Is Tata Steel following performance of Mittal Steel (KKP Investor)

Steel companies have been on an acquisition binge around the world. There are companies in North America, Europe and Asia that are buying to get bigger to demand a larger percent of the global demand. Global demand for steel? Imagine that for a moment. Steel is a highly dense material that takes a lot to produce, and then your globalize it, it does not take an simple email package to email that material out. In the mid-80's steel city was Pittsburgh, the primary provider of steel to make the GM, Ford and Chrysler cars, who had a combined 50%+ market share of the world. Now it has gone global. It takes a lot of logistics, ships and loading zone to take it from A to B. But, yet, we are today in the mania of Buy-Outs and M&A's. Tata's decision to buy-out Corus seemed awefully ambitious, esp. in light of the fact that they kept bumping up their prices to gain % of votes to have the merger approved. Well, now there are doubts of funding this huge deal....But wait, we have an answer for that too - Let's get those funds from the market.

The Tata's who were clearly incapable of funding this deal alone, have decided to fund this mega-deal through a combination of domestic rights, preference shares and overseas equity. They are going for an almost 50% equity dilution, which should raise over Rs 15,000 crore. Starting with a 1:5 rights issue at a price of Rs 300 a share, it would finance the Corus acquisition to the extent of almost Rs 3700 crore.

There is a lot of bearishness surrounding this dilution that is about to happen. That is rightfully so. Even after announcing this dilution, the press releases from the company is eluding to the factor that EPS will not be affected due to these additional shares today, or when the preferential shares are converted over to common stocks.

Only time will tell how this is going to work out, but, if we take the example of Mittal Steel and what has happened to it, we should be totally inclined to pick up any and all shares during the current sell-off or if you own the shares now, then get the most number of rights issues that you can. Of course, you got to have staying power during the sell-off, or to buy the rights issues, and then wait for a year or so when the short term memory of Dalal Street will once again kick in and it will start to look forward to the market share that it has gained, the additional margin points that it has gained with the Corus absorption, and finally, the bullishness back into the Indian and Chinese markets. Check out http://finance.yahoo.com/q/bc?s=MT&t=5y&l=on&z=m&q=l&c= on yahoo to see how Mittal has performed.

You are now getting my general direction of this article-----> Bullishness on Tata Steel basing the pattern on a similar large purchase, dilution, and market share gain by our own Senior Mittal and his son. As of this writing, Tata Steel opened at Rs 464 and closed at Rs 544.