Shareholder approval of price still awaited
Tata Steel crossed the first hurdle in leading the nation's biggest overseas acquisition yet on Friday when the Anglo-Dutch Corus Steel's board accepted its $7.6 billion acquisition offer that would make it the world's No. 5 steel maker, but big questions hung over two more issues, an approval from shareholders for the deal, and the price that the Tatas would eventually have to pay.
In London, Corus Group PLC gave a unanimous approval nod to be made a subsidiary of the company that Jamshedji Tata 99 years ago during the British Raj in a corner of what is now Jharkhand. But the price the Tatas have offered, 455 pence a share, is well below the current market rate of 471 pence, leaving room open for a revision of prices or hostile rival offers from companies such as Russia's Severstal and Brazil's CSN Steel, investment bankers said.
"It is an exciting moment for the two companies. We have good human chemistry and an integrated value system," group chairman Ratan Tata told a joint video news conference with Corus group chairman Jim Leng. "For us back in India, it is a very important moment." Tata will be the chairman and Leng his deputy in both companies, while three of Tata Steel's directors will join the Corus board.
Including debt of $2.6 billion, Corus Group's enterprise value comes to $10.26 billion. Tata Steel has created a war-chest of $9.5 billion, clearly indicating that the Tatas are prepared to raise the offer price in case the shareholders reject the offer or wait for a rival bid. A majority of Corus's shareholders (51 per cent) need to approve the deal after which at least 75 percent of the company's outstanding shares need to be tendered in favour of the offer.
"Corus will retain its brand and the management and exclusivity over the UK market," Leng said. "It is a great synergy...because Tata Steel is the cheapest producer of steel and Corus can provide good value addition."
The two companies based on current market prices have a combined market capitalisation of $14.74 billion, sales of $24.4 billion and net profit of $1.7 billion.
Tata Steel currently makes 5.3 million tonnes, but is swallowing Corus that makes 18.2 million tonnes on the sheer strength of its cost-cutting abilities in a fragmented industry that is consolidating worldwide. Ratan Tata would still have to stretch to match compatriot Laxmi Mittal based in London, who stitched up a planned merger of his Mittal Steel Co with Luxembourg's Arcelor earlier this year to make the world's top steel maker.
"We are not looking at adding tonnage capacity but to become competitive in the global market," Ratan Tata said.