Tata Steel raises Corus share bid to 500p

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The Independent Online

Tata Steel, the Indian company that, in October, launched a bid for Corus, dramatically raised its offer for the Anglo-Dutch steel group last night. Corus and Tata issued a joint announcement revealing Tata has agreed to pay 500p a share for Corus, a significant increase on its previous offer of 455p.

Tata's bid that, including equity and debt, values Corus at £5.6bn, was designed to pre-empt a rival offer from the Brazilian steel manufacturer CSN, which had been expected to up the stakes with a 475p-a-share bid for Corus some time this week. That offer would have valued Corus at only £5.1bn.

Last night, Ratan Tata, chairman of Tata Steel, said: "We remain convinced of the compelling strategic rationale of this partnership and the revised terms deliver substantial additional value to Corus shareholders."

Chairman of Corus Jim Leng said the board would be recommending the new Tata offer to shareholders. "The revised terms from Tata Steel are a substantial increase from the previous offer," he said. "Accordingly, the Corus Board are pleased to recommend this to Corus shareholders."

Mr Leng and the other directors of Corus, which includes the old British Steel manufacturing operation, had spent yesterday in a board meeting discussing a response to the anticipated CSN offer. The board had previously said they would recommend Tata's first offer to shareholders, but put off holding a vote on the deal when CSN's interest emerged in November.

Yesterday, however, just days before launching its own offer for Corus, the Brazilian company found itself on the back foot.

In addition to offering a price higher than the bid expected from CSN, the Indian group also has the advantage of having won the backing of trustees of Corus's two UK pension schemes.

There is no legal requirement for the schemes to back any takeover deal, but Corus's board would find it almost impossible to recommend a bid without such approval. The schemes have total liabilities of £13bn and 167,000 members, and could ask the Pensions Regulator to intervene in any takeover deal that they opposed.

Negotiations between CSN's advisers and the Corus pension scheme trustees had been continuing over the weekend, as CSN sought to win similar approval to Tata for its offer.

The Brazilian group has indicated it would match commitments made to the pension schemes by Tata, which include pledges to make up funding deficits and increase contributions. Both companies have promised to plug a £126m deficit in the smaller of the two Corus schemes, and to raise contributions to the main pension scheme from 10 to 12 per cent until March 2009.

But the trustees have been seeking a more valuable offer from CSN, on the grounds that its bid for Corus is a riskier proposition for pension scheme members because it is more dependent on debt than the Tata proposals.

CSN's advisers, on the other hand, have pointed out that while Tata India is a financially strong company with a market capitalisation of some US$50bn, the bid for Corus is actually being made by a UK subsidiary of the group. Its Indian parent would not be responsible for the pension schemes' liabilities in the event of a collapse in the UK.

Tata's latest bid may require additional debt but is unlikely to jeopardise its agreement with the pension schemes. Even so, last night's offer will not necessarily seal the deal for Corus, with CSN now reconsidering its options. The Brazilian group can also point to compelling strategic reasons for its acquisition of Corus, and even held merger talks with the group in 2002.

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