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Samba shootout surprises London bankers

Few expected Tatas to show financial muscle and seal the deal, or CSN to lose in the final bout, Vijay Dutt.

india Updated: Feb 01, 2007 03:52 IST
Vijay Dutt

The Brazilians might want to call it a soccer shootout and Indians may call it a nail-biting one-day cricket match. But it was clear in the early hours of Wednesday that the Tatas had shown audacious guts in a fast-paced auction to create the world’s fifth largest steel maker. Formalities are expected to be completed by March.

With Arcelor-Mittal led by Laxmi Mittal at number one, Indians have really expanded their empire in the steel world. Tata Steel won with a bid of 608 pence a share, topping a 603 pence a share offer from Brazil’s Companhia Siderurgica Nacional (CSN), after an unprecedented nine rounds of bidding overseen by the UK’s Takeover Panel. The Tatas will pay an equivalent of $12.1 billion to take controlling stakes.

The Tatas’ takeover price of 608p represents a 68 per cent premium to Corus’s share price prior to Tatas’ offer four months ago and also a hefty premium to the price Mittal paid for Arcelor. The offer, recommended by the Corus board led by its chairman Jim Leng, was 33.6 per cent above Tata’s original bid of 455p last October. It values Corus at a price of nine times the earnings before interest, taxation, depreciation and amortisation (EBITDA) from continuing operations for the year ending September 2006.

London’s bankers were amazed both at the price Tata agreed to pay and also that CSN lost. Most had predicted the Brazilian company had greater financial muscle.

A source close to the Tatas said Tata Steel’s solid profits in the latest results helped the bid. “So that put a spring in their step, and the outlook for steel is for another bumper year, which will drive up the valuation multiples,” the source said.

Corus employs around 40,000 people at four sites in the UK. It was created by the 1999 merger between British Steel and Hoogovens of the Netherlands.

The Takeover Panel said the auction “was a very comprehensive, transparent and fair process”. It was kept confidential. The only thing known was that the bidders were given an hour to trump each other’s offers by a minimum of 5p or walk away and that at the end, there was much tension. It is said that for confidentiality, the Tatas were called Turo and CSN was called Cardiff.

“Corus shareholders will be happy with the price,” a banker working for the Tatas said. “This creates an incentive for more consolidation in Asia and in the US,” Reuters quoted Sylvain Brunet, head of steel and mining at Exane BNP Paribas, as saying.

Corus shares jumped 7 per cent to near the bid price, and were up 6.7 per cent at 601p at 8.30 p.m. IST. CSN shares climbed more than 5 per cent, on relief it was not making a costly takeover.

“Tata and Corus are stronger together and will be able to compete effectively in an increasingly global environment. This combination creates a strong and robust platform for growth that will benefit all stakeholders,” said chairman Leng.

Philippe Varin, its chief executive, said the transaction was “predicated on growth, not job cuts”, and that cost synergies will come from raw materials, manufacturing practices and technology rather than through job redundancies. He noted that Tata has said it will support Corus's current plans for developing its presence in the automotive industry in the UK.

The search for a partner for Corus began in October 2005, when the company’s share price was around 300p a share. The sale completes a turnaround for the firm, which was on the verge of bankruptcy four years ago.

Email Vijay Dutt: vdutt @aol.com