India's Tata Steel is set to become the world's fifth-biggest steel maker after winning a dramatic bid battle for Anglo-Dutch group Corus 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 take-over, 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 Finance Director David Lloyd said Tata Steel's bid represented nine times Corus earnings before interest, tax, depreciation and amortisation (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. 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 tonnes 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 US group Wheeling-Pittsburgh.
Corus Chairman Jim Leng said the Anglo-Dutch group would have gladly acquired either Tata Steel or CSN. 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.
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