In the biggest corporate acquisition planned by an Indian company, Tata Steel Limited, the country's biggest private steelmaker, has offered $7.7 billion (Rs 35,000 crore) to acquire Anglo-Dutch firm Corus through a negotiated takeover with the aim to create an entity that will take the Tatas to the No. 5 slot in the world's frenetic steel industry.
On Tuesday, Corus confirmed that the offer had been made at 455 pence ($8.45) a share, ending speculation on the issue buzzing in the media and markets. The price was below the current price on the London Stock Exchange where Corus is listed.
Tata Steel said in a statement that the offer was a non-binding, all-cash deal with a valuation of $10 billion, including Corus's debt. This is the latest in a series of big-ticket global purchases across industry segments by the group, involving companies like Tata Tea, Tata Chemicals and Tata Consultancy Services. The biggest thus far has been Tata Tea's $677 million for 30 per cent in Energy Brands, a US company that makes enhanced water, a hot-selling health product.
The steel industry is currently led by Mittal-Arcelor, formed by the merger of Indian LN Mittal's the Netherlands-based Mittal Steel Co. with Luxembourg's Arcelor in an industry feeding a huge Asian demand while trying to keep costs low through consolidation.
Corus was formed by a 1999 merger between British Steel and the Dutch group Hoogovens. Corus employs 47,300 people worldwide, including 24,000 in the UK. Tata Steel, which will complete 100 years in 2007, is said to be the world's cheapest steel producer and employs 38,000 people.
In 2005, Corus reported a net profit of £451 million on revenues of £10.14 billion.
Tata Steel’s five-million-tonne capacity is only a quarter of Corus's installed capacity of 20 million tonnes per annum. But its cost-cutting methods make it a stronger partner.
Since Tata Steel's offer is lower than the current market price, Corus's shares dipped 0.8 per cent to 475.50 pence or $8.83 on the London Stock Exchange. The stock has run up in recent days on speculation about Tata's interest. Tata Steel shares rose 0.85 per cent to Rs 515.70 on the Bombay Stock Exchange.
Although the details of funding are not known yet, financial industry sources said a substantial part of fund would be raised from three international banks - ABN Amro, Deutsche and Standard Chartered. The three banks will fund the deal though structured financing to the extent of $6.5 billion, while the Tata Group will chip in the balance portion, the sources said.
Once the deal is consummated, Tatas will hive off Corus's non-steel business, the sources said. In all probability, the Tatas will raise over $1 billion through this route, which will be used to repay the debt raised for the acquisition.
Corus has manufacturing operations in many countries with major plants located in the United Kingdom, the Netherlands, Germany, France, Norway and Belgium.
It has approximately 50 per cent of the UK carbon steels market and around 11 per cent of the European (including the UK) carbon steels market.
The company is comprised of four divisions: strip products, long products, distribution & building systems, and aluminium, and has a global network of sales offices and service centres. Its annual production has declined marginally to 18.2 million tonnes in 2005 as against 19 million tonnes in the previous year.