Major Corus shareholders unhappy with Tata Steel''s offer price

Rex Mathew
26 October 2006

Some of the large institutional shareholders of Corus are unhappy with Tata Steel''s offer price of 455 pence per share. They feel that the price is too low considering the premium product range, established position mature markets and technological capabilities of Corus.

In a letter to Financial Times, British heavy equipment maker JCB''s chairman has stated that the offer price is "too low". He said he is "saddened and disappointed that Corus is failing to lead the consolidation of the global steel industry and instead appears eager to rush into the hands of Tata, a significantly smaller steelmaker than itself". JCB, well known for its earth moving equipment, holds a 2-per cent stake in Corus and is also a major customer.

More significantly, for the first time since the deal was announced, a key corporate figure has objected to the deal on nationalistic and protectionist grounds. JCB chairman said "British manufacturing would lose out" and "Europe will hand over a valuable manufacturing asset", if the deal is allowed to go through. He went on to say that Corus should have used its position in Europe to acquire smaller steel companies in emerging markets like India and Brazil, instead of allowing itself to be acquired by a much smaller company.

Last week, Corus''s single-largest shareholder Standard Life Investments had also termed the offer price as too low without specifying whether it would accept the offer. Standard Life, which holds nearly 8 per cent of Corus, said the offer from Tata Steel was "lower than we would have expected the board of Corus to agree to". Standard Life would gain more than $185 million from its investments in Corus, even at the current offer price.

It is as yet unclear if these institutional and corporate shareholders would hold out and demand a better offer from Tata Steel. If they hold out, some of the retail investors may also be encouraged to hold on to their shares on expectations of a better offer. In such a scenario, Tata Steel may find it difficult to acquire 75 per cent of Corus – the minimum acceptance level specified by Tata Steel for the deal to go through.

However, most analysts and industry observers believe that Tata Steel has the upper hand as it already has the support of the Corus management and pension funds. Institutional and corporate investors of Corus would have to eventually accept the offer, despite the initial displeasure over low valuations, according to these observers.