Markets bet Tata will go higher still in bid battle for Corus

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The Independent Online

A frenetic £5bn bidding war has broken out for the steel group Corus after Brazil's CSN trumped an improved offer from India's Tata within hours.

The Corus board is now backing a 515p-a-share offer, worth £4.9bn, from CSN. However, Tata, which has already made two offers for Corus, said it is considering coming back with more. Corus also comes with £900m of debt.

Corus shares closed at 527.25p, up 5 per cent, as investors bet that the two predators would continue to fight it out. Only a few months ago, Corus - the former British Steel - seemed unloved as it touted itself around the world to potential buyers. The CSN bid is pitched at a 43 per cent premium to the average Corus share price over the past 12 months.

At 9.20pm on Sunday, Corus announced that it was sticking by its support for a takeover by Tata, after the Indian company sweetened its bid from the 455p a share it offered in October. In what appeared to be an attempt to knock the Brazilians out of the game - CSN had publicly indicated last month that it was working on a 475p counter-bid - Tata offered 500p.

Then CSN, which had spent Sunday locked in talks with the trustees of the Corus pension fund, contacted the Anglo-Dutch company late at night with a bid, pitched at 515p. It was the first firm offer from the Brazilians.

Discussions between Benjamin Steinbruch, chairman and chief executive of CSN, and Jim Leng, chairman of Corus, continued on past midnight. The financial advisers to the two sides then worked through the night. Before dawn, further talks were held between the directors of the two companies and CSN formally tabled its bid at 7.30am yesterday. It was announced to the market shortly afterwards.

Corus's Mr Leng said: "This offer [from CSN] ... is consistent with our strategic objective of securing access to raw materials, low-cost production and growth markets. The combination of the two businesses will create a strong platform from which to compete and grow in an increasingly global market."

Unlike Tata, CSN detailed significant synergy benefits from buying Corus. Analysts said that this meant it would have the upper hand in a bidding war with the Indian company. CSN also announced details of its financing, which made clear that it had further firepower to draw on, with equity of $3.3bn (£1.7bn) and debt of £4.4bn raised for the Corus deal.

The industrial logic for the Brazilians is based on supplying low-cost iron ore from its own mines to the Corus plants, which are in the UK and Holland. Under Indian law, Tata is not permitted to export iron ore, the key raw material for making steel.

CSN said its ability to supply iron ore meant that purchasing Corus would provide it with cash flow benefits worth $450m by 2009. In addition, CSN estimated that it would achieve cost-savings of $300m through procurement savings, "optimisation of product flows, integrated commercial policy and the sharing of best practices". The deal will transform CSN into one of the top five global steel makers, producing 24 million tonnes by 2010.

Mr Steinbruch said: "The strategic impetus for this combination is growth - growth in Brazil, in Europe and for our combined workforces. Our goal is to unlock the value of our iron-ore assets through Corus, transforming them into cost-effective, high-quality steel products using Corus's advanced engineering capabilities and its excellent European distribution platform."

CSN said that it believed steel prices would remain strong as a result of robust global economic growth and consolidation among steel producers. It also said it planned to fill the idle capacity at Corus's rolling mills.

Independent figures show that worldwide steel demand increased by 9 per cent this year, with global spare capacity standing at just 8 per cent of total production facilities.