Tata Steel drawn into a bidding war for Corus

CSN tops Tata Steel's latest bid for Corus. Tata Steel shareholders turn bearish sending shares down 6%.
Companhia Siderurgica Nacional (CSN) of Brazil has topped the bid by India's Tata Steel for Corus UK thwarting the ambitions of the Indian company to become a global top 10 steel industry player and potentially derailing IndiaÆs largest announced M&A cross-border acquisition.

From the sequence of events, it seems that CSN was waiting for Tata Steel to table its revised bid to make its own offer. Tata Steel announced late on Sunday that it had increased its offer to Corus shareholders to ú5.00 ($9.78) per share, an increase of 10% over the ú4.55 that Tata Steel originally offered. At the new price, Tata Steel valued Corus equity at ú4.7 billion, up from ú4.3 billion earlier. But only a few minutes after London bourses opened on Monday, CSN put forward its revised offer at ú5.15 per share, valuing Corus on an equity basis at ú4.9 billion. CSN said that including assumption of agreed liabilities it had valued Corus at ú5.8 billion.

The CSN offer ups the Tata Steel offer by 3%, representing a 26.4% premium to the closing price on October 4, the last trading day prior to Tata SteelÆs announcement that it was evaluating various acquisition opportunities including Corus. The Tata Steel offer had represented a 22.7% premium to the October 4 price.

On November 29 Corus announced financial results for the quarter ended September 30 showing substantial growth in both revenue and net profit. While announcing results Corus had said the improvement reflected ôa combination of better market conditions and further benefits" of an ongoing cost-cutting programme. Analysts speculated that the improved performance might have also factored into CSNÆs aggressive second bid, up 50 pence from its original offer.

Benjamin Steinbruch, chairman and CEO of CSN, highlighted that ôthe strategic impetus for this combination is growth û growth in Brazil, in Europe and for our combined workforcesö. Analysts commented that CSNÆs access to low-cost iron ore was a significant advantage in enabling it to bid more aggressively than Tata Steel.

Jim Leung, chairman of Corus, who had only hours earlier recommended the Tata Steel ú5 per share bid to shareholders says, ôthis offer is both higher than the initial proposal by CSN as well as the revised Tata offer. The combination of the two businesses (ie. CSN and Corus) will create a strong platform from which to competeö.

Tata Steel was forced to increase its original ú4.55 per share offer as CSN on November 17 submitted a higher, competing offer of ú4.75 per share, subject to confirmatory due diligence. The meeting to consider the Tata Steel bid, scheduled for December 4, was postponed to December 20 to give CSN time to put forward a formal offer.

CSN also announced on Monday that it would fund the acquisition through $3.3 billion of cash and debt facilities of ú4.35 billion jointly arranged by Barclays Capital, Goldman Sachs and ING Bank.

Tata Steel had earlier announced that a consortium comprising Credit Suisse, ABN Amro, Deutsche Bank and Standard Chartered would provide acquisition finance. Tata Steel announced on Sunday it would raise the additional funding required for the enhanced bid from Standard Chartered Bank and Standard Chartered First Bank of Korea.

While tabling the increased bid Ratan Tata, chairman, Tata Steel had said, ôwe remain convinced of the compelling strategic rationale of this partnership and the revised terms deliver substantial additional value to Corus shareholders.ö In Monday trading on Mumbai bourses, Tata Steel shareholders reacted nervously to the increased offer, suggesting they may not share Tata's conviction. The share lost more then 6% in trading to close at Rs453 ($10.17) in a broader market which lost around 3%. It remains to be seen which way the share moves when markets open on Tuesday û the CSN bid was tabled around the close of trading hours in India. Tata Steel has not yet reacted to the CSN bid.

Corus shares gained 6% to ú5.29 as shareholders keenly anticipated a bidding war. CSN shareholders seemed to share the nervousness of Tata Steel shareholders about a bidding war and pushed shares down 1.5%.

Corus is being advised by Credit Suisse, JPMorgan Cazenove and HSBC. CSN is being advised by Lazard, Goldman Sachs and UBS. Tata Steel is being advised by ABN AMRO, Deutsche Bank and Rothschild.
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