Corus Seals Deal With Tata

Corus Seals Deal With Tata

Chris Noon, Forbes magazine

20th October 2006

India's Tata Steel won the hand of Anglo-Dutch steelmaker Corus Group on Friday, but it can't hang loose just yet; talk of a counterbid from Russian company Severstal is rife.

Shares in Corus (nyse: CGA - news - people ), which have risen more than 50% this year amid persistent bid talk, were down 7.49 pence (1.57%) to 471.01 pence ($8.87) at 12.15 p.m. in London. That is still well above Tata's offer price of 455 pence-per-share.

Tata has agreed to a 1% break fee if the deal collapses due to a rival bid.

Morgan Stanley's Charles Spencer upgraded Corus' shares to "overweight" and raised the bull-case price target to 490 pence from 470 pence. "With our price target now implying 33% upside potential, we believe the risk-reward ratio is in investors' favor," wrote the analyst in a research note.

Tata's £4.3 billion ($8.1 billion) takeover bid -- which reflects the mania for consolidation in the steel industry after Mittal Steel (nyse: MT - news - people )'s $31 billion acquisition of rival Arcelor this summer -- will create the world's fifth-largest steel company.

Tata, the world's 56th biggest steel producer and part of the sprawling Mumbai-based Tata conglomerate, said job cuts could not be ruled out in the long-term. Chairman Ratan Tata said the takeover would be a "defining moment" for the firm.

Many spectators though it was merely a matter of time before Corus, created through the merger of Dutch firm Hoogovens and British Steel in 1999, was swallowed up.

In March, Corus rid itself of most of its aluminum assets in a deal that paved the way for the company to take part in steel consolidation.

"If Tata did not take this step today, it would have been invaded by the Mittals and Poscos of the world," said Jigar Shah, the research head of Mumbai's K.R. Choksey Securities, to journalists on Friday. "This was a proactive move to acquire a company in the global space and helps Tata remain unchallenged in the Indian territory."

Corus Chairman Jim Leng said the deal helped to give Corus access to low-cost output and high growth market.