The battle for Corus is being keenly watched by global steel giants to see who emerges as a potential new challenger to them.

Global steel companies are keenly watching the outcome of the bidding war between Tata Steel and CSN for Corus Group. The winner would emerge as the world's fifth-largest steel producer - and a very formidable one with control over rich iron ore reserves and presence in the fast expanding emerging markets.

No wonder, the speculation in industry circles about other large players trying to influence the outcome of the bidding war to ensure that the final denouement is more to their liking.

Indications are that some major steel manufacturers would prefer CSN gaining control over Corus rather than Tata Steel. Though CSN controls some of the richest iron ore mines in the world and is a major stakeholder in CVRD, the largest exporter of iron ore and pellets globally, it is more of a one-man show, which is already stretched financially. Chairman Benjamin Steinbruch is highly ambitious and has been facing some resistance from his consortium partners over the high financial leveraging.

The formidable Tata Group, on the other hand, backs Tata Steel. The company has hardly any debt and the group has access to enough financial resources to bankroll all its future ambitions. The group is professionally run and also has strong presence in sectors like automobiles, which are large steel consumers.

It has been speculated in global steel circles that Arcelor-Mittal, the world's largest steel maker, is backing CSN. Industry observers believe that No.1 steel maker would prefer CSN to acquire Corus rather than Tata Steel.

Tata Steel has very large greenfield expansion plans and, if successful in its Corus bid, the company would emerge as a very formidable competitor to Arcelor-Mittal over the next decade. L N Mittal who heads Arcelor-Mittal has denied these rumours. "We are not providing any backing, financial or otherwise, to CSN in its bid to acquire Corus," an Arcelor-Mittal spokesperson was quoted as saying.

Unless there is a government-sponsored consolidation of the Chinese steel industry, Arcelor-Mittal would continue to dominate global steel industry in the foreseeable future.

Other large players like Nippon Steel, JFE and Posco are unlikely to come together as a single entity though they have crossholdings in each other. They also lack control over vast iron ore reserves.

Russian manufacturers have access to raw material and are very ambitious, but they face higher political risks and instability at home. There are doubts about their ownership structures, which may prevent access to more capital from international markets.

Meanwhile, there are some speculative hints of a possible three-way merger between Tata Steel-Corus-CSN. The Corus management is rumoured to be behind this move as the company would gain enormously from an alliance with two emerging market manufacturers with access to sufficient raw material.

If such an eventuality does indeed fructify, the combined entity may become the world's third-largest steel manufacturer, behind Arcelor-Mittal and Nippon Steel. However, most analysts believe that this move would fail as neither Tata Steel nor CSN are likely to agree to a secondary role in a merged entity.

CSN's backers increase their stake
UBS, one of CSN's bankers financing its Corus bid, has meanwhile increased its stake in Corus to more than 10 per cent and has become the single-largest shareholder. CSN holds 3.8 per cent of Corus through a subsidiary while CSN's other investment bankers and advisors like Barclays and Goldman Sachs hold almost another 10 per cent between them.

Put together, CSN and its bankers and advisors now have a combined stake of around 23 per cent in Corus. Though it is possible that the holdings by bankers and advisors could be part of their fund management business and not connected to their advisory role in the Corus acquisition, such large stakes would definitely give an upper hand to CSN in the bidding war. Institutional shareholders now hold a combined 90-per cent stake in Corus while the remaining 10 per cent is with small individual shareholders.