Tata-Corus: SWOT Analysis
Corus has accepted the Tata Steel offer for 100% buyout at 455 pence/share although the offer price is below the market price. The acquisition now catapults Tata Steel to the 5th position globally, but with little immediate benefits visible.
A CLSA report, issued a day before the formal announcement, expresses concerns on likely dilution, integration issues, longer-term opportunity loss to weight on the stock price in the near-term.
"The recommended offer price of 455 pence/share was, however, +10% off yesterday’s intra-day high and well below the 580p suggested by some media reports.
"Effective market cap implied is $7.6 billion, EV is $10 billion. While the EV/t of $512/t may appear attractive, given Corus’ inferior profitability (ebitda/t of $97 versus $300 for Tata Steel), on an EV/ebitda basis (5.3x), the deal would not be far from the benchmark of the Mittal-Arcelor deal (5.9x).
"The visible impact on Corus’ profitability will come with supply of low cost iron-ore/steel inputs from India, but with hostile policies towards iron-ore exports, the need for new mine development and long-lead times for setting up slab capacity, we see a lag of 3-4 years at least.
"The relatively high freight costs incurred on transportation of slabs/billets from India to Europe would also dampen gains. With Corus having a 48,600 strong employee base, integration and retirement liabilities may be additional challenges.
"Concerns on delayed returns, potential equity dilution and the long-term opportunity cost (since conclusion of the Corus acquisition will impair Tata Steel’s ability to tap opportunities in setting-up greenfield projects based on low cost iron ore in India) will be drags on near-term stock performance."
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