Tata Takes On Corus $10billion Deal

[Srirangan]

1. You assumed TATA would be loaning the money. It could easily raise the money through securities.

2. You assumed TATA would loan the money from the West. TATA could issue bonds in the domestic market itself.

3. In conclusion, despite two hypothetical assumptions, you are yet to establish what you said in the first place: "indians will have to pay interest to the west".

All of this speaks up for itself.

 

[Srirangan]

I'm not going to argue whether the deal was justified or not. I'm not knowledgeable in the Steel/Iron Ore sector nor have I done any major studies in Corporate Acquisitions as yet.

There was a Russian firm in line wanting to buy out Corus, TATA Steel simply outbid that firm. TATA Steel eventually ended up paying an amount that was lesser than the price per share. That speaks volumes imho.

TATA is a huge consortium of firms and organization. TATA steel could simply raise the capital by borrowing from any other TATA firm itself. For example, TATA Steel decides to raise debentures to finance the acquisitions, you might just end up finding TATA motors and TCS buying a majority of those securities, cutting the long story short simply lending the money to TATA Steel.

I highly doubt anybody of PFF (myself included) would have the experience, knowledge or insight to decide whether the deal was a good or not. We are not analysts and we should not pretend to be.

 

[Skeptic786]

1. You assumed TATA would be loaning the money. It could easily raise the money through securities.

2. You assumed TATA would loan the money from the West. TATA could issue bonds in the domestic market itself.

3. In conclusion, despite two hypothetical assumptions, you are yet to establish what you said in the first place: "indians will have to pay interest to the west".

All of this speaks up for itself.

I didnot assume anything. Everything i said was reported at the time TATA offer was made public and was extensively reported. If you go back and check archives you will know the facts too. If the bonds are bought by the westerners, they will recieve interest...as bonds are interest paying instruments. You had assumed they were selling shares to raise the funds...which lead me to conclude you were unaware of basics of TATA approach to corus.

 

[Srirangan]

Loans needn't be externalized loans, you assumed they were so. You also assumed the debtors would be Western entities, that needn't be the case.

Keep on denying.

 

[Skeptic786]

I'm not going to argue whether the deal was justified or not. I'm not knowledgeable in the Steel/Iron Ore sector nor have I done any major studies in Corporate Acquisitions as yet.

There was a Russian firm in line wanting to buy out Corus, TATA Steel simply outbid that firm. TATA Steel eventually ended up paying an amount that was lesser than the price per share. That speaks volumes imho.

TATA is a huge consortium of firms and organization. TATA steel could simply raise the capital by borrowing from any other TATA firm itself. For example, TATA Steel decides to raise debentures to finance the acquisitions, you might just end up finding TATA motors and TCS buying a majority of those securities, cutting the long story short simply lending the money to TATA Steel.

I highly doubt anybody of PFF (myself included) would have the experience, knowledge or insight to decide whether the deal was a good or not. We are not analysts and we should not pretend to be.

All i did was give my opinion. You shouldnot assume knowledge or lack of knowledge of a person you have not met or donot know in depth. As i said i do have knowledge of corus...for very personal reasons. I was shareholders of the mother company what became corus. As as well as asked my brother to buy shares in corus....the morning corus shares collapsed to mere 4p ( TATA offer is 450p)...that day corus shares closed on 6p...leaving my brother with a handsome profit. How long ago was this??? well this happened in early 2003.
All i ask you people is go back and check corus share graph for the last 5 years and then come back and tell me if i am telling the truth or making it up as i go along!

 

[Srirangan]

Your opinion was based on faulty logic and some unsubstantiated assumptions, which I pointed out.

Then you started accusing me of bias, which lead to no where, because I was able to further elaborate and justify the points raised by me.

 

[Srirangan]

Tata Steel confirms agreed 455p/share bid for Corus - UPDATE
http://www.lse.co.uk/FinanceNews.as...nfirms_agreed_455pshare_bid_for_Corus__UPDATE
(Adds background and detail on inducement fee)

LONDON (AFX) - Indian group Tata Steel Ltd confirmed it has agreed a 455 pence per share bid for Anglo-Dutch steelmaker Corus Group PLC, valuing the company at 4.3 bln stg.

Tata said the acquisition is 'strategically compelling' and would create the fifth largest steel producer with pro forma crude steel output of 23.5 mln tonnes in 2005.

Corus has agreed not to solicit counterbids as part of the agreement but will pay an unspecified break fee to Tata if the acquisition does not go ahead.

Russian groups Severstal and Novolipetsk Iron & Steel Corp have been touted as potential counterbidders and the fact that Corus' share price - around 471 pence - remains higher than the agreed bid suggests the market thinks a bidding war is still possible.

There has been speculation that Tata might finance the deal through disposals but the group today said it would use 1.836 bln stg in cash, plus bank loans and mezzanine finance taken out by Tata Steel UK, the vehicle created for the takeover.

The Indian company also said it has held 'constructive and satisfactory' discussions with Corus' two main UK pension schemes and has offered to pay 126 mln stg up front to fund the deficit on the Corus Engineering Steels Pension Scheme, and to increase the contribution rate for the legacy British Steel Pension Scheme to 12 pct from 10 pct up to March 2009.

'This proposed acquisition represents a defining moment for Tata Steel and is entirely consistent with our strategy of growth through international expansion,' said Tata Steel chairman Ratan Tata. 'We have compatible cultures of commitment to stakeholders and complementary strengths in technology, efficiency, product mix and geographical spread.'

Corus chairman Jim Leng said the offer reflects the value created since the once-struggling group launched its turnaround programme in 2003.

Leng added: 'This combination with Tata, for Corus shareholders and employees alike, represents the right partner at the right time at the right price and on the right terms.'

He said Corus started looking for ways of accessing low cost production and high growth markets in the middle of last year and has held talks with entities in Brazil, Russia and India.

'This transaction represents the culmination of these talks,' he said.

Under the terms of the acquisition, Jim Leng will become Tata Steel's deputy chairman and Corus chief executive Philippe Varin will initially report to Ratan Tata and will become deputy managing director a year after completion.

Varin and finance director David Lloyd will stay with the company for a minimum of two years
and then switch to a twelve month notice period.

The statement added: 'Tata Steel intends that the existing contractual and statutory employment and pension rights of all directors and employees of Corus Group will be fully safeguarded.'

Corus employs about 41,000 people mostly in the UK, The Netherlands and other countries in Western Europe.

Tata also said there are no plans to change any of the main locations in which Corus operates, but it added that Tata Steel will remain headquartered in India.

Tata Steel is the country's largest private sector steel company with annual revenues of about 5.0 bln usd and crude steel output of 5.3 mln tonnes from sites across India and South-East Asia.

The group is a unit of Indian conglomerate Tata Sons Ltd, which has annual revenues of about 22 bln usd.

 

[Skeptic786]

Your opinion was based on faulty logic and some unsubstantiated assumptions, which I pointed out.

Then you started accusing me of bias, which lead to no where, because I was able to further elaborate and justify the points raised by me.

you never pointed to any faulty logic or any unsubstantiated assumptions. scroll up and read.

I didnot accuse you of anything not done by you. You simply assumed facts on my part...which i never stated ( like indian taxpayer or government involvements)....you tried to run with that fancy dream...weaving argumets around something i never said...then it was proven to you that you were merely running on self created smoke......then you said TATA was selling shares...when infact it is going to be floating interest bearing bonds from UK based company to western financial institutions....no sooner i said that you started to run with the fantasy of indians in india buying tata bonds to fund corus purchase....this is merely your pipedream.....TATA on the otherhand is going to use UK based company and will offer the bonds to western financial institutions.

 

[Srirangan]

I pointed them out repeatedly. You chose to ignore them, like the proverbial ostrich. I'm not going to bother anymore.

 

[Skeptic786]

Tata Debt for Corus Leaves Derivative Trades in Lurch (Update3)
The financing of Tata Steel Ltd.'s planned acquisition of Corus Group Plc is wreaking havoc in the derivatives market.

Mumbai-based Tata blindsided traders when it decided to borrow as much as $6.17 billion through a non-investment-grade Corus subsidiary to fund the takeover of the largest U.K. steelmaker. Tata, whose debt is rated investment grade, is using high-yield high-risk loans and bonds, prompting Fitch Ratings to change its assessment of the merger to ``negative,'' with a warning it may downgrade the securities of London-based Corus.

Many traders who sold credit-default swaps on the assumption that a takeover would be completed with an investment-grade financing are losing money on the deal. Since Oct. 20, credit- default swaps based on $2 billion of Corus debt have climbed 21 percent. An increase indicates a worsening in the perception of credit quality. The contracts, based on bonds and loans, are used to speculate on a company's ability to repay debt.

``It's clear that this came as a surprise to a certain part of the market,'' said Graham Neilson, a fund manager at Credaris in London, which oversees $1.6 billion of assets.

Fitch said the plan to make Corus responsible for the additional borrowing may prompt it to cut the company's senior unsecured credit rating from B+, four levels below investment grade. High-yield debt is rated Ba1 or lower by Moody's Investors Service and BB+ or lower by Standard & Poor's or Fitch.

More Flexible

``The combination of the two businesses at first seemed positive for Corus; now it's not clear what kind of access Corus will have to financial support to service the debt and to Tata's stronger operations,'' said Peter Archbold, a London-based analyst at Fitch.

Tata is seeking to create the world's fifth-largest steelmaker through its $8 billion acquisition of Corus, formerly British Steel Plc. The deal would be the industry's second biggest this year, behind Rotterdam-based Mittal Steel Co.'s $38.3 billion purchase of Arcelor SA in Luxembourg.

``The proposed financing ensures financial flexibility of Tata Steel'' to fund projects ``while addressing the issues of risk,'' Koushik Chatterjee, Tata Steel's vice president of finance, said in an e-mail, without providing details.

Tata Steel, India's second-biggest steelmaker, has expanded in Southeast Asia by buying Thailand's Millennium Steel PCL and Singapore's NatSteel Ltd. in the past two years.

``The funding structure of the acquisition of Corus may suggest that Tata Steel may want to pursue further expansion,'' said Roberto Pozzi, an analyst at Societe Generale SA in London.

`Caught Out'

Credit-default swaps based on Corus debt were quoted today at 162,000 euros, up from 133,800 euros on Oct. 19. The prices are based on 10 million euros of debt. The five-year contracts, conceived to protect bondholders against default, pay the buyer face value in exchange for the notes should the company fail to adhere to its debt agreements.

Derivatives are financial instruments derived from stocks, bonds, loans, currencies and commodities, or linked to specific events like changes in the weather or interest rates.

``This has caught the market out,'' said Marwan Dagher, HSBC Holdings Plc's London-based head of credit sales to hedge funds. ``The lesson here is that whenever an acquisition is about to happen, you shouldn't go out and take a view'' on credit quality improving because ``there are many ways to finance these.''

The debt, to be issued under the new name Tata Steel U.K., will rely on Corus's revenue for payment, Fitch said in its Oct. 20 report. It includes a 1.35 billion-pound ($2.5 billion) high- yield loan that will be repaid with a bond once Corus shareholders approve the acquisition, said a banker working on the transaction who asked not to be identified.

Higher Costs

Corus will pay interest on its loans between 1.5 and 2 percentage points above the London interbank offered rate, a benchmark for lenders, said a banker involved in the deal, who declined to be named because the information hasn't been publicly disclosed. That's about five times the interest margin of 0.34 percentage point that Tata is paying on a $750 million seven-year loan taken out earlier this month, said an arranger of that deal.

The planned bond sale is likely to cost Corus annual interest of about 2.64 percentage points more than benchmark government debt with similar maturities based on a B rating from Fitch, according to data compiled by Merrill Lynch & Co. The spread is 1.87 percentage points more than Tata would pay, based on its Baa2 rating from Moody's and BBB ranking from S&P. The additional annual interest would cost the company at least $47 million, according to data compiled by Merrill and Bloomberg.

Competitors for Corus

Tata's planned acquisition may face competition. Companhia Siderurgica Nacional SA, a Brazilian steelmaker, hired New York- based investment bank Lazard Ltd. to advise on a possible bid for Corus, the Sunday Times in London reported on Oct. 22, without saying where it got the information. Russia's OAO Novolipetsk Steel may also bid for the company, the Financial Times reported on Oct. 18.

``There is no 100 percent certainty that the deal will go through, as another bidder could emerge or the current offer could be rejected,'' said Pozzi at Societe Generale.

Moody's, which ranks Corus's senior unsecured debt at B1, said on Oct. 23 it hadn't yet decided whether to revise its ranking. S&P hasn't issued a report on Corus since an Oct. 18 statement that the acquisition was likely to boost Corus's BB- credit ratings ``given the higher ratings'' for Tata.

``If they were prepared to just merge the whole thing, the debt would be rated a similar way as Tata Steel, and it would probably be somewhat cheaper for them to do,'' said Rick Mattila, a credit analyst at Dresdner Kleinwort in London.

Bond Buyback

Corus's bonds have gained since the takeover offer because Tata said it will buy them back. Corus's 800 million euros of 7.5 percent notes due in 2011 increased to 108 percent of face value from 105 percent last month, according to RBC Capital Markets Ltd. The bonds yield 5.56 percent, or 1.78 percentage points more than benchmark government debt with the same maturities.

``For the bonds it's fairly straightforward, they're going to get bought back,'' said Robert Jones, head of high-yield research at Barclays Capital in London. ``The way the financing is structured, the credit-default swaps could end up being a lot wider than they are now.''

http://www.uk.all-biz.info/news/index.php?newsid=7

 

[Skeptic786]

My original post which sparked the indian outcry is as follows ( in bold );


i would say this is one of the biggest blunders indians have ever made thus far ( assuming they close the deal and take corus ) in their international forays.

Not long ago Corus was valued at around 180 million pounds ( same thing now being sold for £4.5 billion pounds )...and was running loss of 500 million pounds annual....before its fortunes were turned by factors outside its control. That is the rapid development of china...sucked in excess iron from the world markets....increasing price of steal many times.......corus further improved its situation by shutting plants and cutting jobs ( by raising funds from sale of aluminum plant --now the indians wouldnot be getting aluminium plant ).

But china has turned net exporter of steal last year.....hence the prospects for iron prices doesnot look good and bad days for corus are only round the corner.

What is TATA doing? TATA is loaning 2-3 billion pounds to buy Corus.....which simply means the indians would be paying good money ( in interest payments ) back to the westerners who loaned them the money to buy corus...and they donot even have to worry about the headache of corus slipping back into loss-making....as is expected.

of the 4.5 billion price of corus.....2 billion is added purely due to market speculation in the last 6 months itself ( when the russian rumors were abound..these rumours added about 1.5 billion dollars as bid was expected..which never came....then the indian rumour started which made the share price jump further adding another 500 million pounds or so....before the indians actually came out with a price)......from this one doesnot have difficulty in concluding that corus is being sold...way over its worth. From the British and Holand shareholder's point of view this is truely win win situation...they should take the money and run!.



This was followed by following post in response to indian responses ;



Problem with indians is and has always been is to disbelieve something coming from a pakistani person/ source....not because it is suspect but becuase it is coming from pakistani origin. Instead of answering each and everyone of you individually....i am posting my reply for all of you can read it and if you can refute anything i say with proof your welcome to do so.

As far your comments as me not knowing about corus or what i said about its valuation being around 180 million not very long ago....only proves the point i started this post with. DO you have any proof what i said was wrong? no you didnot....do you even know the old name of Corus??? ( i do..since i was a sharesholder of it in its old name ). In the last 3 years ( first quarter 2003 ) at one point corus shares fell to 4p...yes 4p ( that was even below 180 million ) and it looked like corus was going to be bankrupted out of existance....its saviour came not from steal business but alumium plant which was sold to make ends meet and keep it float ( in addition to job cuts and steal plant closure at some sites )......then the price of steal increased ( due to china sucking in huge amounts of steal...china will be exporting steal next year....hence corus bad days are only round the corner ). Corus deal is good for the shareholders.....if indians are ever going to see a penny of profit then they will have to swallow the steal it produces themselves....since almost everyone else can and will be getting ( and will be getting from china ) cheaper steal.

As far as any other bidder coming....this is mere attempt to squeeze more money out of indians or to keep them firm to take corus...thinking they have achieved something....the fact is if corus had been worth its salt in the truest sense the russians with far more deeper pockets than TATA would have taken it a year ago, when it was on offer for half the amount indians are paying now ( yes half the amount ). They didnot...having analysed the situation. Instead of spewing rubbish against me...i invite you indians to go check the graph of corus shares for the last five years and see the facts for youself.





Nothing was refuted in substance by any indian.......your still welcome to have a go......but my advice is you go and check corus share graph for the last 5 years.

 

[Goodperson]

This is strange TATA wants to buy Corus as part of Expansion plans
its true TATA may take loans for the deal , Yes the share price of Corus will grow because of that thats the Universal rule.

This happens with all take overs, Still it was interesting to see some stake holders of Corus say the deal was cheap. But the board has accepted and I think that will be ratified by shareholders too.

 

[Bull]

Problem with indians is and has always been is to disbelieve something coming from a pakistani person/ source....not because it is suspect but becuase it is coming from pakistani origin. Instead of answering each and everyone of you individually....i am posting my reply for all of you can read it and if you can refute anything i say with proof your welcome to do so.

As far your comments as me not knowing about corus or what i said about its valuation being around 180 million not very long ago....only proves the point i started this post with. DO you have any proof what i said was wrong? no you didnot....do you even know the old name of Corus??? ( i do..since i was a sharesholder of it in its old name ). In the last 3 years ( first quarter 2003 ) at one point corus shares fell to 4p...yes 4p ( that was even below 180 million ) and it looked like corus was going to be bankrupted out of existance....its saviour came not from steal business but alumium plant which was sold to make ends meet and keep it float ( in addition to job cuts and steal plant closure at some sites )......then the price of steal increased ( due to china sucking in huge amounts of steal...china will be exporting steal next year....hence corus bad days are only round the corner ). Corus deal is good for the shareholders.....if indians are ever going to see a penny of profit then they will have to swallow the steal it produces themselves....since almost everyone else can and will be getting ( and will be getting from china ) cheaper steal.

As far as any other bidder coming....this is mere attempt to squeeze more money out of indians or to keep them firm to take corus...thinking they have achieved something....the fact is if corus had been worth its salt in the truest sense the russians with far more deeper pockets than TATA would have taken it a year ago, when it was on offer for half the amount indians are paying now ( yes half the amount ). They didnot...having analysed the situation. Instead of spewing rubbish against me...i invite you indians to go check the graph of corus shares for the last five years and see the facts for youself.

Can u do all of us a favour by just shuting up.Please!!!

 

[Bull]

What is TATA doing? TATA is loaning 2-3 billion pounds to buy Corus.....which simply means the indians would be paying good money ( in interest payments ) back to the westerners who loaned them the money to buy corus...

please, have alook at the interest rate at which they are borrowing, and then comment.

 

[Bull]

See you not even aware of basics of TATA approach....TATA is raising the money by floating bonds....which is interest paying instrument.

eureka!!! Nobel price for economics.

Man every business borrows money,can u show me one.Hell the govts do and pay interest.

So whats ur beef with TATA borrowing?Do you know whats TATAs debt to equity ratio is before and after this take over.