CSN piles into Corus stock, pushes Tatas into a corner

MUMBAI: It was a bustling weekend at the offices of three steel makers: the Anglo-Dutch Corus Group, Companhia Siderurgica Nacional (CSN), the Brazilian steelmaker that has challenged the Tatas for Corus, and Tata Steel. While Tata Steel has the advantage of being an early mover, it is CSN that’s making quick strides towards acquiring Corus group.

During the weekend, even as Benjamin Steinbruch, the billionaire chairman of CSN was involved in talks with the Corus top brass, his investment advisers were rustling up more Corus shares from the bourses. CSN has now acquired close to 4% of the equity in Corus, getting more than a toehold in Corus. This stake is potentially worrying for the Tatas, who currently own nothing in Corus. Moreover, Corus has several institutional shareholders like Standard Life and Barclays, owning 7% and 3% respectively, who are looking for capital gains rather than long-term takeover synergies. For them what matters is the price offered by the bidder, which means the Tatas must cough up more cash or bow out.

The Tatas have so far enjoyed the confidence of the Corus board. Sources close to them say they are adopting a wait-and-watch strategy. “First, let the Corus board decide on its move and we’ll make our move accordingly,” sources said.

Speculation, meanwhile, has begun about what the Tatas will do in case Corus slips out of their grasp. An Australian newspaper, without quoting anyone, speculated that the Indian steelmaker may look at acquiring Blue Scope, the Australian steelmaker, in case the Corus bid falls through. This was denied later by the Australian steelmaker.
The two steelmakers - Blue Scope and Tata Steel - have a joint venture in India for making building materials.

The Tatas are aware that support from the Corus board cannot be taken for granted. It is, therefore, contemplating a higher bid to close the acquisition quickly before other steelmakers, including Russian steelmakers, join the melee and ignite a bidding war.

News of a rival bid did little harm to the Corus stock, but Tata Steel shares surrendered Rs 12.55 to Rs 463.40 on Monday as news percolated than the Corus acquisition will get costlier for Tata Steel. Tata Steel’s 455-pence-a-share bid is already in place and Corus shareholders will vote on the offer from Tata on December 4. The Corus board will make its views on CSN known before that and, perhaps, as early as this week.

Analysts, meanwhile, aver that the Tatas may offer a higher bid and could go right upto 550 pence for Corus shares. However, anything more than this price would be very expensive, they added.

So far, the Anglo-dutch steelmaker is playing a typical fair game by allowing the Brazilian bidder, advised by Goldman Sachs and Lazard, the same access to information on Corus as Tata Steel.

CSN and the Corus top brass are familiar with one another, having twice held takeover talks on occasions earlier. It was stalled then because the deal involved a share swap rather than cash. There was also talk then that the Corus board was not on the same wave-length as the Brazilian steelmaker’s board. But shareholders such as Standard Life, which owns upwards of 7%, and Barclays, with a little over 3%, can swing the mood at the shareholders’ meeting on December 4, as they will be demanding a higher price for their Corus shares. The Tatas are wary and may sweeten the offer by this week, as soon as the Corus board takes a view on the CSN approach.

Meanwhile, Bloomberg quoted the Sunday Times from London that the Brazilian steelmaker had arranged to borrow US $7.6 billion to help fund its $8 billion bid for Corus.

CSN may also invest as much as $1 billion of equity in the transaction, mirroring the same strategy as Tata Steel.