Brazil's CNS counters Tata bid for Corus
Companhia Siderurgica Nacional (CSN), Brazil’s fourth-largest steel maker, on Friday announced a higher counter bid for steel maker Corus putting to test Tata Steel’s plan of taking over the British company and becoming a global steel giant.
The Rio de Janeiro-based CSN said that it will pay Corus shareholders 475 pence per share, or 4.3% higher than Tata Steel’s 455 pence per share offer in October. The CSN offer values the Anglo-Dutch steel company at about $8.8bn and is likely to trigger a bidding war for the company, formerly called British Steel.
Tata Steel will now have to consider whether to increase the offer price to match CSN. Industry experts say the company will have to match the offer and cannot be seen to be walking away from the deal after coming close to it.
The move, while not completely unexpected, is likely to pose a severe challenge to the Corus board, which approved the Tata takeover offer despite criticism from some investors that the bid price was too low. With CSN’s price being higher, the board now cannot be seen as supporting a lower offer, especially as investor expectation is running high.
For Tata Steel, which was hoping to complete the deal by January ’07, the development means that they now have to gird themselves for a long and bitter battle. Tata Steel was hoping to get at least 50% of Corus shareholders to approve the offer at an extraordinary general meeting on December 4. With a higher offer on the table, many Corus investors may like to wait for a bidding war before deciding.
On the face of it, the CSN offer seems to offer strategic benefits similar to that of Tata Steel. A Corus spokesperson in London declined comment. Tata Steel managing director B Muthuraman too refused to comment.
CSN too has said that it will help Corus achieve lower costs through cheaper slab and iron ore supplies. More importantly, the Brazilian company has also said that it will match Tata Steel’s contribution to one of the Corus pension funds which is in deficit. This is significant as approval of the pension trustees in the UK is crucial for any offer or counter offer to succeed.
“A combination of CSN and Corus would create a global powerhouse with market leading positions and exceptional distribution networks across both developed and emerging markets,” CSN chief executive Benjamin Steinbruch said in a statement announcing the bid.
While Corus shareholders are likely to rejoice, the development is not good news for either CSN or Tata Steel shareholders. CSN shares fell 3.8% in the Brazilian market after the bid announcement.
For Corus shareholders, however, the counter offer is a bonanza. Corus shares rose 24 pence or 5.1% to 496 pence, a significant indication that investors are expecting a higher offer.
Tata Steel had offered 455 pence per share to Corus shareholders in October valuing the British company at about $8.4bn. Tata Steel intended to fund the transaction through a two-tiered structure, under which a UK-based company, Tata Steel UK raised acquisition finance of $5.6bn. Tata Steel’s 100% subsidiary, Tata Steel Singapore, will raise about $1.8bn in bridge finance, while Tata Steel will contribute about $2bn to that SPV.
Now, the Tata Steel board will have to carefully weigh the consequences of a higher bid. The issues the board will have to address are whether it can match or exceed CSN’s price without harming its own credit rating and financial profile. Standard&Poor’s had put Tata Steel’s long-term corporate rating on rating watch with negative implications in October after the bid. The agency had cited the huge cash outgo of about $10bn and had expressed concern about Tata Steel’s financial health.
If the Tata group has to match or exceed CSN it will have to shell out an additional $500m. But in a case of protracted bidding war, CSN may have an edge as it has higher cash flows and EPS. While CSN had an EBITDA of about Rs 8,400 crore, Tata Steel’s comparative figure was Rs 6,307.41 crore.
Of course, Tata Steel has the backing of Tata Sons which can always use its holding in Tata Consultancy Services (TCS), India’s most valuable software services company. Earlier this week, Tata Sons sold 0.8% of its stake in TCS netting Rs 900 crore to largely fund the Corus bid.
The Rio de Janeiro-based CSN said that it will pay Corus shareholders 475 pence per share, or 4.3% higher than Tata Steel’s 455 pence per share offer in October. The CSN offer values the Anglo-Dutch steel company at about $8.8bn and is likely to trigger a bidding war for the company, formerly called British Steel.
Tata Steel will now have to consider whether to increase the offer price to match CSN. Industry experts say the company will have to match the offer and cannot be seen to be walking away from the deal after coming close to it.
The move, while not completely unexpected, is likely to pose a severe challenge to the Corus board, which approved the Tata takeover offer despite criticism from some investors that the bid price was too low. With CSN’s price being higher, the board now cannot be seen as supporting a lower offer, especially as investor expectation is running high.
For Tata Steel, which was hoping to complete the deal by January ’07, the development means that they now have to gird themselves for a long and bitter battle. Tata Steel was hoping to get at least 50% of Corus shareholders to approve the offer at an extraordinary general meeting on December 4. With a higher offer on the table, many Corus investors may like to wait for a bidding war before deciding.
On the face of it, the CSN offer seems to offer strategic benefits similar to that of Tata Steel. A Corus spokesperson in London declined comment. Tata Steel managing director B Muthuraman too refused to comment.
CSN too has said that it will help Corus achieve lower costs through cheaper slab and iron ore supplies. More importantly, the Brazilian company has also said that it will match Tata Steel’s contribution to one of the Corus pension funds which is in deficit. This is significant as approval of the pension trustees in the UK is crucial for any offer or counter offer to succeed.
“A combination of CSN and Corus would create a global powerhouse with market leading positions and exceptional distribution networks across both developed and emerging markets,” CSN chief executive Benjamin Steinbruch said in a statement announcing the bid.
While Corus shareholders are likely to rejoice, the development is not good news for either CSN or Tata Steel shareholders. CSN shares fell 3.8% in the Brazilian market after the bid announcement.
For Corus shareholders, however, the counter offer is a bonanza. Corus shares rose 24 pence or 5.1% to 496 pence, a significant indication that investors are expecting a higher offer.
Tata Steel had offered 455 pence per share to Corus shareholders in October valuing the British company at about $8.4bn. Tata Steel intended to fund the transaction through a two-tiered structure, under which a UK-based company, Tata Steel UK raised acquisition finance of $5.6bn. Tata Steel’s 100% subsidiary, Tata Steel Singapore, will raise about $1.8bn in bridge finance, while Tata Steel will contribute about $2bn to that SPV.
Now, the Tata Steel board will have to carefully weigh the consequences of a higher bid. The issues the board will have to address are whether it can match or exceed CSN’s price without harming its own credit rating and financial profile. Standard&Poor’s had put Tata Steel’s long-term corporate rating on rating watch with negative implications in October after the bid. The agency had cited the huge cash outgo of about $10bn and had expressed concern about Tata Steel’s financial health.
If the Tata group has to match or exceed CSN it will have to shell out an additional $500m. But in a case of protracted bidding war, CSN may have an edge as it has higher cash flows and EPS. While CSN had an EBITDA of about Rs 8,400 crore, Tata Steel’s comparative figure was Rs 6,307.41 crore.
Of course, Tata Steel has the backing of Tata Sons which can always use its holding in Tata Consultancy Services (TCS), India’s most valuable software services company. Earlier this week, Tata Sons sold 0.8% of its stake in TCS netting Rs 900 crore to largely fund the Corus bid.
posted by SY at 2:36 PM
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