Tata Steel says may bid for Corus
Tata Steel Ltd. said it is considering a takeover bid for Corus Group Plc, sending shares in the Anglo-Dutch steelmaker as much as 18 percent higher.
The potential bid for Corus, which has a market value of over 4 billion pounds ($7.5 billion), follows Mittal Steel’s $31 billion acquisition of rival Arcelor this year, underscoring growing appetite by cash-rich steelmakers to cut costs by merging with rivals.
A source familiar with the situation told Reuters that while there had been informal contact between the companies they were currently not in talks. Corus would be open to a tie-up if Tata could match its price expectations.
Corus declined to comment after Tata said it was eyeing takeover opportunities.
"Given recent industry consolidation, Tata Steel is reviewing a number of global opportunities," the company said on Thursday, responding to Indian newspaper reports that it was sizing up a $10.6 billion bid for Corus.
Shares in Corus, which have risen more than 50 percent this year amid persistent bid talk, closed 16.3 percent higher at 473-3/4 pence, topping the FTSE-100 index and valuing the firm at 4.2 billion pounds. The stock hit a 6-1/2 year high of 482-1/4p.
Tata Steel rose 2.7 percent versus a 1.5 percent gain in Bombay’s 30-share index.
Corus is trading at 10.8 times forecast 2006 earnings, according to Reuters Estimates.
"Should the bid materialise these valuations are expensive but not exorbitant in our opinion," JP Morgan said in a note to clients.
Global steelmakers are under pressure to cut costs and become more competitive as China switches from a net importer to exporter of steel.
"There is obviously a lot of cash in the sector. You have Arcelor Mittal and if Corus is hooking up with someone else that increases the pressure on the other players," WestLB analyst Michael Tappeiner said.
"I think it is just the beginning but it is not going to happen overnight."
PAVING THE WAY FOR CONSOLIDATION
Corus, created through the merger of Dutch firm Hoogovens and British Steel in 1999, agreed in March to sell most of its aluminium assets in a deal which analysts said paved the way for the company to take part in consolidation.
Corus has said it is looking at opportunities in low-cost, high-growth countries such as Russia and Brazil.
Tata Steel, India’s largest private steelmaker, is part of India’s sprawling salt-to-software group Tata and has a market value of $6.3 billion.
The Business Standard newspaper earlier reported that Tata may offer about 580 pence a share for Corus.
Shares in other European steel companies such as Salzgitter AG and ThyssenKrupp AG also rose on Thursday.
Tata Steel aims to increase annual output nearly seven times to 35 million tonnes in the next 10 to 15 years. It plans to raise up to 65 billion rupees ($1.4 billion) to fund this expansion.
In a recent report, JP Morgan said based on 2005 steel production numbers, a combined Tata-Corus entity would have an annual steel production of 25 million tonnes, making it the world’s fifth or sixth largest steel producer.
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