Tata Steel offers to buy Corus Group for $10 bn
In the boldest bid for a foreign company by an Indian group, Tata Steel, on Tuesday said it had made a “non-binding offer” to acquire 100% stake in UK-based Corus Group plc for an enterprise value of $10 billion. That’s three times Tata Steel’s current revenue.
At a bid price of 455 pence a share, Corus’ equity is valued at $8 billion. The proposal is being considered by the Corus board. In 2005-06, Tata Steel had revenues of Rs 15,394 crore ($3.3 billion), while Corus reported revenue of 10 billion pounds in 2005.
If the deal materialises, Tata Steel-Corus will have a combined capacity of 22.6 million tonnes per annum, making it the 6th largest steel producer in the world. Tata Steel is currently at number 32.
Nearly 49% of Corus is owned by British shareholders, 11% by North American shareholders, 10% by Dutch shareholders and another 30% by shareholders in Germany, France, Belgium and other countries.
Tata Steel stock gained 0.85%, or Rs 4.35, to close at Rs 515.70 on the BSE on Tuesday, resisting the marginal correction witnessed by the benchmark Sensex. Shares of Corus were down 0.1% on the London Stock Exchange, at 479 pence at the end of trading on October 17.
Notices from both the companies to their respective stock exchanges clarified that “there is no certainty that a final offer would be made”. The deal is in line with Tata Steel’s plan to raise capacity to 30 MTPA by 2010. The company currently has a capacity of only 8.1 MTPA, including 4.4 MTPA at its Jamshedpur plant, 2 MTPA at NatSteel’s plants and 1.7 MTPA at Millenium Steel. Thai company Millenium Steel and Singapore-based NatSteel are its recent acquisitions.
According to analysts, the synergies between the two companies are good. Corus is a large player in value-added services and Tata Steel is one of the lowest cost producers of steel in the world.
“Corus does not have a cost advantage like Tata Steel does, because it does not own mines, but the Corus buy will give Tata Steel a major presence in Europe,” says Hitesh Agrawal, an analyst tracking the metal sector for Angel Broking.
A New Delhi-based analyst feels that the Corus buy dovetails with Tata Steel’s efforts to move up the value chain, as the former supplies the aviation and auto industries.
A Mumbai-based analyst, however, cautioned that Tata Steel could have problems in the power sharing process at the mid and lower-level managements of both companies.
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