Cardiff-based ASW said there would be job cuts from the £40m deal for Kent-based Co-Steel Sheerness but declined to give further details.

ASW employs 2,800 staff at its three Cardiff mills while the Sheerness plant, based on the Isle of Sheppey in Kent, has 580 workers.

A spokeswoman for loss-making ASW said: "There will be job losses eventually but the company will tell staff first. There is no confirmation of figures yet."

ASW hopes the takeover will cut costs and boost profits

Sheerness, which was formed in 1972, is based on the Isle of Sheppey in Kent and is one of the largest mini steel mills in Europe.

ASW is smaller than Sheerness and the move is classed as a reverse takeover under Stock Exchange rules.

George Duncan, chairman of ASW, said: "The acquisition of Co-Steel Sheerness presents a unique opportunity to create a position of product market leadership in the UK.

"This transaction also provides the opportunity for rationalisation which will transform the cost structure of the enlarged group, which is already one of the most competitive steel producers in Europe."

The deal is backed by complex financing from venture capital company Candover Partners.

There will be a share offer to raise £17m while Candover will provide a £29m loan which is convertible into shares.

This could leave Candover holding up to 54% of the enlarged company.

The group will use some of the money raised to pump £14.5m into its ailing French subsidiary SAM.

Shares suspended

ASW shares were suspended on the stock market earlier this week when it announced a reverse takeover could take place.

Stocks will be relisted once its proposals have been approved and the takeover completed.

Stockbroker Albert E Sharpe will underwrite part of the share offer.