Shareholders in Corus, including its largest investor, Standard Life, have accused the company's management of selling out too cheaply after it agreed a £4.3bn takeover by its smaller Indian rival Tata Steel.
Corus has met with numerous companies over the past year to consider ways to increase its presence outside Europe through a merger or partnership. After meeting with companies in Russia and Latin America, the Anglo-Dutch steel producer announced the Tata deal yesterday - talks began last November.
Philippe Varin, Corus's chief executive, said: "This offer comes at the right time. It is the right offer with the right partner."
Ratan Tata, the head of Tata Steel, who is to be the non-executive chairman of the combined group, said: "The deal reflects fair value and we hold to that view."
Corus shareholders proved to be less impressed with the 455p cash offer. A spokesman for Standard Life Investments said: "The 455p-per-share offer by Tata for Corus is lower than we would have expected the board of Corus to agree to and recommend. The trading performance of Corus has been very strong and produced very attractive cash flows, which we believe could be worth more than the current price being offered by Tata."
Standard Life, which owns 7.9 per cent of Corus shares, said the offer does not fully reflect the value of the company's position in a consolidating market. It also argued that the quality of the steel company's earnings is likely to improve due to less volatile market conditions and that the synergy benefits of the merger are not factored into the bid.
Herve Mangin, a fund manager with Axa European Opportunities Fund, said that Tata's bid multiple was at least 10 per cent below average recent deals in the sector. Axa is a top-10 Corus shareholder with a 2.9 per cent stake. "I think that Tata's bid is too low and that some other players like Severstal and CSN could react. Corus is the only sizeable asset in Western Europe that can be bought," he said.
Neither shareholder committed to voting against the merger, however. Unless a higher offer does emerge, Tata's bid remains the only offer on the table. A source familiar with the situation said he expects companies such as Russia's Severstal, which has yet to rule out a bid, and Brazil's CSM to take a second look. The source said that given Tata's deal has been made in cash and a rival would have to pay a substantial premium, a competing bid appears improbable. "There is nowhere else in the world that this sort of asset is available, but picking it up on the cheap is no longer an option. It is highly unlikely that anyone [else] will come up with an all-cash bid."
Standard Life's David Cumming has previously said that Corus shares could potentially be worth as much as 600p a share if a bidding war emerges. The shares fell 1 per cent to 473.5p after the deal was announced, remaining above the offer price.
The merger needs to be approved by more than 50 per cent of shareholders and Corus has agreed to pay an inducement fee of 1 per cent of the value of the deal if the merger collapses. Tata has agreed to pump £126m into Corus's pension funds and also pledged to increase the employer contribution rate from 10 to 12 per cent.
The merger represents the second mega-deal in the global steel sector this year after Mittal Steel's $31bn (£16.5bn) takeover of Arcelor. European steel companies are under pressure to cut costs due to an influx of steel from emerging markets, such as China. The deal will combine the European company's leading-edge manufacturing techniques with Tata's low-cost slab steel.
The transaction is the largest ever made by an Indian company and will create the world's fifth-largest steel producer.