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Usinor forges steel merger
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February 19, 2001: 9:43 a.m. ET
France's Usinor and two European steel makers sign merger agreement
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LONDON (CNN) - France's Usinor agreed on Monday to buy rivals Arbed and Aceralia for $3.1 billion, creating the world's biggest steel maker.
The combined group would produce some 46 million tons of steel a year, nearly double the size of each of the two biggest companies, South Korea's Pohong Iron & Steel and Japan's Nippon Steel.
 Usinor, which recently signed a accord with Nippon Steel, has been looking to grow internationally to catch up with the global nature of its customers, such as carmakers and domestic appliance manufacturers.
"This will create a huge power and will result in further consolidation in Europe and Japan," Yasuhiro Yamaguchi, analyst at UBS Warburg, told CNN.
Yamaguchi said Usinor also has a technology agreement with Pohong, which means the top three steel companies produce some 100 million tons of steel, controlling 15 percent of the world market. "That will put pressure on other producers for some kind of (merger) action."
Other analysts said Germany's ThyssenKrupp and Anglo-Dutch Corus Group are candidates for a merger.
"The industry has suffered from fragmentation for a long time," Yamaguchi said. "The new company will have pricing power over customers and raw material suppliers."
Spain's Aceralia has a market value of  1.39 billion ($1.3 billion), while Luxembourg's Arbed currently has a total capitalization of 847 million. The total market value of the merged company would be about $5 billion, the companies said.
Shares in all three companies have been suspended since Thursday, ahead of the announcement.
The deal, effectively a takeover by Usinor, means Acerali shareholders will receive a 44 premium, while Arbed shareholders will get a 64 percent premium.
Under the terms of the agreement, Acerali shareholders will receive eight shares in the new company for seven shares they currently hold, valuing the shares at 16.06. Acerali closed at 11.13.
Arbed investors would get 10 new shares for each one share held, worth about 140.5, a 64 percent premium to Thursday's close, while Usinor shareholders would get one new share for each one held.
The deal means Acerali shareholders will own 20.1 percent of the new company, Arbed investors will get 23.4 percent and Usinor will represent 56.5 percent of the merged entity.
Together the companies will have annual revenues of about 30 billion, the trio said, and expect the deal to generate cost savings of about 300 million annually by the end of 2003, and an estimated 700 million by 2006.
The new company, which employs about 110,000 people around the world, will be headquartered in Luxembourg, and will be listed on the Paris, Brussels, Luxembourg and Madrid stock exchanges. 
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