The Hindu Business Line : `Corus buyout price is worthwhile'

Valuable buy
The acquisition will immediately add 19 million tonnes of capacity to Tata Steel.
It would provide access to the `growth markets' of Europe.

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Mumbai Jan. 31 Tata Steel has brushed aside apprehensions that it had stretched itself too far financially to acquire Corus. Instead, it is confident that Corus was a good deal.

The company had to increase its original offer of 455 pence a share for Corus by about 34 per cent to 608 pence to trip its Brazilian rival CSN in the race for the Anglo-Dutch steelmaker.

Mr B. Muthuraman, Tata Steel's Managing Director, has simple statistics to back up the company's view that the Corus buy-out price is worthwhile. "At 608 pence a share, the enterprise value of Corus works out to $710 per tonne. Today, to set up a greenfield capacity, going downstream as much as Corus has in terms of tin plate capacity, galvanising capacity and construction solutions anywhere in the world, would cost somewhere between $1200 and $1300 per tonne," he said.

The Corus acquisition will immediately add 19 million tonnes of capacity to Tata Steel, apart from giving it access to the "growth markets" of Europe, where quality of products and service are important. "Importantly, Corus has strong R&D capabilities, which I believe India in general lags," he said, adding that this was one area that Tata Steel could benefit. The company believes that the acquisition could create synergies that would add $300-350 million a year to the bottomline of the integrated entity. "But this will take time. In the first two years, it will be lower, but by the third year we can realise the full synergies."

On who will head Corus after the acquisition, Tata Steel's Chairman, Mr Ratan Tata, made it clear that Corus's CEO, Mr Philippe Varin, would continue. "He (Mr Varin) will work with Mr Muthuraman," he said.

More Stories on : Steel | Mergers & Acquisitions | Overseas Investments | Tata Steel Ltd

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