Under the deal -- which occurs in industry pressured by cheap import prices toward further consolidation - Armco will become an AK Steel subsidiary. The deal, which is based on AK Steel's recent trading prices, offers $7.50 a share to Armco shareholders, a significant premium to Armco's closing price Thursday of $5.63.

In a joint release, the companies said they intend to account for the acquisition, which has a total transaction value estimated at about $1.3 billion, as a pooling of interests.

Under a pooling of interests, two companies merge by simply adding their balance sheets together, line by line. Recently, accounting regulators have said they plan to rule out this means of merger accounting after January 1, 2001, in favor of methods that provide shareholders a better look at the costs of a takeover.

AK Steel Holding makes thetakeover move after weathering tough times for domestic steelmakers this year. Although the company's profit eased 2.8 per cent in the first quarter, it did much better than many competitors, who were harder hit by a surge of imports that swamped the US market, causing prices and shipments to drop significantly. Armco was among a group of stainless-steel makers that filed unfair-trade complaints against several countries last summer, saying that sales of their most important products have been unfairly damaged by low-price imports.

The companies said common shareholders of Armco, Pittsburgh, will receive 0.2836 shares of AK Steel common stock for each Armco common share, subject to adjustment. On a diluted basis, there are about 112.3 million Armco common shares outstanding, so that the exchange ratio would result in the issuance of about 32 million AK Steel common shares.

The exchange ratio is subject to adjustment, within the limits of a collar that averages the closing price of AK Steel common stockover the course of a 10-day trading period. This period ends six days before the meeting at which Armco shareholders vote on the transaction.

Under the terms of the collar, Armco common shareholders will receive AK Steel Holding shares having a value of $7.50 per Armco share so long as the average closing price of AK Steel Holding common stock during that trading period is between $22 and $26.44 per share.

If the average closing price of AK Steel Holding common stock during that period is higher than $26.44, Armco common shareholders will receive AK Steel Holding shares having a value greater than $7.50 an Armco share, but in no event more than $8 a share. If the average closing price of an AK Steel common share during the trading period is less than $22, the exchange ratio will nonetheless be fixed at 0.3409 AK Steel shares per Armco common share. If, however, that undermines the $7.50 value of Armco under the deal, Armco shareholders will have an opportunity to terminate the merger agreement.

TheWall Street Journal