World’s 5th Largest Steel Co
Europe’s second-largest steel maker, the $17-bn Corus Group, on Friday accepted Tata Steel’s 4.3-billion pound ($8 billion) acquisition offer, creating the world’s fifth-largest steel behemoth with a combined annual capacity of 23.5 million tonnes.
The deal, India’s biggest, is likely to be closed by mid-January. It is contingent on Tatas getting approval from over 50% of Corus’ shareholders and obtaining 75% of shares.
Nearly 49% of Corus is owned by UK shareholders, 11% by north American shareholders, 10% by shareholders in Netherlands and another 30% by shareholders in Germany, France, Belgium and other countries. Corus was created by a merger of British Steel and the Netherlands’ Royal Hoogovens in 1999.
After their respective expansion plans, the Tata-Corus entity would have a capacity of 40 mtpa and annual revenues of $32 billion by 2011-12. Currently, Arcelor Mittal is the world’s largest steel producer, with a capacity of 109.7 mtpa.
The Tata-Corus deal is aimed at creating a vertically integrated global steel group that combines the cost-competitiveness of Tata Steel, one of the world’s lowest-cost steel producers, with Corus’ high value-added product mix and strong market positions in automotive, construction and packaging steel. It pegs the enterprise value of the Corus Group at $10.26 billion.
Once the deal is complete, Corus’ board of directors will be restructured to include Ratan Tata as chairman. Corus’ current chairman Jim Leng will be deputy chairman.
Tata Steel managing director B Muthuraman and Tata Sons executive directors Arun Gandhi and Ishaat Hussain will represent Tata Steel on the Corus board.
Both sides have agreed that their would be no immediate job cuts. The senior management of Corus will continue in their current roles until the completion of the acquisition.
Tata Steel will fund the acquisition through its subsidiary, Tata Steel UK. While Tata Steel will contribute $3.88 billion through the subsidiary, the remainder will be funded via a fully-underwritten debt.
The Tata Steel stock gained more than 1%, or Rs 6.15, on Friday on the BSE to close at Rs 507.85. The stock also touched an intra-day high of Rs 521. Nearly 3.5 lakh shares were traded on the BSE on Friday, against the two-week average of 1.74 lakh shares.
Although the stock has gained more than 2.20% in the last one month, last week saw it losing a marginal 0.67%. At 3 pm London time, the Corus Group stock was trading at 473.75 pence, down 1%, on the London Stock Exchange.
The enterprise value, at 455 pence per share, represents a 26% premium on the average share price of Corus for the past 12 months.
The price also represents a multiple of nearly 7.9 times the underlying EBITDA from continuing operations for 12 months ending July 1, 2006.
Asked whether Tata Steel would raise the bid price in the event of a counter bid, chairman Ratan Tata said, “We believe that the offer we have made is a fair offer.” Added Leng, “After an intelligent search for a year, we think that this is the right fit. Our board has unanimously accepted the Tata offer.”
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