LONDON -- British Steel PLC and Dutch metals producer Koninklijke Hoogovens NV announced Friday they plan to merge in a $6.5 billion deal that will create the world's third largest steelmaker and Europe's biggest.
The British company, which has sales nearly double those of Hoogovens, is to take a 62 percent share in the new group, which would have sales worth $14.9 billion a year.British Steel shareholders will also get a cash payment of 56 cents per existing share from the new company upon completion of the deal.
The deal must be approved by regulators and by the companies' shareholders. If approved, shareholders of both companies will receive stock in the new company, initially to be called BSKH.
The board of BSKH is to be chaired by Sir Brian Moffat of British Steel, while the role of chief executive will rotate between Hoogovens and British Steel.
Shares in British Steel have rallied in recent days in expectation of the bid announcement. But the company's stock fell 6 percent in early trading Monday. In Amsterdam, Hoogovens' share price was up 1.3 percent from Friday's close.
The proposed merger marks a major turning point in the life of one of Britain's best-known businesses. British Steel was once symbolic of the country's uncompetitive industries and the strained relations between its managers and labor unions.
Privatized in 1988, British Steel now employs fewer than 40,000 people in Britain, compared to 250,000 in the 1970s.
Analysts say British Steel's decision to merge was prompted partly by a downturn in demand caused the lingering financial crisis in Asia. Steelmakers have high fixed costs, and even a slight reduction in sales can threaten profitability.
In addition, analysts say the British pound's persistent strength against the euro influenced the move. The strong pound makes British-made steel more expensive than competitors' steel denominated in euros. The merger would let British Steel shift some of its production costs away from Britain.
"It does mean that we have a manufacturing platform in Europe," British Steel chief executive John Bryant told the British Broadcasting Corp. in a radio interview. "For our customers . . . who increasingly look to be served on an international basis, . . . we've got that platform to provide them with it."
Falling prices, cheap imports and overcapacity have prompted Europe's steelmakers to embark on a spate of mergers in recent years.