Emerging Markets

Emerging Markets

CSN Offers $8 Billion for Corus, Countering Tata Bid (Update5)
By Claudia Carpenter and Matthew Craze
Nov. 17 (Bloomberg) -- Cia. Siderurgica Nacional SA of Brazil offered $8 billion for Corus Group Plc to create the world's fifth-biggest steelmaker, countering a bid last month by Tata Steel Ltd.
Corus investors would receive 475 pence a share, subject to due diligence, Rio de Janeiro-based CSN said today in a statement. The proposal is 4.4 percent higher than Tata's Oct. 20 offer of 455 pence. Shares of Corus closed at 495.5 pence in London, signaling investors expect a higher offer.
``This is not the end of the story,'' said Stephen Pope, head of equity research at Cantor Fitzgerald LP in London. ``Tata is in a position to put up a counter-offer.''
Acquiring London-based Corus, formerly British Steel Plc, will add mills in the U.K. and the Netherlands to CSN's iron-ore mines and blast furnaces in Brazil. The deal would be the industry's second biggest this year after Mittal Steel Co.'s $38.3 billion purchase of Arcelor SA and would scupper Mumbai- based Tata's plan to pull off the biggest foreign purchase by an Indian company.
Shares of Corus rose 22.5 pence, or 4.8 percent, valuing the company at 4.43 billion pounds ($8.4 billion), the highest since May 2000. The stock reached a record low of 18.22 pence in March 2003 on concern Corus would go bankrupt.
Credit Line
CSN said it will finance the acquisition partly with a credit line provided by Barclays Plc, Goldman Sachs Group Inc. and BNP Paribas SA. A spokeswoman at CSN in Sao Paulo who asked not to be identified declined to comment on the company's offer. CSN said today it already indirectly owns 3.8 percent of Corus.
Lazard Ltd. is the lead financial adviser to CSN. Goldman and UBS AG are also CSN's corporate brokers. Credit Suisse Group and JPMorgan Cazenove advise Corus.
Shares of CSN dropped 2.40 reais, or 3.6 percent, to 65.11 reais at the close in Sao Paulo, valuing the company at 17.77 billion reais ($8.2 billion).
``CSN shares are hurting because if they do buy Corus there will be less dividends,'' said January Hostin Junior, who helps manage 50 million reais ($23 million) in stock and fixed-income securities at Leme Investimentos in Florianopolis, Brazil. ``In the long-term, it's a good strategy with good synergies.''
Outside Brazil
CSN had sought to expand in the U.S., where it is competing with Chicago-based steel distributor Esmark Inc. to merger with Wheeling-Pittsburgh Corp. Wheeling-Pittsburgh, which had agreed to merge with CSN, said today that its shareholders voted out the board of directors in favor of a rival slate from Esmark, which may scuttle CSN deal.
Standard & Poor's placed CSN's corporate credit rating at ``BB'' with negative implications.
Corus confirmed in a statement that it got an offer from CSN, adding that an announcement will be made ``in due course.''
Tata's Deputy Managing Director T.K. Mukherjee, speaking by mobile phone from Jameshedpur, India, refused to comment.
Steelmakers want greater control over production to bolster their bargaining power with clients and suppliers. Arcelor Mittal accounts for about 10 percent of global production. That compares with three-quarters control of the seaborne iron-ore trade held by Cia. Vale do Rio Doce, BHP Billiton Ltd. and Anglo American Plc, the largest iron-ore miners.
Fifth-Largest
A combination of CSN and Corus would produce 23.4 million metric tons of steel, based on last year's production, ranking it as the world's fifth-biggest steelmaker, behind Arcelor Mittal, Nippon Steel Corp., Posco and JFE Holdings Inc. Arcelor Mittal produces almost 110 million tons, based on 2005 output.
CSN produces enough iron ore from its mines in Brazil to supply all of Corus's needs, CSN Chairman and Chief Executive Officer Benjamin Steinbruch said in the statement today.
Corus was created through the combination of British Steel and the Netherlands' Royal Hoogovens in 1999. Chief Executive Officer Philippe Varin, who took over in 2003, has returned the company to profit after job cuts and plant closures.
Corus in 2002 offered to buy CSN for $3.5 billion. The U.K. steelmaker withdrew its offer four months later after its shares lost about half their value. Investors had judged the additional debt was too high for Corus, which hadn't reported an annual profit since 1998.
Spurring Alliances
The success of Mittal's hostile takeover of Arcelor is spurring alliances in the steel industry, as producers seek to erect defenses against rival bids. As many as 252 transactions worth about $78 billion have either been completed or are pending. That compares with 219 deals worth less than $20 billion in all of 2005.
The CSN bid fueled speculation of more transactions. Shares of Pittsburgh-based U.S. Steel Corp. rose $6, or 9.3 percent, to $70.57 in New York Stock Exchange composite trading. Russia's OAO Severstal may combine with iron-ore miners and bid for U.S. Steel, Russian newspaper Kommersant reported today.
Mittal's offer for Arcelor was 4.56 times the Luxembourg- based company's earnings before interest, taxes, depreciation and amortization, or Ebitda. CSN's offer is 4.95 times Corus's Ebitda, based on the U.K. steelmaker's earnings in the 12 months through June 30. Tata's offer is 4.84 times Ebitda.
``Tata are not going to walk away from this easily,'' said Herman Bots, an analyst at Theodoor Gilissen Bankiers in Amsterdam. ``They want the access to the western European markets. They're not going to give up. They're not out of the game yet.''
Higher Prices
Corus's share price in the past month has signaled some of the company's biggest shareholders were holding out for a higher offer. Russia's OAO Novolipetsk Steel won't rule out making a bid, the Financial Times said Oct. 18. Standard Life Plc, the biggest investor in Corus, said on Oct. 20 the Tata offer undervalues the Anglo-Dutch steelmaker.
``It is not a surprise that another bidder has emerged,'' Standard Life said in an e-mailed statement today.
Other investors, such as AllianceBernstein LLC and Jupiter Asset Management Ltd., have sold shares.
A parcel of 13.2 million Corus shares changed hands at 473.14 pence a share at 2:54 p.m. in London, 40 minutes before CSN's announcement today, according to data from the London Stock Exchange. Only the 11 biggest shareholders in Corus have that many shares, according to data compiled by Bloomberg.


(Bloomberg)