Tata board to take up CSN bid, financing options today
The Tata Steel board meeting in Mumbai on Thursday will take stock of the CSN bid, with the discussions likely to centre around various financing options for Tata Steel.
While the agenda for the board meeting incorporates the Corus bid, it does not spell out what areas the board will explore. Sources familiar with the situation say informal discussions may hinge on a possible issue of preferential shares to parent company Tata Sons.
What is also likely to come up is a further dilution of the promoter’s stake in group company Tata Consultancy Services (TCS) to raise money for what CSN described as a “bidding war” in a national British daily.
More, the board will also discuss alternatives for raising more money through banks, people familiar with the situation said. However, ET has no confirmation on any of this and the Tata spokespersons have been denying that any discussion is likely on preferential shares to parent Tata Sons. The board meeting comes in the wake of the counter-bid by Tata’s Brazilian rival Companhia Siderurgica Nacional, although one Tata spokesperson said the meeting was fixed well in advance.
Tata had bid at 455 pence per share, but CSN had dramatically upped the stakes with an offer of 475 pence per share. Let’s take a look at what the Tatas are likely to do to raise the stakes in the bidding game.
A preferential allotment, say sources, will help Tata Sons raise its stake in the company from about 23.8%, but it is not clear at this stage whether it is likely to use this route. It’s premature to say the preferential allotment is likely to be adopted — at best, it’s only an option. B Muthuraman, managing director, Tata Sons, declined to comment on the issue. An email query sent to the company’s communication department in regard to preferential shares to Tata Sons has been denied.
Other options include selling a small lot of TCS shares by Tata Sons, which has been hotly speculated in the media, but a final call on this would be taken by the parent’s board.
Last week, holding company Tata Sons had raised Rs 900 crore by divesting 0.8% of its stake in group company TCS, largely meant to fund the Corus acquisition.
Of course, the Tata group is a veteran in taking over global brands and companies. They are keeping all options open, and Tata Steel could also borrow some extra money from its lenders Credit Suisse, ABN-Amro and Deutsche Bank, a report that has again not been confirmed by Tata executives.
But speculation around the preferential share offer gained ground later last evening, so much so that the quantum of shares is also doing the rounds. The firm may issue about 2 crore preferential shares to Tata Sons at Rs 525-540 per share, helping the company raise almost Rs 1,100 crore. The steel major has raised about Rs 1,540 crore earlier this year through preferential allotment of warrants and shares to Tata Sons, a possible reason for the speculation.
Tata’s move, analysts say, is aimed at getting the financing in place and be ready with a counter-proposal as soon as CSN submits its bid. The Brazilian giant is conducting its due diligence on Corus and is likely to table its bid soon, British newspaper reports have said.
On Wednesday, Tata Steel ended at Rs 472.7, down 0.58%. The shares have fallen 8.41% over the past month and 2.71% over the past week. The gap of about $700m between CSN and Tata’s bid is not very large and the domestic steel company has the ability to raise the required funding easily.
Shares of Corus remained over the 500 pence mark, though silence from bidding rivals CSN and Tata Steel saw it marginally drop by 0.2 pence to 505.5 pence per share.
CSN shares fell 2% to 63.81 on Tuesday. Merrill Lynch, in a report, cut its recommendation for the Brazilian company’s stock to “neutral” from “buy” on concerns that its $8.8bn offer for Anglo-Dutch steelmaker Corus Group was high and the bid may cause CSN to be overleveraged.
Interest from investment funds continued in Corus, with leading financial institution Lehman Brothers increasing its stake to 4.75% of the outstanding share capital of the company. At the time of going to the press, the Corus counter at London Stock Exchange saw a busy session with bankers such as Goldman Sachs, BNP Paribas and UBS trading the company’s shares.
Meanwhile, the European Commission has set a deadline of January 3 for its inquiry into Tata Steel’s proposed $8.1bn acquisition of Corus. Expert see this as a regulatory need that can become a mere formality if the Indian company is able to out-bid its Brazilian rival. that can become a mere formality if the Indian company is able to out-bid its Brazilian rival.
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