Brazil's CSN bids $9.6 Bln for Corus, Topping Tata

Posted 11 December 2006 @ 01:48 pm EET     Print     Reprint     E-Mail     Comments

LONDON/MUMBAI (Reuters) - Brazilian steelmaker CSN has agreed to buy Anglo-Dutch rival Corus Group (CS.L) for 4.9 billion pounds ($9.6 billion) in cash, trumping an offer agreed only hours earlier with India's Tata Steel (TISC.BO).

Companhia Siderurgica Nacional (CSNA3.SA) said on Monday it would pay 515 pence for each Corus (CS.AS) share, beating Tata Steel's offer of 500p. Corus shares leapt more than 5 percent to a new high of 527 pence on hopes the bid battle would yield an even higher offer.

"Because this is just a moderate increase you can't say this is a blowout bid by CSN," said Kepler analyst Rochus Brauneiser. Tata Steel, which kick-started the battle with a 455-pence-a-share offer, said it was considering its position.

A takeover of Corus by either CSN or Tata Steel would create the world's fifth biggest steelmaker and would be the latest in the industry as companies look for global reach, economies of scale and to secure valuable raw material supplies.

Earlier this year Dutch-based Mittal Steel bought Luxembourg's Arcelor to create Mittal Arcelor (MTP.PA), the world's biggest steelmaker. By 0915 GMT, Corus shares were up 4.9 percent at 524-1/4 pence in heavy trading, the biggest risers on the UK's benchmark FTSE 100 index. Tata Steel shares were down 4.9 percent at 459 Indian rupees amid concerns it might overpay for Corus.

Analysts said CSN held the upper hand in the battle because it could extract more cost-savings from a deal. This is partly because the Brazilian firm will be able to export its iron ore supplies to Corus's business in Europe.

"Clearly, CSN is able to realize more synergies than Tata," said Rabobank analyst Richard Brakenhoff. He said CSN was paying a high price for Corus compared with the value put on market-leader Arcelor Mittal and thought Tata Steel was unlikely to return with a higher bid.

SYNERGIES

CSN's bid values Corus at about 12 times 2007 earnings forecasts, according to Reuters Estimates. Arcelor Mittal shares are currently trading at about 7 times 2007 earnings forecasts.

"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 Chairman and Chief Executive Benjamin Steinbruch said in a statement.

CSN said it expected to make annual cost savings of about $300 million on a pretax basis by 2009. It also said it would inject 138 million pounds into one of Corus's pension schemes and increase contribution rates on another until March 2009. Sources close to the matter had told Reuters that Corus's pension trustees were concerned about the level of debt that a combined Corus and CSN would have.

CSN said it would fund the deal mainly with 4.35 billion pounds of debt underwritten by Barclays, ING (ING.AS) and Goldman Sachs.

CSN is being advised by Lazard and Goldman Sachs, while JP Morgan Cazenove and HSBC (0005.HK) (HSBA.L) are acting for Corus. Tata Steel is being advised by ABN AMRO (AAH.AS), Deutsche Bank (DBKGn.DE) and Rothschild (ROT.UL).