India's Tata Steel values Corus at $10 billion

Tata Steel shapes up to complete India's largest outbound M&A deal to date.
Corus and Tata Steel confirmed yesterday that Tata Steel has offered ú4.55 ($8.47) per share for the UK steel producer. In its filing to the Bombay Stock Exchange, Tata Steel says it has made "an indicative, non-binding offer to acquire 100% equity in Corus" on a cash basis and that the offer price amounted to "an enterprise value of approximately $10 billion". If successful, this will be the largest outbound cross border acquisition by an Indian private sector company.

On October 5, Tata Steel confirmed to the BSE that it was evaluating a number of takeover options including Corus. In true Tata style, the transaction with Corus has been conducted in a friendly manner. Corus shares reacted positively to the takeover news earlier this month, gaining 16% in one day. They have continued the upward trend since then, trading as high as ú5.00 at one point.

Corus was created in 1999 through the merger of British Steel and Dutch Royal Hoogovens. It employs more then 47,000 people and ranked as the worldÆs eighth largest steel producer in 2005 with an output in excess of 18 million tonnes. Corus has plants in Port Talbot, Rotherham, Scunthorpe and Teeside in the United Kingdom and at Ijmuiden in the Netherlands.

Tata Steel is significantly smaller with its own output expected to be about five million tonnes this fiscal year. However, Tata Steel is part of India's leading business group, the Tata group which is embarking on a series of forays overseas. In 2004, Tata Steel acquired the steel businesses of NatSteel in Singapore, China, Malaysia, Thailand, Australia and the Philippines. At the time, Tata said the acquisition was intended to provide a ôbeachhead in key Asian marketsö. A parallel can also be drawn with an earlier acquisition by Tata Tea of Tetley in the UK which had served to immediately enhance scale and visibility for the acquiring company.

The Tata Steel-Corus combination will create one of the worldÆs top 10 steel producers with approximately 25 million tonnes of production capacity. Analysts say there are synergies for both companies in the transaction. For Tata Steel, the deal will immediately catapult it into the big league of global players. Corus, meanwhile, will benefit from Tata SteelÆs lower cost structure and distribution synergies.

This transaction follows the $31 billion acquisition of Arcelor by Mittal Steel earlier this year. The combined group produces 100 million tonnes of steel a year, making it significantly larger than its competitors.

Corus shares opened trading on October 17 at ú4.78. However, the price fell to ú4.74 when Tata SteelÆs offer fell short of market expectations, though it recovered somewhat thereafter. Analysts are speculating that Tata Steel may have to increase its offer from present levels to ensure success. In contrast, details of the offer were welcomed by investors in India and Tata Steel gained a shade less than one percent to close at Rs516 ($11.38) on the Bombay Stock Exchange.

Tata Steel is arranging financing for the transaction from a consortium of banks including Deutsche Bank. It is being advised by ABN AMRO and Deutsche Bank. The advisors had no comment on the transaction.
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