October 23, 2006 | posted by Michael Baxter in Uncategorized |

Are shareholders in Corus being foolishly
irrational, or is the £5.1 billion offer from Indian steel company Tata for Corus
doomed to fail? It is beginning to look as if it really will be one or the other. After all
Tata’s bid was for 455p a share, and yet, at close of play on Friday, shares in the
Dutch/British steel company were trading at 473p. Clearly the city reckons another
suitor will come out of the cupboard, and, according to the Sunday Times, one
contender has already stepped forward - Brazilian steel company CSN.

The doubts started with Standard Life Investments, the biggest shareholder in
Corus, with a 7.9 percent stake. Last week, when Corus said it had agreed the Tata
offer, a statement was issued by Standard Life saying the price agreed did not fully
allow for “what we understand to be the substantial savings available from the
joining of the two businesses.”

The Tata bid is heavily geared. Around 60 percent of the price is coming from
borrowings, with the Indian company partially using future earnings of Corus to
secure the debt, and if that option is available to Tata, then presumably it could be
used by another suitor.

And yet, on this occasion it may come down to more than price. Corus has
massive pension commitments. Future liabilities are thought to be around £13
billion, and pension trustees are nervous.

The Tata deal led to raised eyebrows. Such high borrowing for a company with
such a massive future pension liability, led to some questioning the deal. Then
again, Tata has agreed to wipe out the Tata £125 million pension deficit, and it was
described by a Corus spokesman as a “socially responsible company.”

CRC might not have been around as for as long as the Indian Tata, which
recently celebrated its 138th birthday, but it’s a bigger steel producer and a merger
between CRC and Corus would create the fifth largest steel company in the world.