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Jsw Steel Merger Summary

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JSW Ispat had very high debt on its books. The D/E ratio for JSW Ispat was 5.74, much higher than the current D/E for JSW Steel. Also, JSW Ispat had been making losses for the last seven years and the prospects of future financing were weak. The risk which JSW Ispat brought with it could jeopardize the operations of JSW Steel too. The news of lift of iron ore mines in Karnataka would leave no significant advantages for acquiring JSW Ispat. Therefore, it would be interesting to analyse, why JSW Steel, the number two player in the domestic steel industry with a EBITDA CAGR OF 36% over the last 10 years went ahead with this …show more content…

JSW Steel was the second largest player in steel after SAIL. The merger would therefore catapult JSW Ispat into profit making. Following are the strategic benefits from the merger: Capacity: With the completion of merger, JSW Steel would become the largest steel producer in the country after state-owned Steel Authority of India (SAIL) with 14.3 million tonnes capacity. Presently, JSW Steel had production capacity of 11 MTPA. Better utilization of infrastructure and elimination of redundancies would help to expand capacity. Enhanced market reach: JSW Steel operated upstream units at Vijaynagar (Karnataka) and Salem (Tamil Nadu), and one downstream unit at Vasind & Tarapur (Maharashtra), thus having strong presence in southern India. JSW Ispat operated one upstream unit at Dolvi (Maharashtra) and downstream unit at Kalmeshwar (Maharashtra), thus having presence in western and central India. The merger would thus help to give pan-India presence to JSW …show more content…

461 crore as calculated. Minimum Value of synergies to make the deal accretive: In order to make the deal accretive, it is important to realize synergies of at least Rs. 630 crore. Maximum number of shares to be exchanged without diluting EPS: It was analyzed that even by considering share exchange ratio of zero, the deal was dilutive by 2%, because target’s net income was less than synergies realized. Hence, it was not possible to calculate the share exchange ratio for which the deal can be accretive. Conclusion The current synergies for the deal are calculated to be Rs. 461 cr. For the deal to be accretive and attractive, it is mandatory to realize synergies worth Rs. 630 cr. But on further in-depth analysis it is seen that what makes this deal so attractive for JSW Steels is all the strategic advantages that it derives from JSW Ispat. It is poised to gain significantly on account of increased market share, technological capabilities and the risk mitigation. All in all, this deal has been a success for the shareholders of both, JSW Steel and JSW

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