Friday, October 20, 2006

Tatas to pay $1 bn cash, Corus backs bid

The board of Anglo-Dutch steelmaker Corus Group is believed to have recommended accepting Tata Steel's $8.6 billion takeover offer, and an announcement is likely tomorrow.
Deal to be announced today; workers seek job protection.

The Tata group is likely to pay nearly Rs 4,500 crore ($1 billion) in cash to finance Tata Steel’s bid to acquire Corus Group, which is believed to have received the target company’s backing.

Corus, the Anglo-Dutch steelmaker, will announce tomorrow its support for the Tata bid, which put the enterprise value of the target company at nearly $10 billion. The details of the financing of the bid will also be announced tomorrow.

The Corus brass is said to have received the clearance of the Corus pension fund trustees.
Investment bankers said the contours of the leveraged buyout — a financing method in which the target company’s assets are used as collateral — would include about $5.5 billion (nearly Rs 26,000 crore) to be raised in debt against Corus’ cashflow.
On its own, Tata Steel will raise nearly $2.5 billion (about Rs 11,320 crore) in debt. Of this, a part will be refinanced against the equity of Tata Sons, the holding company of the group.
The amount the Tata group has to pay for Corus, which has an annual capacity of 18 million tonnes, includes a break-up fee of 1 per cent of the transaction amount. This will be forfeited in case the group pulls out of the deal.

A new dimension was added to the acquisition saga today with Community, the British steel workers union, seeking safeguards on wages and pension for Corus employees.

A British Member of Parliament also wrote to Prime Minister Tony Blair asking the government to initiate talks with Tata Steel to ensure there were no lay-offs. Corus has 24,000 workers in Britain and 16,000 in the Netherlands.

When contacted, a Corus spokesperson said: “We are a listed entity. We will inform the stock exchange in case of a decision, immediately.” The Tata Steel spokesperson was not available for comments.

If the deal is approved by the Corus board tomorrow (it will propel Tata Steel to the sixth position among the world’s largest steel companies from its existing rank of 56), any counter-bid will have to be approved by Corus’ pension fund trustees.

The Tata group will set up a special purpose vehicle in London for the acquisition, following the pattern by which it acquired tea company Tetley six years ago, the group’s first audacious overseas takeover.
In midmorning trading in London today, Corus’ shares were at 482 pence, down 1 per cent from yesterday’s close.
ABN Amro and Deutsche Bank are advisers to Tata Steel while Credit Suisse, HSBC and JP Morgan Cazenove are advising Corus.


Post a Comment