In the biggest foreign takeover by an Indian company, Tata Steel and Corus Group on Friday reached an agreement on the acquisition of the European steel giant by the Indian firm for £4.3 billion (Rs 36,500 crore).The Board of Directors of both the companies approved the acquisition of Corus at a price of 455 pence per share in cash, paving the way for creating the world’s fifth largest steel entity with a capacity of 23.5 million tonnes per year.

“Corus Directors consider the terms of the acquisition to be fair and reasonable, so far as shareholders are concerned. The Directors intend to unanimously recommend that Corus shareholders vote in favour of the scheme,” a joint statement released by Tata Steel and Corus said.

The acquisition will be made by Tata Steel UK, a wholly-owned indirect subsidiary of Tata Steel. The Indian firm has also been able to satisfactorily address the concerns of Corus’ two main pension funds.

“This proposed acquisition represents a defining moment for Tata Steel and is entirely consistent with our strategy of growth through international expansion,” Tata Group chief Ratan Tata said.

“We have compatible cultures of committment to stakeholders and complimentary strengths in technology, efficiency, product mix and geographical spread,” he said.

Corus Chairman Jim Leng said the combination with Tata represented “the right partner at the right time at the right price and on the right terms.

“This creates a well balanced company, strategically well placed to compete in an increasingly competitive global environment,” Leng said.

The Tata-Corus deal comes close on the heels of the acquisition of Luxembourg-based Arcelor by Rotterdam-based Mittal Steel, owned by India-born industrialist LN Mittal. Arcelor-Mittal is now the world’s largest steel company with a combined output of about 110 million tonnes per year.

“The combined entity would be better equipped to remain at the leading edge of the fast changing steel industry,” Ratan Tata said.

Leng said the deal with Tata followed talks with a number of Brazilian and Russian companies over the past one year.

The price of 455 pence per Corus shares is a premium of 26.2 per cent to the average closing price of 360.5 pence per Corus share for the twelve months period ended October 4, when the two sides first confirmed of the negotiations.

Tata Steel would fund the deal through its own cash resources and loans. The company is likely to raise about 1.8 billion pounds on its own and would get a loan of about 3.3 billion pounds from Deutche Bank, ABN Amro and Credit Suisse.

As per the deal, at least 75 per cent Corus shareholders must tender their shares for Tata Steel to complete the transaction. The Indian firm has also been able to address the concerns of Corus’ two pension schemes - the Corus Engineering Steels Pension Scheme and British Steel Pension Scheme - by increasing its contribution rate and paying additional funds.

Corus is Europe’s second largest steel producer, after Arcelor-Mittal, with revenues of 9.2 billion pounds in 2005 and steel output of 18.2 million tons in UK and Netherlands.

Tata Steel is India’s largest private sector steel firm with revenues of 5.0 billion dollars in 2005-06 and steel production of 5.3 million tonnes across India and South-East Asia. Tata Sons, Tata Steel and other Tata firms had combined revenues of about 22 billion dollars in 2005-06.