New Delhi: The stakes are running high in the battle for takeover of Corus, so much so that the winning bidder could end up sealing a deal more expensive than that of Arcelor-Mittal – thus far the largest in the steel space.
No matter who wins this race, Tata Steel or CSN, the deal could be costlier than what steel tycoon L N Mittal paid if we consider the operating profit of the acquisition targets – Corus and Arcelor.
While Mittal's offer had valued Arcelor at less than five times of its operating profits, the bids of both Tata as well as CSN value Corus at close to or over six times its profit.
Arcelor's full year operating profit stood at Euro 5.6 billion ($7.45 billion), while that of Corus was £680 million ($1.35 billion).
Tata Steel's offer works out to around $8 billion, while that of CSN is higher at $8.3 billion.
However, Corus could be a better value for money going by the steel production vis-a-vis Arcelor.
Mittal paid close to $35 billion for Arcelor, which had an annual production of about 45 million tonnes – resulting in a price of about $1.3 billion for per million tonne of steel.
However, between Tata Steel and CSN, whoever clinches Corus, which has an annual production of about 19 million tonnes, would be paying close to half a billion dollars for
every million tonnes of steel produced by the Anglo-Dutch company.
The deal could also prove more expensive in terms of production, if there is any further escalation in the offers of the prospective suitors.
Now, as the talks have moved toward an increase in the offer and with investment bankers pegging 500 pence as the minimum fair value for Corus, both Tata Steel and CSN are mulling over plans to raise additional funds – that is estimated at around at least 10 per cent of their initial offers.
While Tatas are mulling over a GDR issue, CSN is planning to list its Casa de Pedra iron ore mine in Brazil to raise the funds, bankers close to the development said.
Both the companies have officially denied any such immediate plans, but sources in Rio de Janeiro said that the Brazilian steelmaker is planning to raise over $1.5 billion (about £800 million) through listing of Casa de Pedra on the bourse.
Meanwhile, the takeover target Corus has emerged healthier and juicier for both the suitors after reporting nearly three-fold jump in its third-quarter net profit and a drop of over £500 million in its net debt earlier last week.
The investment bankers and equity research analysts said after Corus' impressive results, any offer below 500 pence per share was not fair enough for the company.
Equity research firm Exane BNP Paribas said that a fair bid from either Tata Steel or CSN should not be less than 500 pence per share in cash.
Beyond 500 pence it would be up to CSN to evaluate its risk appetite, the analyst said.
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