Corus set to agree £4bn takeover by India's Tata

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The Independent Online

Corus, the Anglo-Dutch steel producer, is close to recommending a £4.1bn all-cash takeover offer from India's Tata Steel. It would be the biggest foreign takeover by an Indian company.

The deal, pitched at 455p-a-share, would put an enterprise value on Corus of £5.6bn. No firm offer has yet been tabled but talks between the two companies are advanced, and an agreed deal is thought to be just days away. Tata's due diligence on the transaction is complete. Final details of the financing are being put in place. Of the £4bn cash, some 60 per cent will be provided by loans from Deutsche Bank, ABN Amro and Credit Suisse. The remainder will come from Tata Steel.

Analysts said that investors had misread the likely level of the Tata offer, with many anticipating a bid of around 500p-a-share. Corus shares still closed well above the offer price last night, at 479p, as many in the City bet on a rival bid coming in.

However, industry sources said that Corus had been hawking itself around potential buyers for months and the Tata offer was the best deal that it had been able to flush out. One insider said: "Corus has already done the rounds. So I don't expect anyone [else] to come in."

Although the takeover level will disappoint some, it comes at a multiple of 6.6 times Corus's forecast underlying earnings for this year, slightly above the multiple that Mittal Steel paid for Arcelor earlier this year.

Corus's chief executive, Philippe Varin, said as far back as August 2005 that the company could not continue as a stand-alone business and needed a partner from a low-cost part of the world. Although Corus's fortunes have recovered over the past couple of years - the shares sank as low as 18.5p in March 2003 - on the back of a recovery in steel prices and cost-cutting measures, it does not have the scale to compete with the likes of Mittal.

Corus, created through the merger of Dutch firm Hoogovens and British Steel in 1999, agreed in March to sell most of its aluminium assets, paving the way for the company to take part in consolidation.

Global steelmakers are under pressure to cut costs and secure supplies of raw materials as China switches from being a net importer to becoming an exporter of steel. The Corus deal would make Tata Steel the world's fifth or sixth-largest producer. Analysts said Tata provided Corus with access to raw materials from India and the fast-growing Indian market. Corus offers the combined business advanced finished steel products and customers in Europe.

Tata Steel is part of Tata Group, India's largest conglomerate, which has 93 companies, ranging from tea, software and hotels to car-making. Since Ratan Tata became group chairman in 1991, turnover has increased seven-fold to $22bn (£11.8bn), equivalent to 2.8 per cent of the country's gross domestic product. In the past six years, the company has spent $1.9bn on overseas acquisitions, including Britain's Tetley Tea.

Alan Rosling, executive director of Tata Sons, the holding company of the empire said: "I think we've only just begun. If we stay in India, we will be at a competitive disadvantage."

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