`Corus shareholders can sit back and wait to see what happens'

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D. Murali

Chennai, Nov. 22

Even as moves and countermoves keep CSN (Cia Siderurgica Nacional) and Tata busy, the battle for Corus continues to be the hot issue in the corporate world. For a view from the UK,

Business Line

contacted Mr Roy Montague-Jones of Richards Butler LLP, a London-based law firm. With about 400 lawyers worldwide, the firm has `a presence across three continents'.

And Mr Montague Jones advises publicly listed and private companies on public and private mergers and acquisitions, IPOs (initial public offerings) and secondary issues, and joint ventures. He is the author of a 330-page practitioner's guide to takeover regulations and practice in 14 European jurisdictions. Mr Montague Jones is also joint head of the firm's India Group. Here is his take on a few questions...

What is the situation, in short?

At the moment, as you will know, Tata Steel has made a formal offer of 5.1m, which has been recommended by the directors of Corus to Corus shareholders, and there is to be a Corus shareholder vote on the offer on December 4. The `offer' from CSN values Corus at 5.3m, but is not yet a formal offer. It is only an approach and, as I understand it, CSN still has to complete its own due diligence.

Did Corus have a choice about allowing CSN perform due diligence?

Since Corus is a UK company, the UK Takeover Code applies. This requires equality of information supplied to competing offerors, even if one offeror is less welcome than the other. Which means that any information supplied by Corus to Tata for the purpose of Tata's due diligence investigation must also be made available to CSN on request.

Is time critical for CSN?

Yes, if CSN is serious about bidding for Corus, it will have to make its formal offer in advance of the December 4 vote of Corus shareholders.

Does the leverage make a difference in this case?

Interestingly, both Tata Steel and CSN are smaller than Corus and, while there will be industrial logic behind both bids, both bids will be highly leveraged. Both Tata and CSN are planning to finance their takeover largely from debt, and then secure loans on Corus's own assets and cashflow.

And the shareholders have to agree to this?

Right. In order to be able to do the way the two bidding companies plan, the successful bidder will in practice need to secure an acceptance level of over 90 per cent from Corus' shareholders, so as to be able to re-register Corus as a private company and complete the security package. This could be seen in some ways as paying for Corus with its own money, which is what is usually done in private equity buyouts.

But aren't the financing methods different?

I believe the indicative offer from CSN is still subject to finalisation of financing arrangements. Both Tata's offer and CSN's indicative offer are all-cash deals. If Tata decides to increase and decides to offer a share element, it would need to arrange to issue GDRs (global depository receipts) since Tata shares would less likely be attractive to Corus shareholders.

Your view on the slender difference between the two bids

It is interesting that CSN's indicative offer is only about 4 per cent higher than Tata Steel's, which does not appear to be a knockout blow. CSN might be trying to see if Tata will raise its own offer without CSN making a formal bid itself.

Are there comfort factors in the UK law for Corus shareholders?

As far as UK law is concerned, the UK Takeover Code is designed principally to ensure that shareholders in a target company are treated fairly, and are allowed an opportunity to decide on the merits of an offer within an orderly framework for conduct of takeovers. So, the Corus shareholders can sit back and wait to see what happens in terms of a formal offer from CSN or any increase from Tata Steel.

Is there a deadline that should worry Tata?

In terms of timetable, the Takeover Code sets down a 60-day timetable from the date an offer is formally made, for an offeror to see whether it has been successful. If it has not succeeded by that time, it is then prohibited from making a further offer (unless recommended by the target company) for a period of 12 months without the consent of the Takeover Panel.

But we have a counter-bid situation here?

In the case of a competitive situation, the 60-day timetable still applies, but the first bidder's timetable is then aligned with the timetable of the second bidder. Therefore if CSN makes a formal offer for Corus, the time allowed for Tata to decide whether to increase its own offer, and the timetable for the situation to be resolved between them will broadly be 60 days from the making of the offer by CSN.

Any other akin situation around?

The other takeover situation that is attracting a good deal of comment in the UK at the moment is NASDAQ's bid for the London Stock Exchange (LSE). Here again, NASDAQ has a smaller market cap than the LSE and is bidding all-cash, so it will have to take on a large amount of debt. However, the availability of money at fairly low rates has rarely been greater. This is a high profile deal, but not one, which is likely to be blocked by the UK Government (wonder if the US Government allow a foreign exchange to take over NASDAQ). A case that illustrates just how open the UK is as a market for corporate control.

(This article was published in the Business Line print edition dated November 23, 2006)
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