Tata Steel, in its quest to emerge as the world's fifth-largest steel manufacturer, may well have delivered a knock-out punch to its Brazilian competitor CSN with a revised offer, forcing it to fall out of the race to acquire Corus Group Plc.
Early today, Tata Steel said it was hiking its acquisition offer from 455 pence, per share of Corus Group, to 500 pence per share.
CSN had last month indicated that it is willing to make an offer at 475 pence per share, subject to due diligence and arranging sufficient funding, but is yet to make a firm offer.
The board of directors of Corus, after getting advice from Credit Suisse, JP Morgan and HSBC, has recommended the revised offer to its shareholders. The company directors have also undertaken to vote in favour of the acquisition by Tata Steel at the shareholders' meeting to be called later, in respect of their personal holdings representing 0.1 per cent of the share capital.
Standard Chartered Bank and Standard Chartered First Bank of Korea have extended additional funding for the higher offer to Tata Steel and its associate company Tata Steel Asia Holdings.
This funding is in addition to the funding already secured by Tata Steel UK, the company through which Tata Steel made the earlier bid. Corus Group said ABN Amro and Deutsche Bank, advisors to Tata Steel, are satisfied that sufficient resources are available to satisfy in full the consideration payable to Corus shareholders under the proposed terms of the revised acquisition offer.
The revised offer is at a multiple of 7.5 times EBITDA of Corus Group for the last reporting year ended September 2006. The revised offer is at a premium of nearly 39 per cent to the average price of Corus shares for the last one year and nearly 23 per cent higher than the price prevailed before Tata Steel announced its formal bid.
Corus is holding an EGM of its shareholders on 20 December to consider the offer from Tata Steel. The meeting, earlier scheduled for last week, was extended to help CSN put together a counter-bid.
"The revised acquisition terms from Tata Steel are a substantial increase from the previous offer. Accordingly, the Corus board are pleased to recommend this to Corus shareholders", Jim Leng, chairman of Corus was quoted as saying in the press release issued by Corus. "We remain convinced of the compelling strategic rationale of this partnership and the revised terms deliver substantial additional value to Corus shareholders", said Ratan Tata, chairman of Tata Group.
All other terms of the implementation agreement signed earlier between Tata Steel UK and Corus Group remains valid. Corus Group would remain liable to pay 1 per cent of the revised offer price as inducement fee, if its board decides to recommend any other counter-bid in future.
Reports in the British media indicate that CSN has completed its due diligence and is ready with its counter-bid, which may be announced this week. However, it is not clear if CSN has succeeded in arranging sufficient funds to finance such an offer.
Though there are reports that a consortium including Goldman Sachs, UBS and Citigroup have helped CSN to raise up to $9 billion, analysts are sceptical about firm, non-recourse credit lines which would be critical for the success of a counter-bid. Non-recourse credit lines are critical as there are already concerns about CSN's dodgy finances and high amount of debt.
For CSN, the game has become much tougher after the revised bid from Tata Steel. If it really wants Corus, it would have to offer a premium of at least 5 per cent to the revised Tata offer and would also have to compensate Corus for the 1 per cent inducement fee.
Analysts are doubtful if CSN can raise its offer that far, as it may face resistance from its own shareholders. Also, CSN is yet to win the approval of the pension fund trustees of Corus. The Tata group already have their support, won after many weeks of tough negotiations and agreeing to enhanced pension contributions in the future.
Meanwhile, Tata Steel shares have slumped 4.5 per cent in morning trades on the NSE. Shareholders are clearly worried that the higher offer leaves much lower value for Tata Steel and the company would be exposed if the steel cycle turns down.
also see : CSN goes for broke;
offers $9.6 billion for Corus