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India’s Tata Steel and Brazil’s Companhia Siderurgica Naçional are on Tuesday shaping up for a bruising showdown over Corus that will decide which of them will become the world’s fifth-biggest steel maker.
Bankers and analysts are predicting the two suitors for the Anglo-Dutch steel-maker could bid well above the current best offer from CSN of £4.9bn ($9.6bn, €7.4bn) excluding debt, with the Tata group’s chairman Ratan Tata said to be determined to clinch Corus.
“I think they will go all the way; Mr Tata wants this,” said a banker in Mumbai.
In an unusual intervention last week, the UK Takeover Panel has settled on a 10-hour auction to decide the takeover battle starting at 4.30pm London time with allowance for up to nine rounds of bidding. CSN has already trumped two earlier offers from Tata Steel with its bid of 515p a share but most analysts believe that the cash-rich Indian company has plenty of room to manoeuvre.
Some are speculating that the bidding could even push the final price to as high as 600p a share – a level unimaginable when Tata kicked off the takeover battle with an offer of 455p in October.
Both suitors are integrated producers – they have their own supplies of iron ore – enabling them to produce steel at low costs. They hope to capitalise on this through an acquisition of Corus by shipping iron ore or low-cost crude steel to the Anglo-Dutch company’s plants in Europe for finishing.
Corus makes about 18m tonnes of steel a year. However, Tata Steel will need to complete a domestic expansion plan to lift its capacity from 7m tonnes before it will have the excess output of low-cost crude steel to be able to supply Corus’s plants, a process that will take at least three years.
CSN, meanwhile, is facing a potential challenge from Brazilian miner Companhia Vale do Rio Doce over its plans to ship iron ore to Corus.
Macquarie, the Sydney-based financial group, has estimated that the deal would be earnings per share neutral for Tata Steel at 540p per share, after which it would begin to weigh on the profits of the Indian steel maker.
Macquarie estimates that as part of a leveraged buyout, Corus could bear debt of about $6.5bn, with the remainder to be raised by Tata Steel.
Most analysts do not see raising finances as an issue for either company, particularly the Tata group.
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