Update 2: Tata Steel''s offer for Corus below yesterday''s closing price

Rex Mathew
17 October 2006

Tata Steel has made an indicative non-binding offer for 100 per cent of European steel maker Corus Group Plc at 455 pence per share in cash.  The offer is considerably lower than the earlier speculated price of 580 pence per share and below the closing price of 479.5 pence for Corus on the LSE yesterday.

The offer has been submitted to the Corus board, which has confirmed the bid in a separate announcement. The Corus board is expected to consider the bid at a later date and decide on whether to recommend the offer to its shareholders.

On its part, Tata Steel said "there is no certainty that a final offer would be made and further announcements would be made as appropriate". The bid values Corus at around $10 billion according to Tata Steel.

It is unlikely that Tata Steel would be able to pull off the deal at the current offer price. Tata Steel may have to hike the offer price, if it really wants the bid to succed, as it would be difficult for the Corus board to recommend a bid which is lower than the current market price.

However, Corus is a low-margin steel make and its stock is currently trading at nearly 10 times projected earnings for full year 2007. This is considerably above the valuations of most other European steel makers and Tata Steel may find it difficult to up its offer price substantially.

It is also likely that other potential bidders like Russian steel maker Severstal or Brazilian company CSN may enter the fray with rival bids. Another Russian steel maker Evraz, which was considered to be a potential bidder, has already indicated that it is not interested in a bid for Corus because of high valuations.