Tata Steel''s $8-billion global gambit

20 October 2006

Within two weeks of initial reports, the recommended acquisition of Corus by Tata Steel was formally announced today. Rex Mathew reports on the details of the agreement and the post-acquisition scenario.

In a clearly landmark development for India Inc, Tata Steel — the largest private sector steel company in the country – has formally announced the bid to acquire European steel maker Corus Group Plc. If successful, this would be the largest ever acquisition – either domestic or overseas – by an Indian company. (See: Tata Steel in $10.5-billion bid for Corus)

Boards of both the companies have approved the bid and the Corus board has recommended the offer to its shareholders. (See: Corus board approves Tatas' offer). An agreement has also been signed, detailing the terms and procedure of the acquisition. Though it is an acquisition by Tata Steel, operationally it would be a friendly merger with the Corus management retaining their positions even after conclusion of the deal.

The Offer
Tata Steel has not changed its initial indicative price, announced earlier this week, of 455 pence per share of Corus.(See: Tata Steel bids $7.57 billion for Corus) The offer, at 5.4 times EBITDA for the last financial year ended December 2005 and at a premium of 26 per cent to the average stock price of Corus for the last one year, values Corus at $8.09 billion.

The acquisition would be made by Tata Steel UK, an indirect wholly-owned subsidiary of Tata Steel specially set up in the UK for the deal. The transaction is subject to the approval of a majority of shareholders and the High Court of Justice in England and Wales