Tata-CSN battle ‘has some way to run, yet’

Roy Montague-Jones is a partner and joint head of the India Group at Richards Butler LLP. He spoke to Sajeda Momin about the bidding war between Tata Steel and Brazilian steelmaker CSN for the Anglo-Dutch company Corus.

What do you think of Tata bid and the CSN couterbid so far. What does it mean for the deal?

I think it is very interesting for a few reasons. The revised offer by Tata Steel without CSN having made a counter-bid, you could say the pre-emptive increase, seemed as if Tata Steel was trying to put Corus out of reach of CSN and hoping that the stretch for them would be too great. This may have been a good tactic but it was not the knockout blow that Tata thought it would be.

The “scheme of arrangement” on the basis of recommendation by Corus can benefit the deal as it can save stamp duty which in a case like this can mean millions of pounds which then don’t have to be paid to the UK treasury. Both CSN and Tata Steel are getting a lot of bank finance for the takeover and it is very likely that the banks will want the winning company to get security over the assets of Corus within a specified time period, which they can do when they have 100% control.

What are the implications for Corus shareholders?

The Corus shareholders are in a happy position of having shares in a company that is now in a full-fledged bidding war. They now need to just bide their time and see what comes out of the woods.

Why do you think Corus may have postponed the EGM?

The whole battle has some way to run. Whether Tata Steel will get more cash together to outbid CSN (remains to be seen). Corus have postponed the EGM because they have been advised to postpone it and let the whole game play out.

Do you think the current Tata offer can be sent to the shareholders anyway even though the CSN bid is higher? What could that mean?

Corus has scheduled a meeting for December 20 to consider the Tata offer. And the CSN offer is pre-conditioned to the Tata Steel offer falling away. It is only then that CSN would post it its offer. Then, another meeting would take place at Corus to approve the CSN scheme of arrangement.

It seems CSN has reserved the right to change its offer from “a scheme of arrangement” where the Corus board backs the bid to one of formal takeover, which could mean a hostile bid. What do you think of this?

This is a matter of legalities and drafting to keep options open. It could mean a hostile bid or it could be because they want to get 75% acceptance from shareholders. Neither party wants to proceed on a normal offer because of the stamp duty or the terms of lending by the bank. To go any higher with the price is a bit of stretch with 515 pence reckoned to be a full price. And after all these are straight cash offers.

There might also be some feeling in the Tata Steel camp that Lakshmi Mittal has grabbed headlines lately in the steel industry and there may be some emotional reaction to win this one.

There have been reports that Tata Steel may be willing to offer another bid of 530 pence?

Five hundred and thirty pence is not a huge raise in terms of percentage and commercially, the current bid is a full price and it seems that neither party is delivering a knockout blow. I wouldn’t be surprised to see a bid from Tata. Tata Steel wants to move up in size terms in the steel world and this would do it for them.