Steel maker Corus buys Brazil's CSN

Corus's steel output will rise 28 percent with the purchase of Brazil's CSN

LONDON, England -- Corus Group is buying Brazilian steel maker Companhia Siderurgica Nacional (CSN) in a $4.8 billion deal aimed at cutting costs and strengthening its market position.

The London-based Corus -- currently the world's eighth largest steel maker -- would move into the No. 6 spot with the purchase of CSN. The combined company would also challenge Arcelor for the No. 1 position in Europe.

The merger deal -- expected to be completed in the first quarter of 2003 -- would give Corus a 62.4 percent stake in the new company with the remainder being held by CSN shareholders.

Corus said the deal is expected to increase earnings next year and result in annual cost savings of about $250 million within three years after the merger is finalised.

The company said the purchase of CSN, which produced 5.8 million tons of steel in 2001, would increase its capacity by 28 percent. It would also provide Corus with its own Brazilian iron ore mine, a significant advantage given the increased competition for global iron ore supplies.

"Corus will be one of the most competitive companies and the consolidated financial performance will be a lot better than any of the European companies,'' Yasuhiro Yamaguchi, analyst at investment bank UBS Warburg, told Reuters.

"The steel industry faces a lack of pricing power and over-capacity and it addresses those issues. So we think it's a long-term positive.''

Corus (CS) was down 6.6 percent to 67.25 pence in mid-morning London trading on Wednesday.

The group -- formed in 1999 through the merger of British Steel and Royal Hoogovens of the Netherlands -- has a market capitalisation of £2.2 billion ($3.5 billion). CSN has a market value of about $1.2 billion.

In a complicated arrangement, the merger calls for the creation a new Brazilian-based company, TopCo. CSN shareholders would exchange their shares for TopCo shares, with CSN then buying TopCo in exchange for new Corus shares.

Analysts believe the plan is aimed at preventing Corus shares from flooding the market and reducing their value, which would be the likely outcome if Corus issued its share directly to CSN shareholders.

TopCo will be listed in Sao Paulo and in New York, while Corus will continued to trade in London, New York and Amsterdam.