Dr Penna

The Deal
The boards of Tata Steel and Corus are pleased to announce their agreement on the terms of the recommended acquisition of the entire issued and to be issued share capital of Corus at a price of 455 pence in cash for each Corus Share, valuing Corus at £4.3 billion. Tata Steel said its 455-pence-a-share offer for Corus represents on an enterprise value, a price earning ratio of 7.9 times Corus’ ’06 earnings and includes a premium of approximately 26.2% to the average closing mid-market price of 360.5 pence. Details of the merger are likely to be decided by a strategic and integration committee that will develop and execute the integration and growth plans for the combined entity.

Tata Steel has offered to fund upfront the IAS 19 deficit on the Corus Engineering Steels Pension Scheme by paying £126 million into the scheme; and to increase the contribution rate on the British Steel Pension Scheme from 10 per cent. to 12 per cent. until 31 March 2009. The Acquisition will be made by Tata Steel UK, a wholly-owned indirect subsidiary of Tata Steel.

The Corus Directors intend to unanimously recommend that Corus Shareholders vote in favour of the Scheme after taking advice from Credit Suisse, JPMorgan Cazenove and HSBC.

If a deal is agreed, it is understood that Tata Steel would be keen to retain Corus’s management, including chief executive Philippe Varin.The combination is strategically compelling, creating a vertically integrated global steel group. They will be fifth largest global steel producer with pro forma crude steel production of 23.5 million tonnes in 2005.

Benefits of acquisition
The acquisition will position the combined group as the fifth largest steel company in the world by production, with a meaningful presence in both Europe and Asia. The powerful combination of low cost upstream production in India with the high end downstream processing facilities of Corus will improve the competitiveness of the European operations of Corus significantly. The combination will also allow the cross-fertilisation of research and development capabilities in the automotive, packaging and construction sectors and there will be a transfer, from Europe to India, of technology, best practices and expertise of senior Corus management. In addition, Tata Steel will retain access to low cost raw materials and slab for the enlarged group, and exposure to high growth in emerging markets, whilst gaining price stability in developed markets.

Financing the Deal
Tata Steel, has lined up a mammoth $6.5bn (£3.5bn) financing package to help fund a £5bn takeover of Corus. The company is understood to have secured funding commitments from its advisers, Deutsche Bank and ABN Amro, as well as Standard Chartered.

About the companies
Tata Steel is India’s largest private sector steel company with 2005/06 revenues of US$5.0 billion and crude steel production of 5.3 million tonnes across India and South-East Asia. It is a vertically integrated manufacturer and is one of the world’s most profitable and value creating steel companies. Tata Sons, Tata Steel and other Tata companies had combined revenues in 2005/06 of approximately US$22 billion. Tata Sons’ current investments are valued at approximately US$50 billion. Corus is Europe’s’s second largest steel producer with revenues in 2005 of £9.2 billion and crude steel production of 18.2 million tonnes, primarily in the UK and the Netherlands. Corus is primarily engaged in the manufacture of semi-finished and finished carbon steel products. Its activities are divided into three main divisions: strip products (including coated and uncoated strip and welded tubes, sold both as coil and sheets), and the distribution and building systems division, which operates as a link between Corus’s manufacturing operation and its customers. It has a global network of sales offices and service centres.

Comments about Deal
Ratan Tata, Chairman of Tata Steel – “This proposed acquisition represents a defining moment for Tata Steel and is entirely consistent with our strategy of growth through international expansion. Corus and Tata Steel are companies with long, proud histories. We have compatible cultures of commitment to stakeholders and complementary strengths in technology, efficiency, product mix and geographical spread. Together we will be even better equipped to remain at the leading edge of the fast changing steel industry.”

Jim Leng, Chairman of Corus – “This offer from Tata Steel reflects the substantial value created for Corus shareholders since the placing and open offer and launch of our “Restoring Success”programme in 2003. In the middle of last year, my board agreed a strategic way forward for Corus to seek access to low cost production and high growth markets. Consistent with this, the Company held talks with a number of parties from Brazil, Russia and India. This transaction represents the culmination of these talks. This combination with Tata, for Corus shareholders and employees alike, represents the right partner at the right time at the right price and on the right terms. This creates a well balanced company, strategically well placed to compete in an increasingly competitive global environment.”

Other Info
Tata could still face opposition to a bid. Severstal, the Russian mining giant which announced on Friday that it intended to list on the London Stock Exchange next month, is understood to be monitoring the situation. “Corus is a high-risk acquisition,” said one analyst. “The company has been looking for a buyer for sometime but Tata will not want to over-pay.”

Tata Steel,
Corusgroup,
Economic Times,
Telegraph,
Hindusthan Times

This entry was posted on Sunday, November 5th, 2006 at 5:31 pm and is filed under Economy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.