Are Tatas paying too much for Corus?

21 December 2006

As the countdown begins for a decision on Corus, the Tatas could get sucked into a bid battle, paying far too much. CNBC-TV18 shares some interesting details with domain-b.

Once upon a time, in 2003, Corus was a penny stock. Bidders could buy the company for a few million dollars. But now it costs a few billions.

Andrzej Kotas, chief executive of steelonthenet.com says, "Now of course the company is much more expensive, and therefore the opportunity is not quite the same. So there is question mark as to where actually is the upside for somebody like Tata."

The risks are higher because of the bidders'' financing models. Analysts say both bids would use borrowed money for the deal.

Steel expert, Mike Mytton says, "The concern that people would have in terms of Corus''s future as a company would be that if there was a downturn in the steel market. The interest on those loans still has to be paid, and it is paid out of the cash flow of Corus."

Analysts warn of risks like high production costs in Europe, overestimated steel demand and lower projected prices.