Tata Steel's takeover bid for the much larger Anglo-Dutch Corus is likely to attract predators on the prowl to expand their empires. Rex Mathew reports.

Tata Steel may have to ward off other eager suitors, if it finally decides to make a formal bid to acquire Anglo-Dutch steel maker Corus. Other large steel companies are also interested in Corus and a bidding war is very much possible.

Russian steel company Severstal, which failed in its attempt to merge with Arcelor, is reportedly very keen on acquiring Corus. Alexei Mordashov, Severstal's majority owner, is still smarting under the Arcelor loss to Mittal Steel and would not miss an opportunity to bid for a large European rival like Corus.

Severstal is the largest Russian steel manufacturer with an annual capacity of close to 11.6 million tonnes in Russia alone. The company owns more than 70 per cent of Italian steel maker Lucchini, which has a capacity of 4 million tonnes. Its subsidiary, Severstal North America, had acquired steel assets with an annual capacity of 2.4 million tonnes in the US in 2004.

Aggregate annual steel making capacity of the Severstal group is currently around 18 million tonnes. The group is one of the more profitable steel makers and had reported EBITDA in excess of $3 billion on revenues of $11.5 billion for 2005.

Mordashov, who currently owns 90 per cent of Severstal and is reportedly close to Russian president Putin, had last week announced plans for an IPO for his company in London. This has fuelled speculation that Severstal is building a war chest to finance a possible bid on Corus.

The prime reason for taking Severstal public is to facilitate partnerships and joint ventures, according to Mordashov. The 40-year old Russian steel tycoon, who took over Severstal at the age of 31 when it was by the Russian government, has already declared that he intends to double Severstal's capacity in the short term to emerge as the second largest steel group behind Arcelor-Mittal.

Another Russian company, which is a likely bidder for Corus, is Evraz which has steel plants in Russia, Italy and the Czech Republic with an aggregate capacity of nearly 14 million tonnes per annum. Russian tycoon Roman Abramovich, who sold his oil company Sibneft to Russian state-owned oil major Gazprom for $13 billion, owns more than 40 per cent of Evraz through his indirect stake in Lanebrook Limited which owns more than 80 per cent of Evraz.

Abramovich is currently trying to invest elsewhere the many billions generated from the sale of Sibneft. He is very keen on the metals business, where many industry veterans believe there is still considerable scope for consolidation. Like Mordashov, Abramovich is also reportedly close to Putin. He is currently based in London and also owns the famous English football club Chelsea.

Mordashov had reportedly tried to rope in Abramovich for the failed merger attempt with Arcelor. It is not yet clear whether there would be a joint attempt by Severstal and Evraz for Corus.

The fourth possible bidder for Corus is Brazilian steel maker Companhia Siderugica Nacional (CSN), according to market rumours in London. CSN is the largest steel manufacturer in Brazil and has a controlling stake in Companhia Vale do Rio Doce (CVRD) – the largest global producer and supplier of iron ore and pellets. CSN is about the same size as Tata Steel, with an annual capacity of 5.8 million tonnes.

Though Corus is a high-cost manufacturer, it has considerable marketing strengths and is a process technology owner. Any steel player with access to large reserves of cheap iron ore would find Corus an attractive buy, at the right price, for its distribution strengths. The Corus stock has nearly doubled over the last one year and at current market prices, the company is valued at close to $8 billion

However, chances of a very aggressive bidding war are low. In the Arcelor-Mittal deal, speculation about rival bids and tough posturing by the Arcelor management had forced Mittal Steel to more than double its initial offer. In the case of Corus, the deal is likely to be a friendly one – if it goes through. Besides, steel stocks are much better priced than when Mittal initially launched his bid for Arcelor.

Meanwhile, Tata Steel has reportedly completed its first round of talks with Corus and a formal bid is expected shortly. The bid is likely to be worth around $10 billion and Tata Steel has already tied up a major part of the financing, around $6.5 billion, according to reports in British media. There were also media reports that Tata group chairman Ratan Tata would meet prime minister Tony Blair to possibly discuss the bid, which have been denied by the Tata group today.

Corus is also in negotiations to sell some of its automotive and forging related businesses separately as Tata Steel and other potential bidders may not be interested in them. There are unconfirmed reports that Bharat Forge, the second largest automobile forgings manufacturer globally, is the leading candidate to acquire these businesses.

It is as yet unclear if Corus is also planning to divest its remaining aluminium business separately, as none of the potential bidders have any interest in aluminium. Corus had sold its aluminium rolled products and extrusions business to Aleris International early this year for more than $1 billion. The company's aluminium output for 2005 was at 0.6 million tonnes.