Battle for Corus accelerates steel sector's frenzy for deals

London Briefing:Christmas has come early for Corus, the Anglo-Dutch steelmaker whose shares were languishing at the equivalent of just 19p when it almost went bust three years ago.

Such is the appetite for commodities among emerging economies that Tata Steel of India and Brazil's Companhia Siderurgica Nacional (CSN) are now locked in a dramatic - and some would say dangerous - multibillion pound battle for control of the world's eighth-largest steel producer.

The deal frenzy in the industry was kicked off earlier this year when Mittal Steel bought up rival Arcelor to create the world's largest steel group.

Consolidation among smaller competitors was inevitable after that and Tata set the bid ball rolling for Corus in October, when it launched an agreed £4.3 billion (€6.3 billion) offer, valuing Corus shares at 455p each.

Brazilian rival CSN swiftly declared an interest, saying it would be prepared to offer 475p a share.

Late last Sunday evening, as CSN was still putting its rival bid in place, Tata delivered what it believed would be a conclusive pre-emptive strike against the Brazilians, by raising its own terms to 500p a share.

Just hours later, however, CSN dramatically leapfrogged Tata's new deal with a bid of 515p a share, valuing Corus at £4.9 billion, and securing a swift change of allegiance from the Corus board. Add in the Corus debt of £800 million, and the CSN deal is worth £5.7 billion.

But Corus shares leapt above the bid terms on Monday, reaching a record high of 529.5p, as dealers speculated that this extraordinary game of leapfrog may not yet be over.

Tata has said it will consider its position carefully, indicating that it does not intend to be rushed into a decision. The Indian company is desperately keen to get its hands on Corus - a combination of the two companies would create the world's fifth-largest steelmaker and bring significant economies of scale.

The same is true for CSN, which would also be elevated into fifth place in the global steel production league by the acquisition of Corus. It plans to push through cost savings of $300 million (€226 million).

For Corus, the CSN deal represents a premium of 43 per cent on its pre-bid share price and a massive premium on its 19p nadir in 2003.

The bid battle has vindicated concerns publicly expressed by the group's biggest shareholder, Standard Life, which holds a 7.9 per cent stake. When the initial Tata deal was agreed, Standard Life took the unusual step for a City institution of going on the record to say the terms were too low.

Even if it is now over, the bid battle between the Brazilians and the Indians has comprehensively addressed those price concerns.

But, although they are good news for shareholders, the increased terms do nothing to address the issue of why Corus has allowed itself to become a passive target rather than a leading force in the consolidation of the global steel industry.

The Corus management can be credited with an impressive turnaround of the business since the dark days of 2003 and the board has done well to secure an offer of 515p, even if they did initially recommend Tata's 455p.

But Corus is larger than its bidders, both of which are borrowing heavily to finance their offers - how much more impressive it would have been if it had gone on the offensive itself with a bid for its preferred target, rather than allow its overseas rivals to decide who will ultimately take ownership of the British steel industry.

First-time buyer gloom

By the end of next year, there will not be a single town in the UK where the average house price is below £100,000.

That forecast from Halifax Bank of Scotland (HBOS), Britain's biggest mortgage lender, will strike terror into the heart of any first-time buyer with ambitions to gain a foothold on the housing ladder.

HBOS's prediction of a 4 per cent increase in UK house prices next year - the smallest increase for more than a decade - will provide little comfort to those still hoping to buy.

There are big regional variations. Northern Ireland - where prices have surged an estimated 34 per cent this year - will again be the star performer in 2007, according to HBOS, with a 15 per cent increase.

In London, the rise is forecast at 8 per cent next year, as areas to the east of the capital benefit from regeneration projects ahead of the 2012 Olympic Games.

However, no matter where you live and despite the dangerous lure of mortgages at multiples of five times your salary, owning a home is rapidly becoming an impossible dream for many young Britons.

And those who do manage to get on the ladder are finding it increasingly hard to stay on.

Figures from the Bank of England earlier this week showed the number of households reporting problems repaying their mortgages has risen for the fourth year in a row, to 8 per cent.

This is still well below the level of 15 per cent seen during the early 1990s but, with interest rates almost certain to rise again early next year, it is high enough to cause concern.

Fiona Walsh writes for the Guardian newspaper in London