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Tata Steel of India won the battle to control Anglo-Dutch steelmaker Corus with a £6.2bn ($12.2bn) offer on Wednesday, after more than eight hours of head-to-head bidding against Companhia Siderúrgica Nacional of Brazil.
Tata was declared the winner with a bid of 608p a share in cash, against CSN’s bid of 603p a share. The Tata bid valued Corus at about £6.7bn including debt – far above earlier analysts’ and market estimates.
The offer, which has been recommended by the Corus board led by Jim Leng, chairman, represented a premium of 68 per cent to Corus’s pre-bid share price and was 33.6 per cent above Tata’s original bid of 455p.
It values Corus at a price of nine times earnings before interest, taxation, depreciation and amortisation from continuing operations for the year ending September 2006.
Shares in Tata fell more than 10 per cent in Mumbai on Wednesday following the conclusion of the auction, as some analysts said the deal was expensive and could strain Tata finances at least in the short term. Corus shares jumped 38p or 6.8 per cent in London trading to 601p.
The deal, which makes Tata the word’s fifth biggest steelmaker, was greeted in Mumbai as a coming of age for corporate India, with finance minister Palaniappan Chidambaram saying it reflected the newfound confidence of Indian industry.
Ratan Tata, chairman of the Indian group, said: “I believe this will be the first step in showing that Indian industry can in fact step outside the shores of India in an international market place and in fact acquit itself as a global player.”
The global steel industry has been rapidly consolidating over the past year, and steel makers are under pressure to grow if they are to have a chance of competing with Arcelor Mittal, the world’s largest steel group.
Tata predicted cost savings of $350m a year through the combination of the Asian and European groups. It pointed to procurement and marketing as areas where savings could be made, and shipping of low-cost steel from India for finishing at Corus’ plants in the UK.
Mr Leng welcomed the deal, which is expected to be completed by the middle of March, and said it was the culmination of a strategy that had seen the Anglo-Dutch group return from the brink of bankruptcy.
He said that as part of the turnround Corus had set out to reduce its reliance on western Europe and target high growth, low-cost production markets like India and Brazil.
“The combination [of Corus and Tata] creates a strong and robust platform for the benefit of all stakeholders,” Mr Leng said.
At the time of its near-collapse four years ago, Corus shares were trading at less than 10p, but a boom in global steel prices and a restructuring pushed through by Philippe Varin, chief executive, led to a dramatic recovery in the group’s fortunes.
But some analysts questioned the amount paid by the Indian group.
One London-based steel analyst said on Tuesday that Corus was expensive even at 515p a share. “450p was where you could find a stand-alone fair value for the company. Higher than that and you have to find synergies.”
CSN and Tata’s bidding had been dictated by “pride” as much as value for money, said the analyst. “They are looking at global empire building.”
Last year’s acquisition of Luxembourg-based Arcelor by Mittal Steel of India to create the world’s largest steel group, was valued at 6.2 times underlying earnings in a mixture of shares and cash.
CSN tried to merge with Corus in 2002, and had claimed to have done substantial work on the potential synergies between the two companies.
Additional reporting by Jonathan Wheatley and Gordon Smith