The Hindu Business Line : CSN begins due diligence on Corus; Tata Steel scrip down

Re-working strategy
Tata Steel has adopted a wait-and-watch stance, as CSN is yet to come out with a firm offer
Sources said the top brass at Bombay House was preparing to increase its bid.

Mumbai , Nov. 20

Amidst indications that Tata Steel was gearing up for a bidding war to out-race Brazilian Steel maker CSN, for acquiring Anglo-Dutch steel company Corus Group, the price of the Indian steel major's shares fell on the stock exchanges on Monday.

The uncertainty, arising after CSN's counter bid and fears that Tata Steel's possible move to increase its bid for Corus may put a squeeze on its finances, drove its share prices down, analysts believe.

Tata Steel shares tumbled to a low of Rs 459 during the day from the previous closing price of Rs 475.95, before settling at Rs 463.40, mirroring a fall of Rs 12.53 (2.64 per cent).

CSN, which approached Corus with a counter bid of 475 pence per share, against Tata's bid of 455 pence, has begun the process of due diligence and is expected to come out with a firm bid before the Corus shareholders' meet on December 4.

Although Tata Steel officials were tight-lipped about the company's next move, there were indications that CSN's counter-bid did not take the Indian steel maker by surprise.

"Tata Steel has limited options at the moment. The only way it can take the deal forward is to out-bid CSN," an analyst tracking the Tata-Corus development said.

Tata Steel's board had approved the proposed acquisition of Corus at 455 pence per share in cash, valuing 100 per cent equity of Corus at Rs 37,286 crore.

The acquisition was proposed to be financed through equity contribution by Tata Steel of about $3.5 billion (Rs 15,862 crore) and the balance through non-recourse debt on Tata Steel UK to be serviced by cash flows from Corus.

The company was confident that the transaction could be closed by the middle of January 2007.

Wait-and-watch

At the moment Tata Steel has adopted a wait-and-watch stance, as CSN is yet to come out with a firm offer. Only after Corus's response to CSN's bid becomes clear will the Indian steel maker come out with its next move.

Sources, however, said the top brass at Bombay House was preparing to increase its bid and re-working its financial strategy to take control of Corus.

After Tata announced its bid for Corus, Crisil had placed Tata Steel's ratings on `Watch with Negative Implications'.

"The rating action follows Tata Steel's offer to buy 100 per cent of the equity of Corus Group for an overall consideration of over Rs 30,000 crore . The proposed acquisition cost is significantly larger than Tata Steel's current consolidated net worth of about Rs 10,200 crore," Crisil had said on October 18.