days of the formal announcement by Tata Steel about an
initial non-binding offer to acquire Corus Group Plc,
speculation about a possible bidding war is rising. Some
steel industry analysts are suggesting that Brazilian
steel maker Companhia Siderurgica Nacional (CSN) may be
readying a counter-bid for Corus.
of a possible counter-bid helped lift the Corus stock
on the LSE yesterday. The stock gained 8 pence, or nearly
2 per cent, to close at 487 pence yesterday.
and Corus know each other very well. The two companies
had tried to merge in 2002, but talks were called off
for undisclosed reasons. They were partners in a Portuguese
venture till early this year, when Corus sold its stake
is the largest steel maker in Brazil and has access to
large reserves of iron ore though it''s controlling stake
in Companhia Vale do Rio Doce (CVRD). The latter is the
largest global producer and supplier of iron ore and pellets.
For Corus, which needs access to cheap iron ore, a merger
with CSN would be equally if not more attractive
as a merger with Tata Steel.
has so far declined to confirm the possibility of a bid
and has dismissed these reports as ''market speculation''.
Other potential bidders like Russian steel makers Severstal
and Novolipetsk have also not made any public announcements
about possible counter-bids.
the Corus board is reported to have met yesterday to discuss
the Tata Steel Offer. No announcements have been made
and the Corus management is likely to wait till Tata Steel
makes a firm offer, which is expected later this week.
opinion on the possible benefits of a merger between Tata
Steel and Corus is widely split. Some argue that Tata
Steel would be able to achieve considerable cost savings
through cheaper inputs and efficiency gains. The combined
entity would have a very strong marketing footprint across
Europe and a dominant position in value-added products.
there are concerns about the future viability of some
units of Corus. While its Dutch units are performing well,
Corus''s UK-based plants are struggling according
to industry analysts. There are also worries about the
substantial pension liabilities of Corus, which would
be a drag on future profitability.
Tata Steel would be raising substantial amount of debt
to finance the deal. The company has already announced
investment plans of at least $15 billion for organic expansion
in India, which would
require additional debt financing. Many analysts are worried
about Tata Steel''s ability to service this debt, especially
if the steel cycle takes a down turn.