Pensions pledge paves way for £4bn Corus deal

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The Independent Online

An agreed £4.1bn takeover of Corus by India's Tata Steel is expected to be announced today after concerns over the future of the Anglo-Dutch steelmaker's pension schemes were resolved.

Tata, which will pay about 455p a share for Corus, plans to load the company up with £2.5bn of additional debt in a move which potentially threatened to make it harder for the company to meet its massive pensions liabilities. However, it is understood that pensions issues have been thrashed out to the satisfaction of the pensions trustees.

Tata will pay £140m in cash into the Corus pension scheme for its engineering workers, which is in deficit. The other schemes are in surplus, but Tata will agree to increase contributions to all the Corus pensions plans, which support 175,000 members in the UK and a further 35,000 in the Netherlands.

The pensions pledge was necessary, despite the fact that the Corus funds are in surplus overall. In June, the company said the surplus was £208m on an IAS19 accounting basis. But the gross liabilities of the various funds stand at about £12bn.

Changes to life expectancy assumptions or long-term interest rates could have dramatic effects on the solvency of the schemes. The gross liabilities of the Corus pension funds are four times the stock market value of the company, the highest multiple of any company in the FTSE 100. One pensions expert said: "They [Tata] are buying the pension fund first and the steel company second."

The financing of the takeover deal is structured like a private equity transaction, with most of the £4.1bn cash to buy out shareholders coming from loans taken on by Tata against Corus's assets.

At the end of June, Corus's debts stood at £1.4bn. Tata intends to finance its takeover with £1.6bn of equity and £2.5bn of debt, which will be immediately added to the Corus balance sheet.

Corus shares closed down 8.5p at 478.5p yesterday as hopes faded of a counter-bid emerging, but the stock still remained well above the 455p-a-share offer price indicated by both Corus and Tata this week. If Tata Steel succeeds in buying Corus, it would be the biggest-ever acquisition by an Indian company.

Analysts said that the additional money required from Tata to address pensions concerns may be one reason why the takeover price will come in well below some of the most optimistic expectations in the City.

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