Tata’s deal veiled by sleepy town

LONDON: Truro, a sleepy market town in Cornwall, in the southwest of England, has little in common with the heavy industrial world of steel-making.

But Truro was the code-name given to Tata Steel Ltd., the India-based steel company, which on Friday snapped up Corus, its Anglo-Dutch rival, in an $8 billion pound deal.

Even though the deal appeared to happen in a matter of weeks, bankers have been searching for a partner for Corus since last October, when its advisers at Credit Suisse set up “Project England,” the code-name for the potential sale. “Every possible buyer had a code-name,” said one source close to the deal, who said Corus and its bankers met in far-flung locations for months with potential suitors, including Russia’s Severstal and Evraz and Brazil's CSN.

“Everybody was very interested, but nobody was putting up,” the source said, adding that talks ranged from joint ventures to full-blown takeover scenarios. “It was a thoroughly rigorous search,” the source said. In the end, India’s Tata emerged as the only serious partner, and negotiations continued one-on-one with a new project name, this time “Project Colour” being assigned to the potential deal.

Bankers on both sides met once a week in secret, off-site locations, but despite months of negotiations, the talks fell apart six weeks ago because the banks advising Tata, ABN AMRO and Deutsche Bank, couldn’t come up with the necessary financing package.

It was then that Credit Suisse took the unprecedented move of approaching the Takeover Panel, which governs mergers and acquisitions in the UK, and asked it for permission to fund the deal, despite being adviser to the target. The Swiss bank got the nod, and the deal was back on.

Credit Suisse’s leveraged finance team came up with a plan to fund 100 per cent of the deal, which was later split between Credit Suisse, which funded 45 per cent, and ABN and Deutsche, which provided 27.5 per cent. The so-called “non-recourse LBO financing” is a structure not often seen in the European leveraged loan market, experts say, with the last example being the acquisition of Pilkington Glass in May 2006, when the buyer, Japan’s Nippon Sheet Glass, raised the financing through target Pilkington via an intermediate holding company. Right at that time, news of the deal leaked to the media, which gave Corus and its bankers the perfect opportunity to talk to Corus’s pension trustees.

Nearly a year’s worth of talks culminated last Wednesday, when Corus finally received an official offer from Tata, which was immediately put to Corus’s board. The board was happy enough with the 455 pence a share bid and allowed Tata limited access to its books to perform a period of due diligence.

“They were never going to allow Corus to get trapped into a long, drawn-out process,” the source said. “We wanted the deal done as quickly as possible.” The only thing that remains to be seen now is whether or not a rival shows up with a bigger offer, although analysts and bankers cast doubt on that happening, given Tata has its financing in place and is ready to roll.

“We hear everybody’s hiring advisers, maybe someone will turn up with a big number, but it’s going to take a lot of cash,” the source said.