Steel maker Corus buys Brazil's CSN

LONDON, July 17 (Reuters) -- Anglo-Dutch steel maker Corus Group Plc unveiled a $4.8 billion deal to buy Brazilian peer Companhia Siderurgica Nacional (CSN) on Wednesday in a move set to cut costs and pressure its rivals.

The proposed merger would lift Corus into the world's top six steel producers from eighth spot at present, analysts said. It would also give the enlarged firm its own Brazilian iron ore mine at a time when global iron ore supplies are tightly held.

CSN shareholders will hold 37.6 percent of the enlarged group, representing a fat premium. On the eve of the deal's agreement, CSN was worth $1.16 billion, or about 24 percent of the combined market values of the two firms at that time.

Corus said the deal -- expected to complete in the first quarter of 2003 -- will likely enhance earnings next year, and would result in annual cost savings of around $250 million by the end of the third full year.

"The boards of Corus and CSN believe that the fundamentals of the proposed merger are robust, despite recent market volatility,'' the firm said in a statement.

Shares in Corus were trading 4.1 percent, or three pence, lower at 69-1/2 by 0815 GMT, giving the company a market capitalisation of around 2.2 billion pounds ($3.5 billion).

Steel analysts said the deal would push Corus's production closer to Europe's largest steel maker, Arcelor, and leave Corus with a lower cost base.

"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,'' said Yasuhiro Yamaguchi, analyst at investment bank UBS Warburg.

Voting rights capped

"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, Yamaguchi said.''

Steel makers around the world have become anxious about the bulk of the world's iron ore supplies being controlled by a handful of companies, such as Brazil's Cia Vale do Rio Doce (CVRD) and Anglo-Australian miners Rio Tinto Plc/Ltd and BHP Billiton Ltd/Plc.

Corus said much of the possible savings would come from sourcing iron ore from CSN's Casa de Pedra mine, which it envisaged expanding to annual capacity of around 30 million tonnes.

The merger will happen in two steps -- CSN shareholders will exchange their existing shares for shares in a new Brazilian listed holding company TopCo. Then Corus will acquire CSN from TopCo in exchange for new Corus shares, representing 37.6 percent of Corus's enlarged share capital.

The deal restricts TopCo shareholders' voting rights to 29.9 percent and controls the amount of Corus shares they can sell. The creation of TopCo is viewed as a way of preventing Corus shares flooding the market -- a real prospect had Corus simply issued its shares directly to CSN's Brazilian shareholders.

TopCo will be listed in Sao Paulo and in New York. Corus will remain listed in London, New York and Amsterdam.