Corus war may stretch Tata

LONDON: Brazilian steelmaker Companhia Siderurgica Nacional (CSN) has outbid Tata Steel’s offer for the Anglo-Dutch company Corus with a raised offer of £4.9 billion (Rs43,000 crore). The move has pitched Tata and CSN into a bidding war for the eighth largest steel producer in the world.

Late on Sunday night, the Tata Group — through Tata Sons board member Arun Gandhi — increased its initial offer of £4.1 billion (455p per share) to £4.7 billion (500p), going over the £4.3 billion (475p) first offered by CSN. But the Brazilian steelmaker trumped Tata’s bid on Monday morning, raising its offer to 515 pence.

If, for a few hours, it seemed as though the advantage lay with Tata, the initiative slipped back to the Brazilian steelmaker after the latter’s bid, leaving observers puzzled about why Tata jumped the gun. “I have never seen anything like this. What did the Tatas think, that they were going to scare CSN off?” an analyst said.

Others believe that Tata will not get into a bidding war with CSN and may be preparing to pull out of the deal. “The price of 515p is more on the upside and the next offer has to be 530p, which is unlikely to happen,” said Raju Deswani, steel analyst and global publisher of Metal Bulletin. “It is quite possible that Tata will take a step backwards and pull out.”

A spokesman for Corus said the board is recommending that shareholders accept the CSN offer — a turnaround, considering that until late on Sunday night they were behind Tata’s improved bid of 500 pence per share. Tata is said to be considering its position “after the latest developments”.

Jim Leng, Corus chairman, who had backed the Tata offer on Sunday night, shifted allegiance when CSN upped the bid. The CSN offer, he said, is “consistent with our strategic objective of securing access to raw material, low cost-production, and growth markets”.

A merger of Corus and CSN would create the world’s fifth-biggest steel firm with output of 24 million tonnes annually. “Our goal is to unlock the value of our iron ore assets through Corus, transforming them into cost-effective, high-quality steel products using Corus’s advanced engineering capabilities and its excellent European distribution platform,” said CSN chairman and chief executive Benjamin Steinbruch. “This is a winning combination for all stakeholders.”

Corus employs 47,300 people worldwide, including 24,000 in the UK at plants at Port Talbot, Scunthorpe, and Rotherham. Corus was formed out of a merger of British Steel and Dutch group Hoogovens in 1999.

Ratan Tata, chairman of Tata Steel, had said last night just after the renewed bid: “We remain convinced of the compelling strategic rationale of this partnership and the revised terms deliver substantial additional value to Corus shareholders.”

Talking about the Tatas’ early revised offer, Deswani said, “They made the offer with due diligence. They knew what they were doing, so there was no reason to delay.”

But CSN’s higher bid, and the shift in the Corus management’s position, makes it unlikely that the Tatas can win without paying more. “There is no inside edge. This is about shareholders and price,” said Nish Kotecha, who runs a London-based financial advisory firm. “The Corus management will want the best for its employees, shareholders and pension funds.”

CSN has also offered to pay £138m immediately into the Corus Engineering Steels pension scheme and increase the contribution rate to the company’s larger British Steel pension scheme from 10 per cent to 12 per cent until March 2009. Tata Steel had earlier said it would fill the £123m deficit in the Corus pension scheme immediately and would increase contributions to the British Steel scheme, which is in surplus.