Mittal Fear: Tata Sons to raise Tata Steel stake

05 July 2006

The successful acquisition of Arcelor by Mittal Steel has instilled the fear of hostile takeovers among promoters of large Indian steel companies as well. Tata group has announced that group holding company Tata Sons would increase its shareholding in Tata Steel to ward off hostile takeovers.

Tata Steel is the most efficient steel producer globally and would be a very attractive acquisition target for any of the global majors. Immediately after the completion of Arcelor-Mittal deal, L N Mittal had announced that his company would be focusing on expansion opportunities in countries like India and China – including acquisitions. (Also see: Arcelor-Mittal: could Tata Steel be a target in India?)

Addressing shareholders at the Tata Steel AGM in Mumbai today, Tata Group chairman Ratan Tata said the global steel industry would see more consolidation as the industry remains fragmented even after the recent mergers.

Tata told the shareholders that the only safeguard against hostile takeovers was to increase promoter's shareholding, to protect the interests of the company.

Current holdings of Tata group in Tata Steel are barely above 26 per cent, the minimum requirement to block special resolutions. Tata Sons currently holds 20.04 per cent of Tata Steel while group company Tata Motors holds 4.66 per cent. Other group companies hold the remaining 2.09 per cent

It is expected that Tata Sons would raise its stake by another 10 per cent in Tata Steel by subscribing to preferential issue of equity shares.