Cross border takeover: Tata Steel eyes Corus
Everything that sparkles has to be steel. Tata Steel said on Thursday that it is examining large global acquisitions, including a possible bid for British steel giant Corus amidst increasing signs that the company is in advanced stages of finalising a structure and securing funds.
The company’s statement to stock exchanges drove shares of both Tata Steel and Corus higher on the bourses. While Tata Steel climbed 2.6%, Corus hit a six-year high on the London Stock Exchange on hopes that an approach by the low-cost Indian manufacturer would help improve fortunes of the Anglo-Dutch giant.
Tata Steel, sources said, is likely to create a special purpose vehicle (SPV) abroad for the bid. About $2.5bn will be invested in SPV. The funds are likely to come from Tata Steel’s own cash reserves, plus contributions from promoter Tata Sons.
Tata Sons, industry sources said, could either issue preference shares to Tata group companies or otherwise sell a small stake in some of its group companies with a high market capitalisation. The proposed SPV will then raise loans of about $6bn or so from a consortium of banks such as Standard Chartered, ABN-Amro and Deutsche Bank.
Tata Steel has cash on hand of about Rs 770 crore and investments in mutual funds of about Rs 2,100 crore. The company recently raised about Rs 1,500 crore through a preferential issue to the promoter Tata Sons. It has also raised debt of about $750m.
Tata Steel added in a separate announcement that it has received separate shareholders approval to raise Rs 6,500 crore through the issue of securities. The company has also got the nod to increase its borrowing limit to Rs 20,000 crore and increase the authorised share capital from Rs 850 crore to Rs 2,000 crore.
These actions only served to confirm what was steadily becoming obvious. “We are reviewing various opportunities, including Corus. However, there can be no certainty that an approach will be made and if made that it will result in an offer,” the company said.
Such a move will be the largest overseas takeover attempt by an Indian company and if successful, catapult Tata Steel into the ranks of the world’s top 10 steel producers. Corus is the world’s seventh-largest producer with a capacity of about 18mt. Tata Steel is believed to have valued it about $10bn.
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