CSN game for price war over Corus

The battle for control of Anglo-Dutch steel company Corus Group may turn fierce, with Brazil's Companhia Siderurgica Nacional (CSN) indicating that it will engage in a price war with Tata Steel if the situation so demands.

Bankers familiar with the development said CSN, which announced on Friday that it might trump a 455-pence-a-share offer from Tata with a bid worth 475 pence, was prepared to offer "much more" for Corus if needed. "CSN has no intention to walk out if Tata makes a higher offer," they said.

According to them, Brazil's fourth largest steel company is putting in more money than it requires for the 475-pence offer, to engage in a price war. Taking Corus' £900 m of debt, the CSN bid is worth about £5.3 billion ($10 billion).

CSN had been offered finance double of this purchase value, they said. It had arranged more than £4 billion ( $7.58 billion) loans from a syndicate including Goldman Sachs, Barclays Capital, and BNP Paribas.

It had become desperate to acquire Corus since its attempt to take over US-based steel services company Wheeling-Pittsburgh Corp was on the verge of coming a cropper.

Although Tata Steel has not reacted to the CSN move as yet, sources close to the company said it would revise its offer. "Tata Steel is waiting for the response of the Corus board to the CSN proposal. It will move at the right time," they said.

However, the price war may take a while to break out as CSN is unlikely to put in its formal bid before middle of next week. It started due diligence yesterday and is expected to table its bid before December 4 when Corus shareholders are supposed to consider the Tata offer at an extra-ordinary general meeting.

The Corus stock today remained flat. It was traded at 505.75 pence, 0.75 per cent higher than yesterday's close. Share prices of Tata Steel today rose 2.6 per cent to Rs 475.45 on a strong Mumbai market.

Meanwhile, Standard & Poor's continues to keep its "BBB" long-term corporate credit ratings on Tata Steel on "creditwatch with negative implications." The rating was originally placed on following Tata Steel's initial bid for Corus.

"The size of the acquisition and the potential cash outflow that Tata Steel might experience from its existing or revised offer for Corus could have an adverse impact on its financial risk profile. A successful acquisition, however, can potentially improve the business risk profile of the merged entity," the rating agency said in a statement.