Will India's largest takeover and LBO be derailed?

Brazil's CSN betters Tata Steel's offer for Corus. Shares in Tata Steel drop as shareholders worry that a bidding war may surface.
In a surprise development on Friday, Brazilian steelmaker Companhia Siderurgica Nacional (CSN) put forward a competing bid for Corus Steel UK. The CSN bid at ú4.75 ($9) per share, represents an equity value of Corus of ú4.5 billion, topping Tata Steel's agreed offer of ú4.55 per share which represented an equity value of ú4.3 billion. CSN's offer is subject to confirmatory due diligence which Tata Steel has already completed.

CSN built up a 3.8% stake in Corus prior to launching its offer.

Benjamin Steinbruch, CSN chairman and chief executive said: "A combination of CSN and Corus would create a global powerhouse with market-leading positions and exceptional distribution networks across both developed and emerging markets.ö In its LSE filing on Friday, CSN also drew attention to the access it could provide Corus to fast growing markets as well as to secure supply of high-quality, low-cost iron ore from CSNÆs captive mines.

CSN is a fully integrated steel producer with operations in Latin America, North America and Europe and a current capacity of 21.5 million tonnes of iron ore, 5.6 million tonnes of crude steel, 5.1 million tonnes of rolled products and 2.9 million tonnes of coated steel. CSN and Corus had tried to merge earlier in 2002 however discussions could not be completed. CSN is currently engaged in takeover talks with Wheeling-Pittsburgh in the US. Chicago-based Esmark is also pursuing Wheeling-Pittsburgh and the Esmark offer has the support of Wheeling-PittsburghÆs union. Some analysts have speculated that CSNÆs overture to Corus could signal it is not confident of winning the US acquisition.

Corus on Friday informed the London Stock Exchange it "notes the recent announcement by CSN and confirms that it has this afternoon received an approach. A further announcement will be made in due course".

The Tata Steel bid for Corus, at an enterprise value of around $10 billion including agreed debt and pension liabilities, represents India's largest takeover and leveraged buyout to date. Tata Steel has not yet formally reacted to the CSN bid. Its proposal was due to be tabled at the extraordinary general meeting of Corus shareholders scheduled on December 4. The Corus board indicated its support for the Tata Steel offer on October 20 thus the shareholder meeting was widely being viewed as the next hurdle for Tata Steel to surmount. As the Tata Steel bid is lower then the prevailing market price of the Corus scrip, the meeting is critical. Standard Life plc who owns around 8% of Corus had indicated earlier that it felt the Tata Steel offer under-valued Corus.

CSN's overture was not received well by its shareholders. Analysts speculated this may have been driven by worries that the company will over-leverage itself to finance its various bids. CSN shares lost 4% on Friday on the NYSE to close at 65.10 Brazilian reals ($30.14).

Corus shareholders - who had been disappointed by Tata Steel's offer - reacted positively and Corus gained almost 5% on the LSE on Friday to close at ú4.96. It was firm at ú4.98 on Monday.

Tata Steel lost about 1% on the BSE on Friday and another 2.64% on Monday to close around Rs460 ($10.28) as shareholders demonstrated nervousness that the company could embark on a takeover war which would force it to bid aggressively.

Lazard is lead financial advisor to CSN on the Corus bid while debt for the acquisition will be provided by a syndicate comprising Barclays, Goldman Sachs and BNP Paribas. Tata Steel is being advised by ABN AMRO and Deutsche Bank and financed by a consortium including its advisors joined by Credit Suisse and Standard Chartered. Corus is being advised by Credit Suisse.
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