* All-share deal offers 20 pct premium for Rautaruukki
* Rautaruukki shares jump 34 pct, SSAB up 13 pct
* Steel market struggling with weak global demand
* Analysts see risk of antitrust issues
(Adds comments from chairmen, analyst and politician)
By Jussi Rosendahl and Sven Nordenstam
HELSINKI/STOCKHOLM, Jan 22 Swedish steelmaker
SSAB has agreed to buy Finland's Rautaruukki Corp
for $1.6 billion as a prolonged downturn in demand
forces Europe's smaller players to cut costs and deal with idle
After racking up combined losses of more than 400 million
euros ($542 million) over the past five quarters, the Nordic
rivals sealed a combination that had been discussed on and off
for decades and was given urgency as steel demand declined.
SSAB was among the world's top 40 steel producers in 2010
but rival mergers, soaring Chinese demand and a sluggish
European market pushed it out of that group in 2012.
"These kinds of periods of crisis have the advantage that
what was impossible becomes possible," said SSAB Chairman
Sverker Martin-Lof, who also chairs the company's biggest
investor, holding company Industrivarden.
Rautaruukki chairman Kim Gran said he initiated negotiations
soon after being appointed to the company's board in 2012. "I'm
sure the idea has been alive for very long... But I guess it was
me that first took the contact to Sweden, and that's where it
started off," Gran, also the chief executive of winter tyre
maker Nokian Renkaat, told Reuters.
Shares in both companies soared after they announced the
all-share deal, representing a 20 percent premium to
Rautaruukki's closing price of 6.89 euros on Tuesday and valuing
the firm at 10.1 billion Swedish crowns ($1.6 billion).
They plan to cut their combined workforce of more than
17,000 by about 5 percent, mostly in Sweden and Finland, helping
lower costs by up to 1.4 billion crowns, and to focus the new
business on specialty steel products - where profits are less
volatile than in commodity carbon steel.
The companies' executives said the geographic and cultural
proximity of the two Nordic companies would help smooth the
merger of the former rivals.
"It's a great and overdue step of consolidation in the
Nordic steel industry. And if there are any price increases they
will come from the better leverage these companies will have on
their customers," said stainless and special steel consultant
Markus Moll at SMR.
Others also said the company may be able to cut more than
1.4 billion crowns.
"The synergies they mention are quite conservative because
they don't take into account the capital expenditure saving
potential and the sale of non-core assets," said Kepler
Cheuvreux analyst Joakim Ahlberg.
Steel consumption in the European Union fell by about 4
percent last year and was around 30 percent below a 2007 peak.
World consumption, by contrast, rose by about 3 percent in 2013
and was some 20 percent higher than in 2007.
European demand for construction steel has fallen especially
hard, notably in southern Europe. The world's largest
steelmaker, ArcelorMittal, with about 45 percent of its sales in
Europe, has responded by idling blast furnaces and permanently
shutting some facilities, such as those in Liege, Belgium.
The Rautaruukki deal offers a way forward for SSAB's main
owner Industrivarden, which has seen the value of its
investment halve over the past three years while the broader
Swedish share index rose by 20 percent.
The deal, including debt, would value Rautaruukki at 0.8
times expected 2013 sales. That compares with a multiple of 0.5
for ArcelorMittal, according to Thomson Reuters data.
The companies said they expected the exchange of Rautaruukki
shares for new SSAB stock to begin in late April or early May.
The new company would have its primary listing in Stockholm but
will apply for a secondary listing in Helsinki.
Rautaruukki shares soared 34 percent to 9.215 euros by 1616
GMT on Wednesday, while SSAB A-shares rose 13 percent to 54.90
crowns on optimism that the tie-up will allow the companies to
cope with volatile prices and further depressed demand.
The rise in SSAB shares meant the value of the bid increased
to $1.8 billion. The combined market capitalisation of the two
companies rose by some $780 million to $4.4 billion.
The sector has been struggling since 2008, although
ArcelorMittal has become slightly more upbeat and prices have
risen a little ST-CRU-IDX in recent months.
Rautaruukki, established in 1960, and SSAB, created in a
three-way merger in 1978, have vied for decades in specialty
steel products, also competing with the likes of Salzgitter
, Germany's second-biggest steelmaker.
The new company will have facilities in Sweden, Finland and
the United States with combined annual capacity of 8.8 million
tonnes. That is still small compared to ArcelorMittal, which can
produce 119 million tonnes.
The top investors in SSAB and Rautaruukki hailed the deal,
in which SSAB would exchange 0.4752 class A share and 1.2131
class B shares for each Rautaruukki share. Some of SSAB's main
banks have committed to financing the new company, they said.
Finnish state investment fund Solidium, Rautaruukki's main
shareholder with a 39.7 percent stake, will be the biggest
investor in the new company by number of shares, while
Industrivarden will lead in terms of votes.
SSAB's Martin-Lof also hinted at more deals ahead, saying
the merged company would be in a stronger position for further
consolidation. "If we want to do something more later in the
Europe, it is better we are together... We have to be active and
keep an eye what's going to happen," he told Reuters.
SSAB CEO Martin Lindqvist said he did not foresee major
antitrust issues. But some analysts warned of possible
complications, citing stainless steel maker Outokumpu's
2012 acquisition of ThyssenKrupp's Inoxum
unit. Much of that deal was reversed after authorities demanded
the sale of a large mill as a condition for its approval.
Antti Viljakainen, analyst at Inderes Equity Research, said
the combined market share of SSAB and Rautaruukki in the Nordic
region may be very close to the Commission's preferred limits.
"If the authorities were to step in, I guess SSAB would
cancel the whole deal instead of agreeing to sell some key
assets," said Viljakainen.
Finnish union leaders said the deal could help lessen
uncertainty at Rautaruukki, while calling on the government to
Opposition politicians, however, criticised the government,
led by the conservative National Coalition party, for allowing
another Finnish firm to be sold off - a sensitive subject
following the sale of Nokia's handset business to
"Once again a remarkable piece of Finnish industry is given
into the hands of foreigners," said Reijo Tossavainen, a member
of opposition party The Finns.
(Writing by Ritsuko Ando; Additional reporting by Silvia
Antonioli in London, Johannes Hellstrom, Niklas Pollard and
Bjorn Rundstrom in Stockholm, and Philip Blenkinsop in Brussels;
Editing by Mark Heinrich)