CSN goes for the kill on Corus

Bid improved to $9.6 bn; Tata Steel plans further action.

In a day of dramatic developments, Brazil's Companhia Siderurgica Nacional today launched a $9.6 billion bid for Anglo-Dutch steel company Corus just hours after Tata Steel raised its offer to $9.1 billion.

Tata Steel had increased its offer to 500 pence a share early today in a pre-emptive strike against CSN, which had said it was working on a 475 pence-a-share bid.

But CSN quickly struck back and launched an offer of 515 pence a share for Corus just after the London market opened today, which the board of Corus then recommended.

Though the CSN offer has put it on the back foot, Tata Steel has still not given up. In a guarded statement to the London Stock Exchange, Tata Steel said it noted CSN's higher offer, was considering its position and would make a further announcement in due course.

Amid speculation on whether Tata Steel should up the ante further, a source close to the bidding war said bankers were ready to extend their line of credit to Tata Steel to fund a bid worth 550 pence a share (over $10 billion).

While the Tata group is not commenting on whether it will engage in a bidding war, a corporate observer said the group had never locked itself in a takeover battle and there was no point in deviating this time.

Citing the example of Tata Chemicals, he said the company withdrew from the race for Egyptian Fertilisers Company when a consortium led by institutions got into a bidding war.

He said: "The bidding war will not help the Tata company. In addition, CSN 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. So, it is expected that CSN will not give up easily."

CSN has also won over the Corus pension trustees by committing $270 million to the smaller scheme and increasing the contribution rate on the larger scheme to 12 per cent from 10 per cent, until March 31, 2009. This is an improvement over the Tata offer of $241 million.

Today's developments made Corus shareholders happy. "We are clearly in a competitive situation. We will await developments," said David Cumming, head of UK Equities, Standard Life Investments.

Standard Life had criticised Tata's original offer on the grounds that it did not reflect the potential of the world's fourth-largest steel company. Standard Life holds a 7.8 per cent stake.

The Corus stock reached its 52-week high of 528.50 pence, up 5.70 per cent above the previous day's close, while Tata Steel shares tumbled 6 per cent to Rs 453.4 in a weak Mumbai market.

Tata Steel said it organised the additional $1 billion from Standard Chartered Bank and Standard Chartered First Bank of Korea.

The Corus board has also recommended the CSN offer, which meant it withdrew its support from the Tata offer.

The Corus board is authorised to approve only one offer, which will be placed before the shareholders at an extraordinary general meeting.

Corus Chairman Jim Leng said: "This (CSN's) offer is both higher than the initial proposal by CSN, as well as the revised Tata offer of 500 pence per share. It is also consistent with our strategic objective of securing access to raw materials, low-cost production and growth markets."

CSN said its offer represented a premium of 43 per cent to the average Corus share price for the 12 months up to and including October 4, when Tata Steel first said it would looking at buying Corus.

CSN said there is "compelling strategic and industrial logic" for a combination with Corus because it would give Corus access to CSN's iron-ore reserves, increased quantities of low-cost semi-finished steel over time and provide pretax synergies of about $300 million by 2009, as well as give the combined entity greater strength.

Most of the financing for the deal would come from a £4.35 billion ( $8.51 billion) borrowing facility underwritten by Barclays, Goldman Sachs and ING.

CSN has said its proposal would also create a steelmaker which was globally fifth, with an initial annual production capacity of 24 million tonnes. Output will surge to about 50 million tonnes a year due to expansion projects already underway in Brazil.

The bids for Corus follow Mittal Steel's $32 billion acquisition of rival Arcelor this year.