Corus heads for endgame

CSN to make firm bid this week; Tata Steel ropes in BankAm.

Brazil's largest steelmaker Companhia Siderurgica Nacional (CSN) will make a firm bid for Anglo-Dutch steel company Corus this week, while rival suitor Tata Steel is preparing to beef up its offer by roping in another bank.

Bankers in the know said CSN had completed due diligence and had had rounds of discussions with the trustees of the Corus pension fund and trade union leaders in the last three weeks since its announcement of an indicative bid for 475 pence a share.

They added that the Brazilian company had also organised a line of credit from banks to finance its bid, which valued Corus at $8.4 billion. "Now CSN is fully equipped to launch its firm bid next week," said a banker.

However, a firm bid from CSN, which would be 20 pence a share more than Tata Steel's, would not eliminate Tata from the race, said a banker close to the Tata bid.

Tata Steel is believed to have roped in Bank of America to its existing battery of creditors comprising Credit Suisse First Boston, ABN Amro, Deutsche Bank and Standard Chartered Bank to organise funds for a higher bid.

The Tata Steel spokesperson declined to comment on this.

A source close to Bombay House, headquarters of the Tata group, said Tata Steel could scale up its bid by another $1 billion without stretching its balance sheet. "What needs to be done will be done. Tata Steel will not do anything that hurts the interest of its shareholders," he said.

CSN will table its firm bid this week so that the Corus board will have a week to consider it before the extraordinary general meeting on December 20.

The meeting, originally scheduled to take place on December 4 to consider the Tata bid, was deferred by two weeks because CSN could not complete its due diligence.

The Corus board will approve only one bid to its shareholders. The Tata bid had the support of the Corus board and its pension trustees.

An investment banker said Tata Steel could scale up its previous bid of 455 pence a share although it could stay in the race by matching the CSN offer. Tata Steel would scale up its bid at one go. If CSN increased its bid again, Tata Steel would resign from the race, he pointed out.

The Corus share has been hovering around 490-500 pence, even after CSN announced an indicative offer of 475 pence, a sign that market participants expect Tata Steel to revise its offer to this level.

CSN Chairman and CEO Benjamin Steinbruch stands to gain from his personal investment even if Tata Steel knocks his company out of the race for Corus. "He has an 3.8 per cent stake, which will fetch him more cash than what it could have brought at 455 pence a share," said one banker.

Tata Sons will increase its contribution to fund the enhanced offer if required. If there is any shortfall, Tata Steel will 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 up front 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 per cent to 12 per cent until March 31, 2009.