Tata Steel''s Corus options

Rex Mathew
22 November 2006

As the Tata Steel board is set to meet to discuss the counter-bid Corus Group by Brazilian steelmaker CSN to firm up its own response, what are the realistic options before the Indian company? Having come this far with such a bold move, celebrated by international media as a sure sign of India Inc''s coming of age, the Tata Group is not expected to back out without a fight.

CSN has started its due diligence exercise on Corus and is likely to complete its discussions with Corus management before this weekend. Since Corus had already scheduled a shareholders'' meeting on 4 December to discuss the Tata Steel offer when CSN made its counter-bid, the Brazilian steel maker will have to announce a firm offer over the next couple of weeks.

The first, and preferred, option for Tata Steel would be to match CSN''s offer of 475 pence per share of Corus Group. All indications are that the Corus management would prefer Tata Steel to CSN, if the offers are not very different. Hence an offer to match CSN''s bid would most likely help Corus management to stick with Tata Steel.

But this strategy is most likely to invite a higher bid from CSN and may also encourage other steel companies like Severstal or Novolipetsk to enter the fray. This could lead to more speculative buying of Corus shares and push the price further up.

There are rumours that CSN has already struck agreements with leading institutional shareholders of Corus to share the gains from a bidding war between Tata Steel and Corus. Such agreements are not illegal as long as they are transparent and disclosed in time.

Hence a safer, though more costly, option would be to make a sufficiently higher offer which would dissuade CSN and other potential bidders from prolonging the bidding war. Such an offer would be a final ''take it or leave it'' offer which would also test the commitment of Corus management to an alliance with Tata Steel.