STOCKHOLM (AP) — The Swedish steel company SSAB AB made an offer Wednesday to buy Finnish company Rautaruukki Oyj for 10.2 billion Swedish kronor ($1.6 billion) to create a combined Nordic producer of high-strength steel.
SSAB said the boards of the two companies have agreed on the merger and the two largest shareholders in SSAB and Rautaruukki support the deal. The offer represents a premium of 20 percent to the average Rautaruukki share price in the last three months.
The new company, based in Stockholm, will have around 17,500 employees and annual steel production of 8.8 million tons from facilities in Sweden, Finland and the U.S. Shares in SSAB surged by 15.2 percent to 55.85 kronor ($8.6) on the Stockholm stock exchange after the announcement.
SSAB said the merger would create annual cost synergies of up to 1.4 billion kronor ($216 million) and that it plans to cut staff by about 5 percent, representing 875 employees, over a period of three years. SSAB's chief executive, Martin Lindqvist, will lead the new company, while the head of Rautaruukki, Sakari Tamminen, will retire.
The acquisition comes as the global steel industry struggles with decreased profitability amid overcapacity, falling steel prices and lower demand. SSAB said the merger creates the "best possible conditions for the two companies to secure a future with long-term profitability in their Europe-based operations."
"In the steel industry, a combination of SSAB and Rautaruukki has for long been considered logical and the time is now right to pursue this transaction," said the chairman of the board of SSAB, Sverker Martin-Lof.
The deal is subject to clearance by regulatory authorities and is expected to close in April or May.