It has come as a manna from heaven for Tata Steel. Brazilian steel maker CSN (Companhia Siderurgica Nacional), Tata’s rival in the bid to acquire Anglo-Dutch steel maker Corus, has been hit by a looming legal row over its rights to an iron-ore supply which is crucial for the merged business.
CSN shrugged off reports about its trouble on Thursday, but market watchers are not convinced yet. A Corus spokesman declined comment.
Tata Steel is expected by most City observers to renew and raise its offer from the earlier £5.5 billion to around £6 billion to outbid CSN‘s last offer. Britain's Takeover Panel which fixed January 30 as the last date for bids issued guidelines for the "auction" two days ago. The city has been rife with the speculation that there will be a last-minute shoot-out between the two rivals, both determined to takeover Corus.
London’s Financial Times reported that CSN bid could be blown off course by a legal row in Brazil. It said that the row - which is centred over CSN's rights to an iron-ore supply that would be crucial to a merged business - could boost rival bidder Tata Steel which has no legal hurdles.
CSN was quoted by FTX as saying, "Should CSN acquire Corus it will exercise its rights to supply iron ore from its Casa De Pedra mine to all its operations, including those in Europe. There is no basis for this (FT) story. There is no change to our position or to our commitment to acquire Corus."
In an email to Reuters it said it rejected reports on Thursday that a domestic iron ore dispute might damage its chances of winning a bid battle for Corus Group. "There is no basis for this story. There is no change to our position or our commitment to acquire Corus." CSN said there was no risk to the iron ore supplies.
Financial Times revealed that the tussle arose after Companhia Vale do Rio Doce (CVRD), the Brazilian mining giant, said it would challenge CSN’s ability to supply iron ore to Corus once its bid succeeded. The problem for CSN is that the major rationale behind its offer is that it would be able to supply cheap iron ore from its Casa de Pedra mine in Brazil to Corus's European plants. On the other hand, the Tatas have limited supplies of iron ore and, under Indian export regulations,are unlikely to be allowed in the next few years to ship it overseas.
José Martins, CVRD's director for ferrous operations, told Financial Times that CVRD would question CSN's ability to ship iron ore under the terms of a contract signed between CVRD and CSN in 2001.The paper reported that one interpretation of this accord was that CVRD had the first rights to take any extra iron ore that became available from Casa de Pedra and would be reluctant to relinquish this right to CSN even if the steelmaker needed the ore to supply Corus.
Martins told the daily that the idea that CSN could take iron from the mine to send to Corus "cannot be affirmed in advance". "If CSN buys Corus, we will look very closely at how the deal is done to see if our right (to the iron ore) remains in force or not," he said.
CSN's director of mining, Juarez Salipa, was quoted saying, "This is pure malevolence by CVRD. They (CVRD) will answer in court for any damage they cause by this type of statement."
Mr Salipa held that the contract stated clearly that CVRD's right of preference did not apply to any iron ore "used in the production of steel by CSN at (its existing steel mill) or at other units owned by CSN or by companies controlled by CSN".
But James Moss, a partner at First River, a US steel consultancy, told the FT that a legal tussle with CVRD could "throw a spanner in the works" for CSN's argument for acquiring Corus. A banker too said that some of CSN's lending banks, which include Barclays, ING and Goldman Sachs, could become "a little nervous" if they thought there was a potential problem over the iron ore.
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