UK plant threatened after Corus board rejects aluminium sell-off

Corus was in meltdown yesterday, admitting that it may have to come to the City for cash after plans to sell its aluminium business were scuppered. The steel maker revealed it will now make major cutbacks in the UK by shutting plants here.

The company's shares plummeted 64 per cent to just 5p, valuing it at £156m, after Corus said the proceeds from the aluminium disposal were needed to finance its strategy. The money was also key to Corus' current negotiations with its bankers.

Corus shocked British unions and the Government by saying its strategy required closures in the UK, suggesting that thousands of jobs were in danger. The Corus "supervisory" board in the Netherlands has blocked the aluminium deal.

Paul McTaggart, an analyst at Morgan Stanley, said: "Corus [shares] are now being priced for a material risk of insolvency ... it's a right mess and it's not apparent how they will get out of it."

Corus was formed through the merger in 1999 of British Steel with the Dutch company Hoogovens, but there was talks yesterday of the two companies separating. The loss-making UK operations are propped up by the profitable Continental business.

Pascal Spano, an analyst at Deutsche Bank said: "The behaviour of the Dutch supervisory board suggests that plans for a future of former Hoogovens assets outside Corus Group are considered. Otherwise blocking an essential disposal to ease the debt burden of the group seems hard to justify."

Corus employs 26,000 people in the UK. The company has already announced plans to shrink the British workforce to 23,000 by the end of 2004, taking job losses in this country since 1999 to 10,000. Yesterday, it became clear that more jobs would go, with the closure of one of its three main plants, which are in Teesside, Scunthorpe and Port Talbot in south Wales.

An agreement to sell the aluminium business, for £543m to Pechiney of France, was announced by Corus in October. However, to proceed with the deal, it needed the agreement of the supervisory board in the Netherlands, as distinct from the Dutch management board ­ which backed the transaction.

It was announced yesterday that the supervisory board, which consists of three Dutch businessmen and Corus' chief executive Tony Pedder, had vetoed the deal. Mr Pedder was thought to have been out-voted three to one and Corus Group was furious, saying it will now try and get the decision overturned by a Dutch court later this week.

"It is the view of the Board of Corus that the supervisory board has acted irresponsibly and unreasonably in rejecting the [aluminium] sale," Corus said.

Dutch members of the body feared that money from the disposal of aluminium, an asset which came from the Hoogovens side of the business, would be sunk into the UK business. The City had thought the problem could be resolved and analysts said they were surprised by its intractability and the extent to which the issue was being driven by national interest. The latest crisis comes just weeks after Corus had to abandon a £3bn merger with CSN of Brazil.

Corus said: "It is clear that Corus' UK losses have got to be reversed and, given the economic outlook, this will inevitably lead to significant further capacity reductions and concentration of operations on to fewer sites."

The company said it had decided on the UK cuts anyway. The opposition in the Netherlands means that, unless the court judgment goes its way, Corus said it will not have the resources to pay for the UK restructuring and will have to find the money elsewhere. It is thought that Corus is looking for £400m.

Corus is already in talks with its banks to renew its credit facilities, currently of £1.2bn, but it is thought that the lenders are looking to reduce the level of borrowing, which would have been possible with the aluminium disposal. Raising money from the equity markets was being seen as near impossible.

Charles Kernot, an analyst at BNP Paribas, said: "Shareholders may take the view that Corus is a bottom-less pit."