Anglo-Dutch steel group Corus has pulled out of a merger with Brazilian flat steelmaker CSN due to what Corus describes difficult world economic conditions.
“Despite the strong strategic rationale for the merger, ongoing uncertainties in the global business environment and the financial markets have led the board to conclude that the transaction cannot be completed as envisaged at this time and therefore it has decided to terminate the proposed transaction,” Corus declares in a statement.
Among the reasons listed for ending the proposed US$3bn merger included the difficulty that Corus had in obtaining financing to carry out the stock-swap deal, the volatility of
“The global appetite for risk has fallen dramatically in recent months, and banks remain more resistant to extend loans to this type of operation,” Corus spokesperson Mike Hitchcock adds.
The announcement comes as a blow for Benjamin Steinbruch, president and CEO of the Rio de Janeiro-based steelmaker, according to some analysts. The merger with Corus would have allowed CSN to improve its access to the European steel market while gaining access to cheaper capital. Steinbruch would have been second-in-command of the combined group through his control of the largest block of shares in the enlarged company.
The deal was announced on July 17, and would have created a company with installed capacity of 24mt/y of crude steel and annual revenues of US$14bn. Corus shareholders would have held 62.4% of the group and CSN shareholders the rest, via a new Brazilian-listed holding company.
The prices of Corus shares began to decline after the announcement of the merger and downturn in the Brazilian economy, which has seen the real currency lose 60% of its value this year. Even so, industry specialists said the move to integrate with the Brazilian mill was smart, especially given the possibility of access to CSN’s Casa de Pedra iron ore mine, in Minas Gerais state.
If the merger had received the green light from creditors and regulators, which was still pending, the group had planned to invest US$300mn to expand Casa de Pedra’s output from 12mt/y to 30mt/y.
Over the past few months, rumours had surfaced that Corus was going to back out of the deal, although spokespersons from both companies had continued to deny the reports until Wednesday’s announcement. In a separate statement issued the same day, CSN claimed that it rather than Corus had put an end to the merger agreement.
CSN is one of Brazil’s largest producers of flat steel, with installed capacity of some 5mt/y. Combined with Corus, it would have become part of the world’s fourth or fifth biggest steel group.