Tata Steel to buy Corus in $8 bln deal http://in.today.reuters.com/news/newsArticle.aspx?type=businessNews&storyID=2006-10-20T204503Z_01_NOOTR_RTRJONC_0_India-273064-8.xml
Fri Oct 20, 2006
By Michael Smith and Himangshu Watts
LONDON/MUMBAI (Reuters) - Tata Steel Ltd won approval from Anglo-Dutch firm Corus Group for its 4.3 billion pound ($8.04 billion) takeover bid on Friday, creating the world's fifth-largest steelmaker.
The deal, India's largest ever foreign takeover, extends a wave of consolidation in the fragmented steel sector and follows Mittal Steel's $32 billion acquisition of rival Arcelor this year.
Corus agreed to Tata's offer after spending a year looking for a strategic partner in Brazil, Russia and India. Analysts did not rule out a rival bid but said it was unlikely.
Corus shares, which have risen more than 50 percent this year amid persistent bid talk, were off 1.25 percent at 472 pence at 1428 GMT, but were above Tata's 455 pence per share offer price. Tata Steel shares rose 1.2 percent to 507.85 rupees in Mumbai.
The deal received a lukewarm response from Corus' biggest shareholder, Standard Life Investments, which said it "does not attribute significant value" to shareholders. Standard Life declined to say if it would oppose the offer.
Sources close to the matter told Reuters Corus had been in talks with Russia's Severstal and Brazil's Companhia Siderurgica Nacional before securing the Tata deal.
Another source told Reuters that Severstal was not planning a rival offer at this stage. Tata hopes to complete the deal in January.
"In a sector like steel, a lot can change in three months and markets are not ruling out someone else coming in, but obviously if this was serious, the stock would be trading much higher," one trader said.
BREAK FEE
The Indian firm agreed to refinance the majority of Corus' debt and inject 126 million pounds into its pension plan and increase pension contributions. It also agreed to a 1 percent break fee if the deal collapses due to a rival bid.
The deal gives Tata, India's largest private steelmaker, access to Corus' plants in the United Kingdom, The Netherlands, France and Belgium and propels it to the world No.5 position from 56 currently.
"Corus needed the raw materials which Tata has and Tata can use their management expertise to reduce the costs for Corus," Sridhar Iyer, metals analyst at B&K Securities in Mumbai said.
The deal, which gives the combined group a 2005 proforma steel production of 23.5 million tonnes, values Corus' output at $440 per tonne compared to $690 per tonne for Mittal's acquisition of Arcelor.
Corus Chief Executive Philippe Varin told analysts on a conference call he expected shareholders would accept the deal, which valued the firm at 6.7 times earnings before interest, tax, depreciation and amortisation (EBITDA), compared to about 5.2 times for European peers.
Tata refused to rule out job cuts to Corus' 47,000-strong workforce but said there were no short-term plans to relocate plants. Corus, created through the merger of Dutch firm Hoogovens and British Steel in 1999, employs most of its staff in the United Kingdom and The Netherlands.
Unions said they were worried about possible job cuts.
Tata Steel Managing Director B. Muthuraman flagged further acquisitions, suggesting it would use the Corus deal to grow.
"Tata Steel strategy going forward is to grow fast, both in India and overseas and be a consolidator in the steel industry," Muthuraman said on a conference call.
Corus agreed in March to sell most of its aluminium assets in a deal that analysts said paved the way for the company to take part in steel consolidation.
"If Tata did not take this step today, it would have been invaded by the Mittals and Poscos of the world. This was a proactive move to acquire a company in the global space and helps Tata remain unchallenged in the Indian territory," Jigar Shah, research head K.R. Choksey Securities in Mumbai, said.
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