Corus agrees £4.3 billion takeover by Indian rival

Steel maker Corus agreed to a £4.3 billion takeover by Indian rival Tata Steel today - ending the UK company's year-long search for a partner.

The Corus board backed the 455p a share bid from Tata after previously holding talks with potential buyers in Brazil and Russia.

Corus said the proposed deal with Tata - part of the Tata Group, which owns Tetley Tea - will give it access to cheap raw materials and lower production costs as well as exposure to the rapidly expanding Asian market.

Unions have expressed concern over the potential for job cuts at Corus, which employs 47,300 people worldwide including 24,000 people in the UK at sites such as Port Talbot, Scunthorpe and Rotherham.

The combination of Corus and Tata will create the fifth largest steel maker in the world with production of 23.5 million tonnes a year.

It will be India's biggest ever acquisition of a foreign company if it goes through, although today's offer price was below last night's closing price of 478.5p.

It was also well below the 580p analysts hoped Corus might attract when Tata revealed its interest in the company earlier this month, which valued it at £5.6 billion.

Shares fell 1.67% to 470.5p. Analysts believe the chances of a rival approach for Corus, possibly from Russian giant Severstal, are high.

Tata today insisted that there were "no short-term plans for any relocation of plants" but was less explicit on job cuts.

"The biggest threat to jobs is not to do a deal," said managing director B Muthuraman.

Corus chief executive Philippe Varin added: "I have never been in a position to give any guarantee on jobs, but there are no short-term plans."

The Transport and General Workers Union reacted with caution to the deal.

John Rowse, T&G national secretary for manufacturing, said: "We want to know what the deal means for our members' jobs in the manufacturing side of Corus as well as all the former workers whose pensions are also very much on our mind.

"The assurances on jobs look very brittle at the moment."

Secretary of State for Wales Peter Hain said he was seeking "urgent assurances" over the future of the Corus plants in Port Talbot and Shotton.

Corus has been under pressure to link up with a low-cost rival as rising raw material and energy costs in the UK and the Netherlands chipped away at profits.

The need to consolidate became greater when Mittal and Arcelor linked-up earlier this year to create a global powerhouse.

It is thought that both Corus and Tata have their eyes on becoming the number two producer in the world behind Arcelor-Mittal, which produces more than 110 million tonnes of steel a year.

Corus, which was formed by a 1999 merger between British Steel and the Dutch group Hoogovens, said the offer represented "substantial value" for its shareholders.

The 455p a share bid was 26% higher than the average share price over the last 12 months.

Corus chairman Jim Leng said: "In the middle of last year, my board agreed a strategic way forward for Corus to seek access to low-cost production and high-growth markets.

"Consistent with this, the company has held talks with a number of parties from Brazil, Russia and India. This transaction represents the culmination of these talks.

"This combination with Tata, for Corus shareholders and employees alike, represents the right partner at the right time at the right price and on the right terms."

Tata Steel chairman Ratan Tata said: "This proposed acquisition represents a defining moment for Tata Steel and is entirely consistent with our strategy of growth through international expansion.

"Corus and Tata Steel are companies with long, proud histories. Together we will be even better equipped to remain at the leading edge of the fast-changing steel industry."

A potential stumbling block to the deal was the Corus pension fund, but Tata said today it will pay £126 million into the scheme and also increase contributions to the British Steel fund from 10% to 12% until March 2009.

The proposed takeover, which needs shareholder approval, came after a three-year turnaround programme at Corus called Restoring Success which turned years of heavy losses into profits.

Dr Ian Kelly, chief executive of the Hull and Humber Chamber of Commerce, said: "We always felt that a strategic link up was on its way with another major steel producer.

"Tata has a very good reputation in India, and we hope that reputation as a good employer can be translated in to the way it runs Scunthorpe steelworks.

"Corus have been investing in Scunthorpe in recent years, and obviously we hope Tata will feel able to continue with investing in what is arguably one of the best steelworks in the country."