London: Anglo-Dutch company Corus faces a "much brighter future" after the agreed £4.1 billion takeover bid from Tata Steel, a report said on Sunday even as Brazilian steel group CSN appointed top-flight investment bank Lazards to advise on its options for challenging the bid.
Also circling is Thyssen Krupp, the German steel giant, which has a market value of £9.4 billion.
Severstal, the Russian steel group tipped last week as a predator, is thought to be less likely to intervene because it is busy with its flotation in London.
According to a report in The Sunday Times, Tata is almost certain to withdraw if a bidding war develops. The Indian company is offering 455 pence (nearly Rs 161) a share for Corus.
Once Corus's debt is included, the deal is worth £5.1 billion. Any rival bid will face a tough obstacle in the shape of Corus's pension trustees.
Trustees of the two main Corus schemes, which have assets - and future liabilities - of £13 billion, more than twice the value of the company, have agreed to back Tata's bid, the report said.
The size of the liabilities means that the pensions regulator could stop any take-over unless the bidder guaranteed the future of the pension funds, or had trustee backing.
Their support was only won by Tata after weeks of delicate negotiations with Corus's management and Tata's financial advisers - the investment banks ABN Amro and Deutsche.
Tata has agreed not only to make up the £126 million deficit in the smaller scheme, but also to increase the company's rate of contributions to the larger one for three years.
Corus executives said the first commitment alone was worth 13 pence per Corus share. A banker close to the negotiations said the agreement with the trustees was "a bit like a poison pill".
Corus executives said privately that the trustees might be happier striking a deal with Tata, which has a reputation as a benevolent employer, than with a rival bidder.
A new bidder would also have to stump up a 1 per cent break fee that has been agreed as part of the Tata-Corus tie-up.
The report said that despite the fears of Corus workers, the company now faces a much brighter future than could have been predicted even four years ago.
In those days it flirted with financial disaster, its shares sinking as low as 20 pence, and it staged a £300 million rights issue in 2003.
It has since recovered due to rising world steel prices and stringent cost-cutting, but still faced an uphill battle as a small, relatively high-cost player in a rapidly consolidating, low-cost market.
The report said Philippe Varin, chief executive of Corus and Jim Leng, the company's chairman, had been in secret talks for months about a tie-up with Tata Steel.
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In July they flew out of London for a week-end in Dubai to meet Ratan Tata, Tata's patriarch, to thrash out the deal on neutral territory.
The Dubai summit was the culmination of a search that began in October last year. Corus directors realised that the company, which includes the remaining operations of the former British Steel, faced a bleak future if it stayed independent.
They approved a plan to seek a tie-up with a low-cost steelmaker in Russia, Brazil or India.
With Credit Suisse, its financial adviser, Varin and Leng devised "Project England" - an elaborate evaluation of the alternatives. To mask the real purpose of the exercise, potential partners were given the names of English towns. Tata was Truro.
Leng and Varin flew to Mumbai in November, for the first talks with Tata. At first a joint venture was examined, but by the time of the Dubai meeting a bigger deal was on the table - a full-blown takeover by the Indian company of its much larger Anglo-Dutch counterpart.
"It's absolutely the right deal for both companies, and has been unanimously recommended by the Corus board," Leng said.
"This brings together two companies whose value systems are very similar - and I do not say that lightly," said Tata.
The report observed that benevolent employer or not, the Tata takeover threatens jobs in the UK. The merged group could cut steel making in the UK, and ship low-cost steel plate from India for processing into finished products in UK.
It said the differences in production costs are stark; Port Talbot, the South Wales plant that is Corus's biggest steel-making operation, makes plate steel for $320 a tonne. Jamshedpur, Tata Steel's main base, runs at $160 a tonne.
According to the newspaper Corus workers are nervous. "There is a lot of anxiety here", said Anthony Taylor, a worker at Port Talbot who is also a local councilor. "But people understand the reality that Corus is now a small player in world steel. Varin has done a very good job over the past few years and it's a shame to have this uncertainty after what has been a good period for us."
Corus and Tata executives would not rule out job cuts. "I can't give any assurance on that," said Ratan Tata. "But I would say that this deal is not driven by any opportunistic motive. It is about the future of world steel, and being competitive at a global level."
"The biggest threat to jobs in the UK is if this deal does not go through. The only guarantee of jobs is for the company to become competitive," said Varin.
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