In a bid to counter the hostile bid of Brazilian steel maker Companhia Siderurgica Nacional (CSN), Tata Steel is all set to sweeten its offer price for Anglo Dutch steel giant Corus group by around 10 per cent, investment banking sources told Hindustan Times. Tata Steel's board is set to meet on November 23 to take a final decision.
According to highly-placed sources in investment banking, Tata Steel is likely to raise the offer price to between 490 pence to 500 pence per share as against the original offer price of 455 pence per share. In the process, the total offer price would increase to $8.86- $9.04 billion.
At the original offer price of 455 pence per share (or ($8.69 per share), the equity value of Corus Group was $8.23 billion. The new offer price would also be in tune with the current market price of Corus Steel, which is trading at around 502 pence a share on the London Stock Exchange.
A Tata Steel spokesman declined comment on the planned revision of the offer price. "We have no comment to offer at this point of time," he said.
The Corus group is scheduled to hold an extraordinary general meeting on December 4 to consider the Tata Steel offer. Therefore, CSN’s hostile bid and Tata Steel's revised offer need to be completed before that.
Sources close to the deal said that Tata Steel revised offer is likely to be a final one, in the nature of a "take-it-or-leave-it" proposal.
Although it would be difficult for the Corus board to ignore the CSN offer, it might still prefer the Tata Steel bid in the light of the fact that CSN made an abortive attempt to acquire Corus four years ago.
Secondly, CSN’s offer is subject to due diligence, which Tata Steel had already completed. Besides, the Corus board has already approved the Tata Steel offer, said a leading investment banker.
CSN, which has not made its offer officially, is expected to make its formal bid shortly after the completion of its due diligence process. Investment banking sources said that CSN has the tacit support of the large financial investors including Barclay’s Global and Standard Life, which own around seven percent each.
Financial service industry sources said large institutional investors could possibly have an understanding in tandem with CSN, under which any increase in the offer price by Tata Steel from 455 pence per share and resulting in a further gain would be shared between them in a certain proportion.
“This is a perfectly valid agreement, where these financial investors are maximising the consideration for their investments in the company (Corus). In fact, in a similar deal, Severstal of Russia had entered into an agreement with the management of Arcelor, which forced Mittal Steel to revise its offer price," said a banker involved in the deal.
In fact, the special purpose vehicle (SPV) created by the Tatas for the Corus deal purpose has factored such eventuality. The SPV has raised $9.5 billion to fund the transaction. This includes an equity contribution of $3.88 billion from Tata Steel and fully underwritten non-recourse debt amounting to $5.63 billion.
Investment bankers are of the opinion that Tata Steel might yet win the battle by simply upping its offer price. This in turn will help in soothing large investors like Standard Life and Barclay’s who have expressed their reservation over the offer price currently on the table.