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Since 1st March, 1999
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Tatas table $7.6-bn offer for Corus

Calcutta, Oct. 17: Tata Steel has finally made its most ambitious gambit overseas by plonking down a 455-pence-a-share offer to acquire Corus Steel which values the Anglo-Dutch steelmaker at $7.6 billion.

In a communiqué to the Bombay Stock Exchange, Tata Steel said it had made an indicative non-binding all-cash offer to acquire 100 per cent share of Corus Group.

The Indian company said it preferred a recommendatory route indicating it wanted the Corus board to support its bid as and when it is made.

The indicated price, however, is lower than market expectation and at a 5 per cent discount to the closing price of 479.5 pence of Corus shares on the London Stock Exchange.

There is wide speculation that Tata Steel may have to raise the offer price going forward.

But analysts point out that the indicative price is still at a 16 per cent premium on the price of 392.25 pence at which the stock quoted on the LSE before word about the Tata takeover bid filtered through the British media.

Today’s development gains significance as Corus for the first time confirmed that discussions were taking place between the two companies.

In a regulatory announcement made to LSE, Corus said its board would make a further announcement at an appropriate time. It also said that the LSE announcement was made with the consent of Tata Steel.

It warned that there could be no certainty that an offer would be made — a fact that was also underlined in Tata Steel’s communication to the BSE.

According to the City Code of Takeovers and Mergers of UK, Tata Steel’s overture is to be seen as an ‘approach’ only. Moreover, there is no timeframe within which Tata Steel has to come out with a concrete ‘offer’.

The clock will start ticking only when the offeror (in this case Tata Steel) announces ‘a firm intention to make an offer’ under Rule 2.5 of Takeover Code of the UK.

Following that, Tata Steel has to post an offer document within 28 days with the regulatory authority in the UK.

However, in case Tata Steel drags its foot over making an announcement under Rule 2.5, Corus can approach the regulatory authority asking it to set a time limit by when an offer should be made.

If Tata Steel comes out with a bid, it must get at least 50 per cent of the voting rights of Corus. If it fails to garner such a response, the offer will lapse.

If the deal goes through, the Tata Steel-Corus combine will be the fifth largest steel maker in the world. Tata Steel currently languishes at the 55th spot in the world league of steelmakers.

Tata Steel’s ambition to acquire Corus gained impetus after Mittal Steel’s acquisition of Arcelor earlier this year.

If the Corus management endorses the Tata offer, it would not be a long drawn affair, unlike Mittal’s hostile bid for Arcelor, the then number two player.

Corus was set up through merger of British Steel and Dutch group Hoogovens in 1999. It employs 47,300 people worldwide.

Last year, it made a pretax profit of £580 million on a turnover of £10.14 billion, although lower selling prices dented its operations in the first half of this year.

Compared to Corus, Tata Steel is a minnow with net sales of Rs 15,139 crore and profit of Rs 3,506 crore.

Even though Tata Steel officials are tightlipped about the financing model, it is widely believed that a number of banks and financial institutions may partner it to finance a leveraged buyout (LBO).

The model is nothing new to the Tata group, India’s largest business house with business interests ranging from salt to software. Tata Tea, for instance, bought Tetley of the UK — much bigger than itself through a LBO — in 2000.

Tata Steel and Tata Sons may raise about $3.5 billion through bonds and other instruments and the rest could come from banks and FIs.

Corus will help Tata Steel to reach its target of 30 million tonnes by 2015 fast since most of its greenfield projects are yet to take off.

It is planning new units at Orissa, Jharkhand, Chattisgarh in India apart from Iran and Bangladesh. However, only the Orissa project appears to be taking off at present.

Corus will give Tata access to its technology that produces high-value carbon steel. It will enable the Indian company to reach European market.

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