Having gained the upper hand in the race to acquire Corus with its unexpected 515 pence per share offer, Brazilian company CSN now says it is willing to go even further. More significantly, the company claims it has enough resources to hike its offer to even 600 pence per share if Tata Steel is prepared to battle it out.

Reports quoting unnamed CSN sources claim that the company has built up a war chest of $12 billion to finance the Corus acquisition. Most of the funds are from credit lines offered by Goldman Sachs, Barclays and ING.

BNP Paribas, earlier bragged by CSN as a potential financier to the deal, has not extended any credit facilities as the French bank is rumoured to be unwilling to take the higher risk. CSN is also rumoured to be willing to dip into its own cash resources of around $2 billion, if need be, to ensure that its bid is successful.

It is as yet unclear if CSN's bankers are also willing to back the company for a higher bid for Corus. More debt to finance the acquisition would strain CSN as it already has some amount of debt in its books, unlike Tata Steel, which is debt-free.

Media reports indicate that Tata Steel has not yet decided to walk away from the deal and is working hard on a higher bid. The company has reportedly hired influential investment bank Rothschild as an advisor and analysts now expect a bid in the region of 530 to 550 pence per share of Corus.

For Corus, being acquired by either Tata Steel or CSN would mean a highly leveraged future.

Both bidders are looking at a leveraged buy-out, using credit lines backed by future cash flows of Corus. Most of the Corus assets would have to be pledged to raise the debt or to refinance the bridge loans at a later date. Corus would also need working capital for its own operations. Major rating agencies have already placed Corus on a ratings watch with a possible downgrade if either of the bids is successful.

Meanwhile, Corus Group has recommended the CSN bid at 515 pence per share to its own shareholders.

The CSN bid is conditional on either Corus shareholders rejecting the Tata Steel offer or the Tata Steel offer being withdrawn or being allowed to lapse. The scheme envisages supply of iron ore from CSN's mines in Brazil, which would add up to $450 million in incremental annual pre-tax cash flows for Corus. The scheme also expects additional annual cost savings of up to $300 million from synergies.

Corus has adjourned its proposed shareholders meeting scheduled for 20 December to give more time to both Tata Steel and CSN to work on their bids and Corus shareholders to analyse the bids and arrive at a decision. Corus shares closed at 531.5 pence per share on LSE yesterday, in anticipation of a higher bid from Tata Steel.