Anglo-Dutch steelmaker Corus has agreed in principle to merge with Brazilian firm Companhia Siderurgica Nacional.

The proposed tie-up, which takes the form of an exchange of shares, would give Corus, formerly British Steel, access to cheap Brazilian iron ore.

The potential merger is about creating growth for both companies, so it is not a jobs story

Corus spokesman

Under the terms of the proposed deal, Corus shareholders would hold 62.4% of the enlarged group, with Companhia Siderurgica Nacional (CSN) holding the remaining shares.

The tie-up is aimed at achieving annual savings of $250m, although these are set to be achieved through lowering raw material bills rather than laying off staff.

A spokesman for Corus, which cut thousands of jobs last year, said that no posts were threatened by the deal.

"The potential merger is about creating growth for both companies, so it is not a jobs story," he said.

New force

The combination of the two firms would bring together one of Europe's market leaders in carbon steel with one of the world's lowest cost steel producers.

It would create a transatlantic steel giant with annual production of about 23 million tonnes.

"This combination with one of Brazil's leading steelmakers, CSN, is a further major step in focusing the Corus group around a strong international carbon steel operation," said Corus chief executive Tony Pedder.

A Corus spokesman added: "Access to high quality low cost iron ore should make our steel works more competitive - which is good news for employees and the company, and shareholders."

City reaction

But analysts reacted cautiously to the tie-up, which exposes Corus to, in Brazil, a country deemed at increasing risk of economic instability.

Rating agency Moody's said it had placed Corus's bonds on review for potential downgrade.

And Corus shares topped the FTSE 100 losers' board on Wednesday morning, standing down 79% at 66.75p at 0954 GMT.

But analysts at UBS struck a more optimistic note over the potential for the shares.

"Longer-term we are positive on the deal due to the merger synergies and restructuring potential," UBS said.

Reshuffle

The proposal ends weeks of speculation surrounding the two companies.

Sir Brian Moffat plans to retire in 2004

Completion of the merger, which is subject to approval by shareholders and regulators, is expected during the first quarter of 2003.

Mr Pedder said that no regulatory problems are expected.

Following the deal, Sir Brian Moffat would continue as chairman of Corus, and Tony Pedder remain chief executive.

Sir Brian is, however, planning to retire by April 2004, and would be succeeded by CSN chairman and chief executive Benjamin Steinbruch.

Tough market conditions

The merger with CSN would shore up Corus' global position, helping to offset the impact of steel import tariffs imposed by the US earlier this year.

Earlier in July, the US Commerce Department said it had put off a decision on which foreign steel companies would gain a partial exemption from the tariffs.

Corus, created three years ago by a merger between British Steel and Dutch steel producer Hoogovens, made a �462m ($701m) loss in its latest financial year, blaming the economic slowdown and global overproduction.

Three months ago, it announced plans to sell off its profitable aluminium business as part of a drive to refocus on its core steel operations.

It is also planning to sell its stainless steel division Avesta.

Corus is mid-way through a round of redundancies, having announced plans to axe about 12,000 jobs last year.