Tata -Corus deal may be unveiled on Friday
Corus could merge into Tata SPV under UK Scheme of Arrangement
By Sudeshna Sen & Bodhisatva Ganguli, TNN |
LONDON/MUMBAI: It's all stiff upper lip at the moment, but the body language is positive. The Tatas seem to be closing in on acquiring Corus, so much so that sources monitoring developments feel that an announcement may be on the cards as early as Friday, at the end of this week.
Tata Steel's takeover of Corus may involve a scheme of arrangement under which Corus could be merged with a special purpose vehicle (SPV) or holding company 100% owned by the Tata Group, persons familiar with the situation told ET. The SPV is likely to be based outside the UK, in order to comply with UK regulatory requirements.
As a Diwali Dhamaka, this one would really be the loudest bang made by an Indian company on the international firmament; and one that puts even the Mittal-Arcelor deal into the shade, coming as it does out of India.
The scheme of arrangement, if that is the route eventually pursued, is subject to approval by Corus directors and then by shareholders. If approved by the requisite majority of shareholders, Corus will then be merged into the SPV. Shareholders will however receive cash at 455 pence per share (or higher depending upon the final outcome) instead of shares, sources said. The cash to be paid will come from the SPV which is raising debt and equity worth $8-$9 bln.
The exact details are not currently available and are likely to be unveiled in the course of a formal filing by the acquirer (the SPV).
There are two ways of taking of taking over a company in the UK, a tender offer or a scheme of arrangement. The latter, people close to the situation say, seems the likelier option.
For a scheme of arrangement to be successfully executed, the Tata Group would have to reach an agreement with the Corus management and subsequently the shareholders. Such an agreement may be announced later this week.
According to most observers, it seems likely that Corus' board may be favourably inclined to recommend the offer, given that its share prices may already be considered to be trading at a premium, given the consistent rumours about a possible merger since the summer.
When contacted, a Corus spokesperson said that the company could not comment on the status of the discussions at this stage.
One reason to opt for a scheme of arrangement is to gain complete control over Corus, sources said. In the other scenario, the Tata group may not be able to persuade all Corus shareholders to sell. Some shareholders could probably hold out, creating undue hassles.
The SPV will be capitalised by the Tata Group, largely Tata Steel, to the tune of $2 to $3 bn, sources said. Tata Steel shares fell 1.3% on Wednesday to Rs 508.7 on the Bombay exchange. Corus shares rose 8p to 487P at 11 P.M Indian time.
Observers feel that even as the Corus board is huddled in discussions, and may come out with a recommendation soon. The way forward hinges on pricing - the critical issue is if another bidder emerges, and a couple of Russian companies including Severstal have not said no - the Tatas might have to plumb their financial reserves a bit more. Metal Bulletin, an industry publication, said that Brazilian steel major, CSN may put in a counter bid, which was however denied by the company.
Sources in the know said that Tata and Corus might be culturally more compatible. Both companies have been national icons of their own countries. Both are seen as having been through difficult cost-cutting and restructuring exercises, yet both value and have learnt to live with their history. And both are seen as 'process and systems driven' (read somewhat bureaucratic) in their approach, says one observer. "James Leng (chairman of Corus) and Ratan Tata had great chemistry between them when they met in summer,' says a source close to Tatas. It is at James Leng's initiative that talks have reached so far, which was first started early in summer this year. "It shows that western companies now have to seriously look at Indian companies as competition," one rather gleeful Indian businessman in the UK told ET.
Also, the UK trade unions, which are inclined to evaluate the Tata offer on its merits, may well be less favourably inclined towards a Russian bidder. According to observers, the Tatas are perceived to be more 'sensitive' to the softer aspects, like jobs, than the Russians are. "We would expect Tata to commit to further much needed investment in Corus' UK operations as part of the terms of any takeover deal, " said Michael Leahy, Community General Secretary, of the trade union which represents most Corus employees.
Speaking to ET, community officials said that as a trade union it has never been protectionist in nature, and would evaluate Tata's terms and conditions on merit, and on ensuring that the steel industry's strategic role in the UK economy is maintained. The union is expected to demand a guarantee on the terms and conditions of employment for Corus' UK employees, particularly on pay and pensions.
Comparisons with Mittal-Arcelor is both natural and obvious. The difference in this case seems to be that there are no regulatory hurdles to overcome, the British government's attitude is much more welcoming towards Indian companies, and as one commentator told ET, "The Tatas as a group are greatly respected in the west. Ratan Tata himself commands a lot of respect. It's seen as professional & well-managed.''
Start a SIP with as low as ₹500 with ET Money App!
Download
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
ADVERTISEMENT
