In an effort aimed at garnering popular public support for its takeover of Corus, the Tata group is offering British shareholders an option to sell shares to Tata Steel UK, allowing them to avoid capital gains tax, which can go as high as 40% in the UK .
The Tatas’ fear of a potential backlash from British trade unions agitated over possible job losses, prompted the move to offer this deal to only British shareholders. These constitute 57% of all Corus public shareholders.
Community, the trade union of the steel workers in the UK, has been demanding a meeting with Tata Steel chairman Ratan Tata, to get an assurance about job security for Corus workers. As two-thirds of Corus’s 41,000 employees have the option to acquire shares at concessional prices or have been setting aside a portion of their salaries to invest in Corus shares, the move to save them capital gains should be well received.
As per data obtained from Corus Group, employees could hold almost 49.6 million shares (including options). The Tatas’ have bought these back at 608 pence per share, which is almost a seven year high for the stock. As a result, each employee would have substantial capital gains accruing on the sale. At the end of fiscal 2005, 50.73% of all of Corus Group Plc’s employees were based in the UK.
Tata Steel UK is offering a bond that will be guaranteed by ABN Amro Bank NV. If shareholders had to opt for plain bonds issued by Tata Steel, these would be ranked as junk bonds with no certainty of timely payment and would in fact carry much less value in the open market.
ABN Amro being a large Dutch bank with a high safety rating is much more credit worthy. The bonds will be available for issue once shareholders of Corus approve the takeover by Tata Steel and its affiliates, said Corus officials.
British shareholders, who are tax payers, can opt to receive part or all of the proceeds of sale of shares to Tatas in the form of these bonds which will pay an interest rate a percent less than the rate at which banks lend to each other in the London inter bank market. Interest on the bonds will be paid twice a year. The bonds can also be sold back to Tata Steel UK after six months of issue, twice during a year, provided they are offered in multiples of £500.
The Tatas have already emerged as the single largest shareholder of Corus having bought 21.1% stake from institutional shareholders at 608 pence per share in an off market transaction. The Corus stock price was 602 pence on the London stock exchange on 5 February 2007.