Price war turns Corus costly

London: As the battle for Corus steps up, questions inevitably arise how this acquisition compares with Laxmi Mittal's acquisition of Arcelor.

Laxmi Mittal had a tough five months at the start of this year before the marriage – as he called it – between Mittal Steel and Arcelor finally came about.

"If we go back and look at the acquisition of Arcelor by Mittal, the price there was something like $34-$35 billion and for that $34-$35 billion, they acquired steel make, for crude steel, but that is a broad indicator, but for that they got something like 45 million tonnes of crude steel. Now, we contrast that with Corus, where the price offered, $8 billion by Tata, $8.3 billion by CSN, but for that they will be getting 19 million tones of steel make which to me seems pretty good value for money," said Iron and Steel Statistics Bureau Director Operations Steve Mackrell.

But the other way is to consider what the business calls the Ebidta, the operating profit without considering tax, interest and other liabilities. On this count, the price being offered for Corus is already quite high.

"Mittal valued Arcelor at something like 4.5 to 5 times the operating profits. By operating profits I mean those without depreciation and tax, and interest payments. If you look at the situation with Corus, the CSN bid values the company at 5 to 5.5 times the same figure. So in terms of profits, the CSN bid is higher than the Mittal bid for Arcelor," said Steel Expert Mike Mytton.

But the players are looking at more than short-term results.

"The main thing here is to do with strategy, and becoming a global player. What we are really seeing is a marriage between a low cost producing country gaining access to developed western markets, as well in the process becoming a global player and picking up emerging markets as well. So that's the grand strategy, it's all part of becoming a global player," said Steve Mackrell.

It is not a simple sum to work out if Mittal pay too much for Arcelor in terms of cost for production, or is there headroom for the Corus bids to raise a good deal more. Everyone looks at long-term synergies and strategies, but there comes a point when a strategy gets outpriced and it need to be seen where that point is in this transaction.

(For updates you can share with your friends, follow IBNLive on Facebook, Twitter, Google+ and Pinterest)

#Corus #Tata #CSN #takeover #Arcelor #Laxmi Mittal