India’s Tata Steel to Acquire Corus

Corus Group agreed to a cash offer of 4.3 billion pounds ($8 billion) on Friday from India’s Tata Steel in a deal that would create the world’s fifth-largest steelmaker.

The deal, which would be India’s largest foreign takeover, extends the industry’s recent wave of consolidation, coming on the heels of Mittal Steel Co.’s $34-billion takeover of Arcelor this year.

The tie-up would create an entity with annual steel output just under 25 million tons and was hailed by both companies as the best way for each to remain internationally competitive, despite charges from one of Corus’ largest shareholders that the offer undervalued the London-based Anglo-Dutch business.

“The intention of these two companies has been built on a global strategy, not on an opportunistic or agenda-driven decision to acquire credit or absorb,” Tata Steel Chairman Ratan Tata said. “It is built on a competition strategy of being global.”

However, Standard Life, a British insurance and asset management firm that owns about 7.9% of Corus, said the offer was “lower than we would have expected the board of Corus to agree to and recommend.”

“The trading performance of Corus has been very strong and produced very attractive cash flows which we believe could be worth more than the current price being offered by Tata.”

Standard Life stopped short of saying it would vote against the proposal and some analysts said that without the emergence of another bidder, it would be difficult to reject the Tata offer.

Ratan Tata said the offer price was fair, while Corus Chief Executive Philippe Varin said it was 26% above the average share price for the last five months.

Corus Chairman Jim Leng said that the recommended deal with Tata was the culmination of talks with a number of parties from Brazil, Russia and India, adding that the two companies first began talks in December.

Corus and Tata said they expected significant synergies from the deal, but did not quantify them. Corus has been seeking a partner with lower-cost assets and access to raw materials.

Tata Steel is a subsidiary of Tata Group, which has interests in hotels, automobiles and software. The company produces 9 million tons of steel annually and is among the lowest-cost steel producers in the world. It plans to raise its capacity to 30 million tons by 2015, in part through acquisitions.

Consolidation of the steel industry has been speeding up since Mittal Steel won its battle to take over Arcelor in a deal that will create a titan that controls close to 10% of global production.

Steelmakers say consolidation will give them better pricing power for their products and, where they don’t already have access to raw materials, better leverage over coking coal and iron ore producers.