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'Buy a tremendous strategic fit for us'
BS Reporter in New Delhi | February 01, 2007 10:01 IST
When Business Standardcaught up with Tata Steel Managing Director B Muthuraman, it found him ebullient despite not having slept a wink all night Excerpts:
First reaction to the victory:
We are damn tired (laughs). On a serious note, though, I am happy and elated.
On the board reshuffle at Corus and Tata Steel:
Our announcement on October 20 on the group's representation on the Corus board remains. (Ratan Tata will become the chairman of Corus, which will be a separate entity for now. Incumbent chairman Jim Leng will become deputy chairman. Corus's senior management team will stay, though three Tata Steel representatives will join the board.)
On scepticism over the valuation:
The acquisition cost of 608 pence a share may look expensive since it is about nine times the 2005 EV/EBIDTA. But the acquisition is a tremendous strategic fit for Tata Steel. The cost we have agreed to pay is nearly half that of setting-up capacity of Corus's size.
Plus, the acquisition will provide us a presence in more mature markets like Europe.This will also give us an opportunity to go into downstream products.
The agreed price of 608 pence a share translates into an enterprise value of $700 per tonne. A greenfield project of this size, with Corus's downstream exposure, would give you an enterprise value of $1,200-1,300 a tonne.
The acquisition will add 19 million tonnes a year overnight to Tata Steel's capacity. Setting up a greenfield project takes three to five years, and a bit longer in a developing country like India. Also, Corus has a significant R&D facility.
The synergy between the two companies:
Full synergies will start accruing from the third year, when we start supplying semi-finished products. It will result in savings of $350 million a year.
Job security for Corus workers:
The best safeguard for jobs is to make the company competitive. Today, it is less than competitive.
With this acquisition, Corus will become more competitive, which will increase job security. I do not think there is anyone in the world who can say his job is secure.