News: Tata Steel ready with Plan B to thwart rival

(TT 11/12/2006) Calcutta - The Tatas have a flexible option built into their strategy to beat off the CSN offer for Anglo-Dutch steelmaker Corus which is expected to be tabled this week.

The Tata offer on the Corus table is a management-backed scheme of arrangement that will require the support of 75 per cent of the shareholders present and voting on the proposal at the extraordinary general meeting (EGM) due to be held on December 20.

But in the face of a competing bid, the Tatas have the option to re-categorise it as a takeover offer. This is more than a matter of semantics and indicates just how well the Tatas have crafted their strategy to acquire Corus.

There are two ways to acquire a company in UK: the first is through a takeover offer and the other is through a scheme of arrangement. Tata Steel is pursuing the latter route at the moment. Secondly, Tata Steel and its wholly owned subsidiary have also kept the door open to reduce the acceptance condition of shares from the level of 75 per cent.

Observers feel that both conditions will come in handy if the Tatas decide to wage a bidding war with CSN, which looks increasingly likely.

Tata Steel won the Corus board’ approval for a 455 pence a share bid on October 20, but CSN trumped it with a higher offer of 475 pence on November 17.

After CSN made its indicative offer, the Corus management decided to adjourn the court-appointed EGM till December 20 to give CSN more time to put up a firm bid.

This has fuelled speculation about what the Corus board will do if CSN makes a firm and a higher offer. When contacted by The Telegraph, John Bennett, head of corporate law at London-based law firm Berwin Leighton Paisner (BLP), confirmed that Corus directors were free to recommend and pursue an alternate scheme.

If that happens, the clauses tucked into the Tata offer document will give the Indian company the option of launching an outflanking manoeuvre.

This is because the takeover offer will allow it to pursue Corus without its management support which is mandatory in the case of a scheme of arrangement.

“A scheme is a scheme of the target company and the process is therefore controlled by the target company. This could be a problem if there is a higher competing offer. If the target directors switch allegiance in these circumstances, the bidder would want to take control of the process by making a takeover offer,” Bennett said while seeking to explain why the Tatas may have kept this option open.

The acceptance clause also enables the Tatas to deal with a situation if there is a competing offer for Corus.

The City Code of Takeover and Mergers of UK stipulates a minimum acceptance level at 50 per cent.

Thus, if Tata feels that it would not be able to garner such a high acceptance from shareholders, it may choose to lower the acceptance threshold from 75 to 50 per cent.