Further to the earlier article on this takeover by Tata, reported in the BusinessWeek.com (20/7/07) regarding the hefty price that Tata paid.

• the price was 608 pence per share, which translates to a total purchase price of $12 billion.
• which is approximately 9X EBITDA (earning before interest, taxes, depreciation, and amortization)

Some pros and cons has been advocated:

Cons:

1. Tata paid for about nine times Corus’s EBITDA which is an astronomical price in the steel business, where all other major steelmakers trade at roughly five to seven times EBITDA. Incidentally, Arcelor Mittal, the industry leader, trades at 6.5 times EBITDA. Hence Corus is valued at a multiple that is more than 30% greater than that of Arcelor Mittal.
2. Corus itself a troubled and ailing company.Corus was formed via the merger of Hoogovens, a Dutch steel company, and the former British Steel. British Steel assets are older, less productive, and less profitable. More importantly, they have union issues and are burdened with more than $13 billion of pension liabilities.
3. The purchase might be made in a hasty and frenzy manner. Tata’s share prices lost 11% on the day after its winning bid was announced, while CSN’s stock price jumped more than 7% after it lost the auction

Pros:

1. There is material synergy in steel capacities. Presently, Tata produces about 9 million tons of annual steel production whilst Corus represents about 20 million tons of annual steel production. With a total of 29 million, this acquisition will catapult Tata from being outside the 30 largest steel companies to No. 5 on a capacity basis. (Mittal set the standard with its acquisition of Arcelor , creating a global superpower at over 120 million tons per annum of production. By comparison, the next largest steel company, Japan’s Nippon, has a mere 35 million tons)
2. Despite the enormous price tag for Corus, the purchase price per ton amounts to about half of what it would cost today to build those same assets from scratch

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