One of the most coveted and dramatic acquisition wars is that of India’s largest private sector steel company Tata Steel in its attempt to acquire Europe's second largest steel producer, Corus through its wholly-owned indirect subsidiary, Tata Steel UK.
Why is it so keen on Corus?
The integration would create a vertically integrated global steel group and would catapult it to the rank of the fifth largest global steel producer. It will also continue the consolidation in the industry post the recent takeover of Arcelor Steel by Mittal Steel which has 10% market share. Tata Steel is globally renowned for its high quality, low cost model and would enable it to build a strong platform for further growth by combining with a leading European steel player with the support of a strong and committed combined management team.
Corus’s viewpoint-
As rising raw material and energy costs in the Britain and the Netherlands chip away at profits, Corus is keen to access low cost production and high growth markets. Consistent with this, the Company held talks with a number of parties from Brazil, Russia and India.
The background of the deal-
Tata Steel made an initial offer to Corus at 455 pence per Corus Share representing approximately 7.9 times underlying EBITDA from continuing operations for the twelve months to 1 July 2006.
The financial advisors representing Tata for the transaction are ABN Amro, NM Rotchschild and Deutsche Bank
A Twist in the story!
In the third week of November, another rival Brazilian firm Companhia Siderurgica Nacional (CSN) entered the fray and outbid Tata Steel’s $7.4 billion bid. In the second week of December, the Tatas raised their bid to 500 pence per share amounting to $9.2 billion which was again outstripped by CSN which offered 515 pence per share amounting to $9.6 billion a day later. While the EU approved the bids in January, the Takeover Panel set Jan 30 deadline for naming the winner. It has asked Corus to sell itself to the highest bidder; consequently, an eight round closed-door bidding auction will take place, where the two rivals will try to outstrip each other for the takeover. Each bid should be atleast 5 pence apart. If a conclusive winner doesn’t emerge on 30th, a ninth round will take place on 31st if needed.
A caveat for the precarious situation-
While both parties are aggressively keen to acquire Corus, but they must not go overboard on the bidding process.
Recent revelations
A legal row that has emerged recently may help Tata succeed in its ambitions. Brazilian mining group CVRD (Companhia Vale do Rio Doce) would challenge CSN's ability to supply iron ore to Corus, should its bid succeed.
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It is official! Tata has won the bidding war with a final offer of 608 pence per share over CSN's final 603 pence per share emerging as the fifth largest steel player in the world. The winning bid was made in the ninth round of the takeover auction scheduled to take place on the 31st. Shares in Tata Steel tumbled 7.7% on the news. The takeover of Corus is going to have a positive long term impact on the profits of the company.
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