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Thursday, June 3, 1999 Published at 20:37 GMT 21:37 UK

Business: The Company File

Steel mega-merger on cards

The steel industry has been suffering from lower prices

Unions and shareholders are pressing British Steel for more details of its talks with a Dutch rival about a merger which could create Europe's largest steelmaker.

Bob Jones of 'Metal Bulletin': "Deal has been kept very quiet"
British Steel's shares rocketed on Wednesday afternoon after it said any deal with Koninklijke Hoogovens would be accompanied by "a return of value" to its shareholders.

During Thursday's trading, though, British Steel shares hardly moved, gaining just 0.25 pence.

The details of the merger plan should become much clearer by Monday at the latest, when British Steel plans to release a fuller statement.

[ image: Shares in British Steel rocketed after merger talks were confirmed]
Shares in British Steel rocketed after merger talks were confirmed
Although there have been widespread predictions of job losses, Bob Jones, from Metal Bulletin magazine, said on Thursday morning that estimates of large redundancies in the UK as a result of the merger were unlikely.

He said British Steel was already in the process of shedding 12,000 jobs and had other, more pressing reasons, for a tie-up which gives it a link to continental Europe.

"British Steel desperately needs a foothold in Europe. It has been clobbered by the strength of sterling," said Mr Jones.

Susan George: "The Anglo-Dutch tie-up will creat a giant"
Its shares have been rising solidly since weekend reports claimed that it was in talks with a number of parties, one of which was said to be Hoogovens.

They eventually closed up 28p at 161.75p on Wednesday - a jump of 21%.

Analysts have been expecting some sort of partnership or takeover for a while as British Steel's profits have been hampered by the Asian economic crisis, the strong pound and severe pricing pressures.

"It would be a great deal because they're both looking for larger scale," said analyst Geert Jan Hoppers of Dutch broker Stroeve.

Alan Coats of Merrill Lynch: "Together they'll make a big force in Europe"
"Both have been suffering from lower steel prices," he added.

Steel giant

A British Steel-Hoogovens tie-up would create a giant in the steel industry.

British Steel is already the world's sixth largest steel producer, employing 50,000 staff worldwide, while Hoogovens is one of Europe's biggest, with 22,000 employees.

[ image: Unions are worried about what the deal might mean for job security]
Unions are worried about what the deal might mean for job security
British Steel is undergoing a major cost-cutting programme which is expected to see between 12,000 and 14,000 job losses by 2001.

The combined company would have a turnover of around £10.86bn.

Its combined output levels would make it the world's third largest steelmaker.

At current stock market prices the company would have a combined market capitalisation of £3.59bn.

British Steel's shares are worth £2.65bn, while Hoogovens is valued at £937.5m.

Mr Hoppers explained: "Companies always talk about mergers, but this would be a take over of Hoogovens by British Steel."

Job fears

Ken Jackson, general secretary of the Amalgamated Engineering and Electrical Union said: "Clearly, we are waiting for a fuller statement by next Monday.

"We will be having urgent discussions with British Steel to safeguard employment security for our members in the event of a merger."

The union said while British Steel employs around 40,000 staff directly in the UK, 50,000 to 70,000 British jobs rely on it for supply contracts and other associated work.

Its main sites are in Teesside, Port Talbot in South Wales and Scunthorpe.

Michael Blogg, analyst at stockbroker CCF Charterhouse, said the deal would be unlikely to change the jobs outlook.

He said: "British Steel is already undergoing a major job-cutting programme. I can't see how this will accelerate that.

"These are two of the most productive steel companies in Europe and it is not obvious where they will be able to make big savings."

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