panch-attava talk/from archive

, October 06, 2006

Market Matrix – Tata Steel eyes Corus – 6 Oct 2006

By krsna Khandelwal – A Stock Market Vedic Theory proponent

There are some reports that Tata Steel is going to bid for take over of Corus, the Anglo Dutch steel major. It has been valued at about $10billion and has sales turnover of about five times of Tata Steel. In light of this development, we have to judge the effect on Tata Steel stock prices in India. The real motives are not clear except for the fact that the Tatas may be riding high on strength of the profitability of their Indian operation and must be feeling confident to raise the required money as the lenders also are weighing their strengths favourably.I must caution you that such kind of dreaming (to be big internationally) is OK for the management but surely is detrimental for the share holders.

Now what the shareholders do? The strategy best adopted should pay off either way i.e. if this finds substance and translates in to reality and reversely if this turn out to be an unrealised goal. My simple advice to Tata shareholders is that they should keep buying the Tata Steel share if the price falls in near future as this will make the attempt to take over difficult and it would be dropped ensuring the safety of investor. Now in case some quarters are optimistic and they start buying the Tata Steel share and the price surges in a short time substantially please do not wait and unload what ever you have as stake in Tata Steel on to the over optimistic buyers. Actually, there may ensue some kind of operation directed at controlling the Tata Steel share price with a view to keep the take over strengths in tact. You and I would not know who is doing what with what purpose in mind but strange are the ways where big deals are involved, so best is to be out of the line of fire and have the chips in pocket (which equals two in the same fashion as a bird in hand is better than two in bush).

 

You may have noticed that since before the matter has been made public the share price of TCS is seeing erosion in value.Tatas seem to banking on to raise funds on strength of TCS stakes with them and partly they would be raising funds by sales of TCS shares. We do not have to doubt their capacity to clinch this big a deal as the group has the wherewithals.There must a fear in mind of Tata promoters in respect of the hostile take over. They have such poor stake in Tata Steel that if they try to take it to 51% the prices would go through the roof .Since the time is short and they are on an expansion spree they are killing two birds (rather three) with one stone. For one this take over would make them access the latest of technology without any fee payment for their domestic expansion, secondly they would have made the merged enterprise so big as to make it impossible for any body to think of hostile bidding later on and the third is that the Tatas have grown so much that it is uncomfortable for them to remain confined to India and therefore why not be a truly multinational group with such grand entry.

 

The idea seems to be routed also in the fact that the managerial talent in Europe now comes at a tremendous cost to company and this would be taken care of by Tatas with the help of their managerial pool in India. When the European companies do not aspiring people of young age these kind of overtures are not resisted with full force(the Arcelor take over is the case in point).

 

Allow me discuss some thing more here. The Europeans were not borne yesterday, they have also the capacity to look for the returns better then they presently expect on their European investments. A rupee of investment in Europe is unlikely to generate as much as in ,let me say, ‘BRIC’.So why not have the money shifted to newer places and newer industries. From this angle, Tatas are on the wrong foot and they should not go over board in this case by offering fancy price.

 

Hari Om

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