Tata Steel wins Corus with $11.3bn offer

The much awaited results are out!!

Tata Steel of India won the battle to control Anglo-Dutch steel maker Corus with a £5.75bn ($11.3bn) offer on Wednesday, after more than eight hours of head-to-head bidding against Companhia Siderúrgica Nacional of Brazil.

Tata was declared the winner with a bid of 608p a share in cash, against CSN's highest bid of 603p a share. The Tata bid valued Corus at about £6.7bn including debt, said a spokesman for the company – far above earlier analysts' and market estimates. Corus shares closed in London on Tuesday at 565p.

"This is a price that Corus shareholders will be happy with but also one that Tata is happy with," said a banker working on the Tata bid. He added that the Tata camp was "pretty excited" about the victory, especially as CSN had been seen by many as the probable winner. "We kept a very low profile but we always knew Tata was very determined," said the banker. Tata is expected to hold a press conference in Mumbai at about 10:15am local time.

The bidding went to the ninth and final round of an unusual auction process introduced by the UK Takeover Panel to ensure the Corus battle was resolved in an orderly and transparent way. One person described the process as "tense" towards the end. The Tata team including the chairman, Ratan Tata, conducted the bidding from their headquarters in Mumbai through their bankers in London.

Tata and CSN had been fighting over Corus for several months, in an effort to become the world's fifth largest steel producer. The global steel industry has been rapidly consolidating over the past year, and steel makers are under pressure to grow if they are to have a chance of competing with Arcelor Mittal, the world's largest steel group, created last year through the takeover of Arcelor by Mittal Steel.

CSN bid 515p a share in cash for Corus in December, trumping Tata's agreed offer of 500p. Tata had started the bidding in October with an offer of 455p a share.

Tata's winning bid of 608p a share represented a premium of 68 per cent to Corus's pre-bid share price, Corus said.

A person familiar with the Tata bid acknowledged the price was higher than the market expected but said Tata's net profit for the third quarter, reported on Tuesday, was sharply higher and steel prices were buoyant. "Against that backdrop, it's understandable that Tata Steel has the confidence to do what it has with Corus," he said.

Tata said the bid represented a price of nine times earnings before interest, taxation, depreciation and amortisation from continuing operations for the year ending September 2006 and a premium of 33.6 per cent to its original bid of 455p.

The deal represents the final chapter in a successful turnround story at Corus, which was on the brink of collapse four years ago. At the time, its shares were trading at less than 10p, but a boom in global steel prices and a restructuring plan pushed through by Philippe Varin, chief executive, led to a dramatic recovery in the group's fortunes.

One London-based steel analyst said earlier Tuesday that Corus was expensive even at 515p a share. "450p was where you could find a stand-alone fair value for the company. Higher than that and you have to find synergies."

CSN and Tata's bidding had been dictated by "pride" as much as value for money, said the analyst. "They are looking at global empire building."

CSN tried to merge with Corus in 2002, and had claimed to have done substantial work on the potential synergies between the two companies.

CSN refused to comment immediately Wednesday morning. Earlier it said it would launch a bid for Colombian steelmaker Acerias Paz del Rio, seen by some commentators as a plan B in the event of Tata taking Corus.

The deal is likely to boost the valuations of smaller steel companies that could get caught up in the further consolidation of the global steel industry, such as Voestalpine of Austria and Salzgitter of Germany. CSN, along with ambitious Russian steelmakers such as Severstal, who missed out on a merger with Arcelor last year when it was bought by Mittal Steel, will be looking for targets.

[Courtesy - www.ft.com]

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Corporate Study Team,
IMERT, Pune