Steel works threatened by merger

MEMBERS OF the Welsh Assembly may ask competition authorities in Brussels to investigate a proposed merger between British Steel and Hoogovens, the Dutch steelmaker.

Rhodri Morgan, the Assembly's industrial development secretary, said yesterday the deal, whose details are due to be announced this morning, inevitably posed a threat to the future of the British Steel works at Llanwern and Port Talbot in South Wales. "We will ask the competition authorities in Brussels to look at whether there is a case for referral," he said.

British Steel would not comment yesterday on the merger terms. It is believed that no plant closures were involved but unions fear the deal could imply several thousand additional job cuts on top of the 10,000 redundancies over the next two years already agreed with British Steel. With losses likely to reach pounds 200m this year as a result of the strong pound, the company is seeking savings of around pounds 200m a year from the merger.

Mr Morgan said: "I don't see how you get cost savings of that much just from closing down the odd warehouse. We want to know what is the commercial logic of this deal." The merger will be debated in the Assembly tomorrow. The two South Wales plants, both of which which make flat-sheet steel, have borne the brunt of corporate cost-cutting so far. The fact that its output is largely UK-based is what has made British Steel, one of Britain's biggest exporters, so vulnerable to the strength of the pound.

Hoogovens has an ultra-efficient low-cost flat steel plant at Ijmuiden in the Netherlands which is the same size as the South Wales steelworks put together. Mr Morgan said what suited British Steel was the fit between this Dutch site, which already exported all over Europe, and its English works at Scunthorpe and Redcar.

"You have to ask where does that leave the Welsh part of British Steel," he said. Any closures or job cuts in Wales will be all the more controversial as the merger is expected to return up to pounds 600m to shareholders through a special dividend or share buyback, somewhat more than initially expected.

The share prices of both companies have made large gains during the past week. John Bryant, the chief executive of British Steel, is expected to share the top job at the merged company with Fokko van Duyn, his Dutch counterpart. There is speculation the company will drop the "British" from its name. It will be the world's third biggest steelmaker after Posco of Korea and Nippon Steel of Japan, with sales of around pounds 10bn a year and 70,000 employees.

British Steel executives are due to meet union leaders tomorrow to discuss the implications of the merger - in effect a takeover of Hoogovens, which has annual sales about half the size of British Steel's and a stockmarket value just over a quarter of its partner's. Michael Leahy, general secretary of the main steel union, the Iron and Steel Trades Confederation, said yesterday: "The merger need not result in any plant closures. British Steel is already a fit and lean company and is one of the most productive and profitable in the world."

Denis MacShane, chairman of the steel group of MPs and Labour member for Rotherham, said it was not inevitable that jobs would be lost. "Anyone with any interest in the future of British Steel must welcome the fact that the company has got a serious partner in a major EU country," he said. "There obviously are staffing implications for British Steel and it is necessary that this is handled with a great deal of sensitivity."