rs 805 crore bid for Bhushan Energy gets nod

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Tata Steel’s Rs 805 crore bid for Bhushan Energy gets nod

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The National Company Law Tribunal (NCLT) on Thursday approved Tata Steel 's Rs 805-crore bid for Bhushan Energy, a unit that belonged to the Delhi-based Singal family.

Bhushan Energy would be Tata Steel's second acquisition of an insolvent firm from the Singal family. In May last year, Tata Steel had acquired Bhushan Steel for Rs 35,200 crore through the Insolvency and Bankruptcy Code (IBC) route.

Bhushan Energy has around Rs 4,000-crore debt. Its liquidation value was seen at Rs 755 crore.

On a petition moved by State Bank of India, insolvency proceedings against Bhushan Energy under Section 7 of the Code was admitted by the NCLT's principal Bench on January 8, 2018.

Incorporated in 2005, Bhushan Energy is based in Dhenkanal, Odisha. It operates 485 MW of thermal power, developed in two phases, and supplies the entire generation to Bhushan Steel for use in its integrated steel plant, as per a power purchase agreement (PPA) signed between the two firms. Bhushan Energy reported a gross debt of Rs 2,336 crore in FY16 and posted a net loss of Rs 229 crore on revenues of Rs 622 crore in the same period, Capitaline data showed.

During the course of the insolvency proceedings against the company, Bhushan Energy's promoters objected initiation of the proceedings saying the company has been in troubled waters because of cancellation of its captive coal mine, which forced it to depend on spot market for purchase of coal. This completely eroded the company's profitability and the financial distress further compounded due to deteriorating situation of the power sector, it argued.
The NCLT in its order, however, rejected the objection.

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Tata Steel's Rs 805 crore bid for Bhushan Energy gets nod

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The National Company Law Tribunal (NCLT) on Thursday approved Tata Steel 's Rs 805-crore bid for Bhushan Energy, a unit that belonged to the Delhi-based Singal family. Bhushan Energy would be Tata Steel's second acquisition of an insolvent firm from the Singal family.

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Tata Steel completes acquisition of Bhushan Energy

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Tata Steel completes acquisition of Bhushan Energy

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Tata Steel BSL Ltd. with Bamnipal Steel Ltd.

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Tata Steel BSL Ltd. with Bamnipal Steel Ltd.

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The share price of the target company rose slightly after the announcement of deal, but there was a huge spike in the number of shares traded for a couple of days with a huge increase in turnover.
The share price of the acquirer company rose slightly after the announcement of deal, and there was a huge spike in the number of shares traded for the next trading day with a huge increase in turnover. However, the share price fell for next three days and rose again [5].

In the era of cross border mega mergers, this acquisition is one of the neo-classical mergers influenced by the industry's economic, technological and regulatory environment. Tata Steel was looking to double its capacity by FY22 to 23 MT, and Bhushan Steel (5MT) being a major producer of Flat products, Tata Steel is poised to garner 50% market share in this segment with its acquisition, especially Northern region. Locations of Bhushan Steel were close to the Auto hub of Pune & Gujarat and also gives access to the Northen market with added advantage and synergies in the raw material linkage, procurement & marketing and was hopeful that synergies created due to acquisition will be fruitful in the long run. Also, it was an easier acquisition helping the target from its debt and possible bankruptcy [6].

[------Evidences from- 1. https://mnacritique.mergersindia.com/tata-steel-acquires-bhushan-through-ibc-route/
2. https://economictimes.indiatimes.com/markets/stocks/news/tata-steel-board-approves-merger-of-bamnipal-steel-tata-steel-bsl/articleshow/69045850.cms
3.  https://www.telegraphindia.com/business/bhushan-to-merge-with-tata-steel/cid/1689417
4. https://www.tatasteel.com/media/6848/press-release.pdf-----------]

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1. Takeover through IBC route

2. Acquirer: Tata Steel BSL Limited
Target: Bhushan Energy

3. Tata Steel BSL Ltd: Steel Industry

​     Bhushan Energy: Energy Industry
It is a vertical deal.

4. Deal value: Rs 805 crore bid

5. The share price of Tata Steel rose by around 2 percent when the deal was announced, initially and the prices of the shares prices after two months declined roughly by 13 percent.

6. Bhushan Energy was a company with piles of debt under its name and was filing for a bankruptcy filing under IBC, 2016 where they had to find a suitable buyer within a period of 180 days. As Bhushan Energy was under stress to clear its debt and company had financial tensions, this will fall under neoclassical theory as Bhushan energy was in a financial burden and Tata Steel BSL Ltd got cheaper valuations for an acquisition deal.

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Tata Steel BSL Ltd. with Bamnipal Steel Ltd.

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Tata Steel BSL Ltd. with Bamnipal Steel Ltd.

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It is a classic story of a  Merger [1] using the Corporate Insolvency Resolution process of IBC,  where the acquirer was Bamnipal Steel Limited (BNL) wholly owned subsidiary of Tata Steel Limited and target was Bhushan Steel (BSL) [2]. It was one of an example for an horizontal deal in steel industry [3]. It was ratified with a deal Value of Rs 35200 Crore (2/3rd the loan owed by BSL)  with 3 Nominees on board [4].