D. Murali

Chennai, Dec. 21

All is not lull in the Corus tussle, because both the players in the race, viz. Tata Steel of India and CSN (Cia Siderurgica Nacional) of Brazil, are busy guessing the cards on the other side. According to informed sources outside India, what can be of significance are at least four points, as of now.

First, the synergies. "Unlike Tata, CSN detailed significant synergy benefits from buying Corus," wrote Saeed Shah on www.nzherald.co.nz in an article dated December 13. "The logic for the Brazilians is based on supplying low-cost iron ore from its (CSN's) own mines to the Corus plants in the UK and Holland. Under Indian law, Tata is not permitted to export iron ore, the key raw material for making steel," reasoned Shah.

Second, the multiples. "Tata can only come back by paying a multiple greater than 7.8 times EBITDA. This compares with Mittal's/Arcelor's at 6.1 times or 5 times if you include synergies," point out the sources. EBITDA stands for earnings before interest, taxes, depreciation and amortisation, "an approximate measure of a company's operating cash flow based on data from the company's income statement," as www.investorwords.com explains.

Three, the margins. "Even at the top of the cycle Corus's margins are significantly lower than either Tata's or Arcelor's. Their EBIT margin is only 5.1 per cent versus Tata Steel's at 30.9 per cent," reads a snatch from the sources that would like to be unnamed. EBIT, as you can infer, is short for earnings before interest and taxes.

And four, the markets. "Significant market movements in Tata Steel share price show that when the market thinks Tata will not bid, their price goes up and when the market thinks they may bid, their price goes down," reads the `informed' inference.

Whether the final result will yet belie all these points is something that can be as inscrutable as in a poker game.

(This article was published in the Business Line print edition dated December 22, 2006)
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