Tata readies to knock out CSN

Tata Steel is bracing to deliver what investment bankers say will be a knockout punch to its competitor, Brazil's Companhia Siderurgica Nacional (CSN), which made an initial offer last week for taking over Anglo-Dutch steel giant Corus Group.

The Tata Steel board today discussed at Bombay House, the headquarters of the group, issues relating to the deal, including the timing and price of a revised offer and the ways to fund it.

Though the company remained tight-lipped on the issue, sources familiar with the situation said it would scale up its offer, though it would not do anything which could hurt its shareholders. It had made an initial offer of 455-pence-a-share for Corus.

"Tata Steel will come out with a one-for-all offer, if CSN puts in a firm bid," they pointed out.

Although the sources were reluctant to divulge the amount that Tata Steel would be willing to pay, analysts said it could spend $1 billion more than its earlier offer of $8.04 billion without hurting the interests of its shareholders.

The fact that the Corus share had been traded at around 500 pence meant the markets were expecting a revised offer from Tata Steel at that level.

Today, the Corus stock was trading at 506.25 pence at the time of going to the press. This is its highest level since May 2000.

Meanwhile, according to agency reports, Tata Steel has approached European regulators on its proposed bid and the European Commission will rule on it by January 3. The company is also reported to have informed Corus that it was willing to match the CSN offer provided it got the backing of the Corus board.

Investment bankers close to CSN said the company would come out with a firm offer towards the end of next week.

When asked if CSN would announce its firm offer before December 4, a CSN spokesperson told Business Standard, "Due diligence is progressing, and we will make the offer as quickly as possible."

The Corus board will put before its shareholders a resolution pertaining to the Tata Steel offer at an extra-ordinary general meeting on December 4.

The sources also said Tata Steel had begun discussions with its bankers, asking them to scale up the loans they had promised.

Tata Sons would also increase its contribution to fund the enhanced offer. If there was any shortfall, Tata Steel would mop up funds through bridge loans.

Tata Steel UK, a company recently floated to execute the acquisition of Corus, had arranged for a loan of $3.06 billion, a $670 million revolving credit facility, and a $2.58 billion mezzanine bridge loan through Credit Suisse, ABN Amro, and Deutsche Bank.

Tata Steel had committed to chip in $3.51 billion in cash to Tata Steel UK. Also, Standard Chartered Bank had provided $375.24 million of subordinated debt financing to Tata Steel UK.

Tata Steel had also offered to pay upfront the deficit on the Corus Engineering Steels Pension Scheme with $241.22 million and to increase the contribution rate on the British Steel Pension Scheme from 10 to 12 per cent until March 31, 2009.

An investment banker said the Corus board might give "the first mover advantage" to Tata Steel, which had a documented and recommended bid passed by regulatory processes.

The Corus board, he said, had had discussions with CSN four years ago on a possible merger, which did not materialise. One of the reasons for the abortive attempt was CSN's debt-laden balance sheet. CSN already had a net debt of nearly $3.19 bn at the end of the third quarter and total debt worth about 1.4 times the equity, while Tata Steel is largely debt-free.

In fact, CSN might find it difficult to pursue the deal to acquire US-based steel services company Wheeling Pittsburgh due to its huge debt.