Corus battlelines drawn?

It was a takeover the Tatas were getting ready for ever since group chairman Ratan Tata made his intention clear to go global.

It was a takeover the Tatas were getting ready for ever since group chairman Ratan Tata made his intention clear to go global. So when the Tatas announced the 8.1 billion takeover of Anglo-Dutch steel company Corus, the mood was celebratory both at Bombay House 8212;the Tata group HQ 8212; and in India Inc. With a nod from the Corus board, the stage was set for a shareholders meeting on December 4 to clear the takeover. Many institutional shareholders who held big stakes in Corus even started selling its shares in the market at a higher price than the Tata offer of 455 pence, thinking a counter offer was not forthcoming.

Few thought Sao Polo-based steel company Companhia Siderurgica Nacional would up the offer by announce 20 pence a share to Corus group shareholders just before the London Stock Exchange closed for the weekend, on Friday.

CSN now seeks a similar recommendation from the Corus board for its offer as the latter gave to the Tata offer. NYSE-listed CSN 8212; with operations in Brazil, the US and Portugal 8212; says it has more strategic and industrial logic for a merger with Corus as it would enable Corus to secure supply of high quality, low cost iron ore from its Casa de Pedra mine, one of the largest captive mines in the world.

8220;A combination of CSN and Corus would create a global powerhouse with market leading positions and exceptional distribution networks across both developed and emerging markets,8221; says Benjamin Steinbruch, chairman and CEO of CSN.

In time, CSN said it would provide Corus with access to increasing quantities of low cost semi-finished steel for further processing across its downstream facilities in Europe and allow Corus greater access to fast-growing markets and would provide opportunities for cross-selling the enlarged portfolio of products.

The combination of CSN and Corus, CSN said, could create a top-five global steel group with 24 million tonnes of annual steel production and, by 2010, some 50 million tonnes of annual iron ore production. Interestingly, since August 2005, Corus was in talks with a number of companies from Brazil, Russia and India regarding a range of possible transactions. None of these were converted into a deal. The Tata takeover, as per Corus chairman J.W. Leng8217;s letter to shareholders, was to enable it to grow and compete on a global scale 8220;in an increasingly competitive environment whilst pursuing its existing plans for Western Europe.8221;

For the Tatas, the cheque to acquire Corus just rose by 300 million. It will now have to at least match the CSN offer say analysts. The takeover of Corus is an important milestone for Tata Steel, which was nowhere close to the global rankings even as newer companies like Mittal Steel overtook it by a wide margin.

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With Corus, the Tatas could be among the top five steel groups in the world and insiders say they won8217;t leave any stone unturned to hold on to Corus. With an equity investment kitty of 50 billion, Tata Sons is one of the richest holding companies globally, and can raise enough funds for the Corus takeover battle.

The urgency to acquire Corus stems from the fact that the Tatas are now pursuing a 8220;de-integrated8221; business model for future growth. Tata8217;s steel plants are located close to raw material sources, and finishing capacities, close to consumers. Over the past two years, it has shifted focus from its domestic market to the fast-growing steel market in South East Asia. To achieve this, Tata Steel acquired finishing capacities in Asia like NatSteel Asia in February 2005, which has a capacity of 2 mtpa. In March, Tata Steel acquired a 67 per cent stake in Millennium Steel, Thailand, which has a capacity of 1.7 mtpa of steel 8212; and now has operations in eight South East Asian and Pacific Rim countries.

The Corus takeover fits directly into Tata8217;s go-global policy. It has the cash, its management led by MD B. Muthuraman is focused and its level of corporate governance is legendary. The CSN counter bid may have spoiled the Tata-Corus party, but not ended it. The next few weeks would show the steely resolve of the Tatas.