Corus urged to drop deal with 'Devil'

ANGLO-DUTCH steelmaker Corus is facing fierce City opposition to its planned £3bn merger with Brazilian steel maker CSN, with key shareholders calling for the deal to be abandoned or - at the very least - heavily renegotiated.

They are planning to block the merger proposal, arguing the slump in the value of the Brazilian currency, the real, since it was agreed in July and the poor reputation of CSN chief Benjamin Steinbruch make the merger terms unacceptable.

Two of Corus's biggest institutional shareholders also told the Evening Standard that they feared the combined group was about to be drawn into a lengthy court battle with a Brazilian mining giant over an iron ore deal that is crucial to the viability of the merged company.

There are also huge fears about Steinbruch, nicknamed 'The Devil' in Brazilian business circles, who is set to become chairman of the merged group in 2004. 'The prospect of that man becoming chairman of a British Plc scares the daylights out of me,' one fund manager said. 'This is a non-binding agreement so Corus can just walk away and that's what they ought to do.'

The shareholders are gathering support in the City for a coup to stop the deal going ahead in its current form in what would be a humiliating rebuff to Corus management. The campaign is gathering momentum because of fears that the Brazilian elections later this month will bring in an aggressively anti-business left-wing government.

There is also alarm over a long-term contract CSN is believed to have agreed with CVRD, the world's second-biggest iron ore producer, governing the sale of ore from CSN's own mine, Casa de Pedra, to CVRD. Corus shareholders, who will account for 62% of the merged group, fear the agreement will end in a messy court case. The Corus-CSN merger is the subject of a non-binding agreement and a shareholder vote on the deal is expected to be held in the first quarter of next year.

'Just look at the CSN stock price,' one of Corus's biggest shareholders said. 'It was $20 when the deal was announced and now it is $9 so the Brazilians just don't believe this is going to happen.'

But a Corus spokesman said the company has no intention of abandoning the deal or attempting to renegotiate its terms. He also said CVRD had given no indication that it would challenge the iron ore supply arrangements. Corus hopes CSN's cashflow will provide a much-needed boost to its business while CSN believes Corus's markets will dilute its exposure to the fragile Brazilian economy.