The Hindu Business Line : Tatas make $10-b bid for Corus

Tata Steel has announced a $10-billion bid for UK-based steel maker Corus Group, in what is being termed as the biggest overseas acquisition by an Indian company.

If the bid ends in a successful deal, Tata Steel will shoot up in the league of world steel makers from the current rank of 56 to sixth.Tata Steel told the BSE on Tuesday that it has made an indicative non-binding offer to acquire 100 per cent equity in the British steel company through a recommendatory offer route at 455 pence per share in cash amounting to an enterprise value of about $10 billion. It, however, added: "There is no certainty that a final offer would be made."

Sources tracking the deal said that talks between the Tatas and Corus, UK's largest steel maker, were on the fast lane and the final deal would be shortly sewed up.

According to analysts, the deal would bring about significant synergies, with Corus getting access to the world's fifth biggest iron ore deposits and Tata Steel expanding its footprint in the global steel market.

After the takeover, the new entity would have about 23 million tonnes production capacity.

Tata Steel shares closed at Rs 515.70 on the BSE on Tuesday, up by Rs 4.35 or 0.85 per cent.

Under the UK takeover code, a "recommended offer" is considered an expression of intent and cannot be construed as a concrete offer. Corus also indicated that both the companies have kept the options (of making an actual offer and acceptance) wide open.

Analysts in London told Business Line that chances of the deal going through at this price are slim.

"I think the chances are less than 30 per cent; this price is too low, if it were 500 pence per share, then I would obviously have given more than 60 per cent," said an official of the British hedge fund Tisbury Capital, which currently holds around one per cent of Corus.

"This price gives the Russians some incentive to make a bid at 500 pence. Maybe it was meant to be low to see if anyone else is interested. I think the Tatas have the firepower to go for a higher price if the Russians come, and if they don't, then maybe they will get Corus cheap."

Corus is 90 per cent owned by different funds, including those sponsored by pension funds, insurance companies and banks.

The regional spread of Corus shareholding as on October 10 was: UK (British Steel legacy) - 49 per cent, North America (primarily ADS) - 11 per cent, the Netherlands (inheritance of Hoogovens) - 10 per cent; other countries 30 per cent.

Analysts at Dresdner Kleinwort, which has long-held overweight recommendation on Corus, today estimated that the Tatas may raise a loan of $6 billion (if the price is at $9 billion) and around $6.5 billion (if the offer price is $10 billion). Corus has 899 million outstanding shares.

According to the official of another UK fund, the unions appear to be positive about the Tata move and accept that Corus needs a strong industrial partner in a consolidating market.

They are more concerned about the Russians because they feel that the Russians have lower quality assets and therefore, investment would be focused domestically and not on Corus.

The fund official said that the fact that the Corus share price is at 480 pence seems to indicate that the market is expecting a higher offer and this is just the opening shot.

"Corus has been looking for a partner for over a year and the Brazilians and Russians don't seem to be very interested. Therefore, Corus does not have much option and if Tata Steel walks away, then Corus shares would go back to 350 pence."

More Stories on : Steel | Mergers & Acquisitions | Overseas Investments | Tata Steel Ltd

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