Tata Steel wins Corus for $12 billion

LONDON/MUMBAI (Reuters) - India's Tata Steel TISC.BO is set to become the world's fifth-biggest steel maker after winning a dramatic bid battle for Anglo-Dutch group Corus CS.LCS.AS with a 6.2 billion pound ($12.2 billion) offer.

Tata Steel said on Wednesday its bid of 608 pence a share in cash topped the best offer from Brazil’s Companhia Siderurgica Nacional (CSN), after a nine-round auction that saw bids for Corus rise almost a fifth from the starting price.

The deal, India’s biggest-ever foreign takeover, is expected to fuel a new wave of consolidation in the fragmented steel sector after Mittal Steel bought Arcelor for $32 billion last year to create the world’s biggest steel producer.

“This creates an incentive for more consolidation in Asia (Japan, China) and in the United States,” said Sylvain Brunet, head of steel and mining at Exane BNP Paribas, adding that CSN was a likely predator after missing out on Corus.

Corus shares jumped 7 percent to near the bid price, and were up 6.7 percent at 601 pence at 1500 GMT. Other European steel stocks also rose, with Arcelor Mittal hitting a new high of 36.32 euros.

CSN CSNA3.SA shares climbed more than 5 percent, on relief it was not making a costly takeover. But Tata Steel shares lost 10.7 percent, its biggest daily fall for 8 months, on fears it was overpaying.

Corus Finance Director David Lloyd said Tata Steel’s bid represented nine times Corus earnings before interest, tax, depreciation and amortization (EBITDA) in the year ended September versus the 6.2 times Mittal Steel paid for Arcelor.

“From my point of view, the price for Corus, which will be paid by Tata, is absolutely ridiculous,” said Michael Broeker, a steel analyst at German brokerage Steubing.

But Tata Steel Chairman Ratan Tata said the market would come round.

“Quite frankly I do feel it is both taking a short-term and harsh view... In future somebody will look back and say we did the right thing,” the 69-year-old patriarch of one of India’s best known business families told reporters in Mumbai.

TATA TRIUMPH

Steelmakers are scrambling to consolidate as they seek global reach and access to raw material supplies.

Corus, created from the 1999 merger of British Steel and Dutch group Hoogovens, will triple Tata Steel’s capacity to almost 28 million metric tons a year, from 8.7 million now, at half the cost of building new plants, Tata Steel Managing Director B. Muthuraman said.

Synergies would add $300 million to $350 million a year to net profit, he added.

CSN, which tried unsuccessfully to buy Corus in 2002, said it was committed to expanding overseas.

The defeat is the second blow in three months for Benjamin Steinbruch, CSN’s 52-year-old chief executive and main owner, after the Brazilian firm lost to Chicago-based Esmark in a battle for control of U.S. group Wheeling-Pittsburgh.

Corus Chairman Jim Leng said the Anglo-Dutch group would have gladly acquired either Tata Steel or CSN.

“We would love to have bought either. But as you know, neither of them was for sale,” he told reporters. “But the business case, the strategic fit, was so powerful (and) you can’t abandon the business case over who owns who.”

Tata’s bid is 49 percent above Corus’s closing share price on October 4, the day before Tata Steel first revealed its interest. It is also a third higher than Tata Steel’s first bid of 455 pence a share and 18 percent above CSN’s bid of 515 pence a share -- the best price when the auction started on Tuesday.

Muthuraman said Tata Steel would pay $4.1 billion for Corus and finance the balance by debt, but did not give details.

Sources familiar with the matter said ABN AMRO AAH.AS, Deutsche Bank DBKGn.DE and Credit Suisse Group CSGN.VX were providing the financing. A Tata Steel official said the debt would be serviced from the cash flows of Corus.

Standard & Poor’s kept its BBB rating on Tata but said the deal could hurt the Indian group’s financial risk profile.

ABN AMRO, Deutsche Bank and Rothschild ROT.L advised Tata Steel. Credit Suisse, J.P. Morgan Cazenove JPM.N and HSBC HSBA.L advised Corus, while Lazard LAZ.N and Goldman Sachs GS.N acted for CSN.