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. Last Updated: 07/27/2016

Deal Forms 3rd-Largest Steelmaker

LONDON -- British Steel PLC and Dutch metals producer Koninklijke Hoogovens NV announced Monday that they plan to merge in a pounds 4 billion ($6.4 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 14.5 billion euros ($14.9 billion) a year and a market capitalization of 4.6 billion euros.

British Steel shareholders will also get a cash payment of 35 pence (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.

Analysts say British Steel's move has been prompted by the effect of the British pound's strength against the beleaguered euro. The deal will allow the company to shift some of its cost base to Europe.

"It does mean that we have a manufacturing platform in Europe and for our customers point of view, who increasingly look to be served on an international basis, that we've got that platform to provide them with it,'' British Steel Chief Executive Officer John Bryant said on BBC radio in an interview.

Shares in British Steel have rallied in recent days in expectation of the bid announcement.

The merger comes amid tough times for Western steel producers with relatively high fixed costs.

Koninklijke Hoogovens' net profit fell 17 percent in 1998 to $196.7 million, due largely to lower steel prices and increased competition from companies in Asia and Eastern Europe.

British Steel posted a net profit of $364.5 million for the year ending March 28, 1998, down 27 percent from the previous year.