Corus in £2.7bn deal to buy Brazil steel maker

The Anglo-Dutch steel maker Corus yesterday unveiled a £2.7bn deal to buy one of Brazil's leading steel makers in a move which will catapult it into the ranks of the world's top five producers.

Corus, which was created through the merger of British Steel and Hoogovens of the Netherlands three years ago, plans to issue £1.3bn in new shares to fund the takeover of Companhia Siderurgica Nacional (CSN), Brazil's number four steel maker. It is also taking on £1.4bn in debt.

The price represents an 87 per cent premium to CSN's stock market value and prompted some analysts to question the amount Corus is offering to pay. The two debt rating agencies Moodys and Standard & Poor's also put Corus on credit watch.

The combined company will have a market capitalisation of £3.5bn, sales of about £9bn, liquid steel production of 23.5 million tonnes and a workforce of 62,000 spread across the UK, the Netherlands and Brazil.

The takeover, provided it goes through, will give Corus access to cheap supplies of iron ore and flux produced at mines owned by CSN. Corus said this would be the principal source of the $250m (£159m) in cost savings it expects from the takeover. Corus intends to invest $300m to triple CSN's output of iron ore.

Tony Pedder, chief executive of Corus, insisted that the takeover would not lead to a fresh round of redundancies on top of the 10,000 jobs the group has shed in the past two years. "This is not a job loss story. This is about the growth of Corus and the strengthening of the group," he said.

Under the terms of the deal Corus shareholders will emerge with 62.4 per cent of the enlarged company and CSN shareholders 37.6 per cent. CSN will appoint three directors to the board of Corus, including Benjamin Steinbruch, its chairman and chief executive. Mr Steinbruch, a member of one of two Brazilian families who own 46 per cent of CSN, will take over as chairman of Corus when Sir Brian Moffat retires in April 2004.

At this stage Corus and CSN have only entered into a non-binding heads of agreement to merge and there is no penalty fee to be paid if either side backs out. The deal is not due to be voted on by Corus shareholders until the first quarter of next year.

This would give Corus plenty of time to pull out or to renegotiate the terms of the deal should the Brazilian economy collapse any further or should there be a change in government policy. Luiz Inacio de Silva, or "Lula" as he is known, the leader of Brazil's Workers' Party, is favourite to win this October's elections ­ a prospect which has spooked the world's capital markets.

Mr Pedder said he believed the deal was a "fundamentally robust transaction". But he added: "Clearly there is volatility all around us and clearly we have got to keep an eye on all these factors."

Months of speculation in the Brazilian press about a bid for CSN culminated in a statement from Corus earlier this month confirming that it was in merger talks.

Under the deal a new company called TopCo will be created to hold CSN's stake in Corus. TopCo's voting rights will be restricted to 29.9 per cent and it will be restricted to selling a maximum of 6 per cent of its shares each year for the next five years.

Corus shares fell 3 per cent to 70p while CSN shares rose by 15 per cent on the Brazilian stock market.