Corus shares dive as £2.7bn offer for CSN is abandoned

Michael Harrison,Business Editor
Thursday 14 November 2002 01:00
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Shares in Corus plunged yesterday after the Anglo-Dutch steel maker scrapped its £2.7bn takeover of the Brazilian steel company CSN and warned of a downturn in its UK and European markets.

Corus had been under mounting pressure to ditch the all-share deal with CSN for some time but the actual decision to withdraw from the takeover led to a welter of claim and counter-claim.

The Brazilians maintained they were the ones that had decided to cancel the merger agreement after taking a look at the books of Corus and concluding that the numbers did not add up.

But a Corus spokesman responded by saying: "That is absolutely not the case. At no time did CSN approach us to say that they were cancelling the merger."

Corus shares fell 27 per cent on the announcement. Industry sources said CSN's claims were a "face-saving exercise" designed to placate its own shareholders and soften the blow of the collapse of the merger.

The takeover of CSN would have catapulted Corus into the ranks of the world's top five steel makers, creating a group with sales of £9bn and liquid steel production of 23.5 million tonnes. Corus also said it would have generated $250m of cost savings, mainly by giving it access to cheap iron ore reserves owned by CSN.

The board of Corus met on Tuesday morning and decided to ditch the takeover and the chairman, Sir Brian Moffat, telephoned his opposite number at in Brazil, Benjamin Steinbruch, later that day to break the bad news.

Corus said it had decided to abandon the deal, which was first announced in July, because of "ongoing uncertainties in the global business environment and the financial markets". It said the election victory in Brazil earlier this month of a left wing workers' party had not been a major factor in the decision.

A spokesman added that the strategic rationale for the deal remained strong. But in the end the board decided not to proceed because of the deterioration in both the global economy and the Brazilian currency since July and the fact that financial markets had become more risk averse.

The damage to the share price was done by a simultaneous warning from Corus that the pace of recovery would not be as quick as the company forecast at the time of its half-year results in September. Corus said it now expected to make an operating loss of about £152m for the second half, bringing the operating loss for the year to about £400m. Although analysts' forecasts varied widely, the market consensus was that full-year losses of about £300m.

Corus said demand for steel in the UK and Continental Europe was lower than expected, particularly for semi-finished products such as coated steels and profiled sections, putting a squeeze on the profitability of its downstream operations.

It also warned that beyond the first quarter of next year, the outlook was uncertain and the pace and timing of economic recovery and demand difficult to predict.

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