Viag said in a statement that the management boards of Viag and Alusuisse had decided to propose to their shareholders a merger. It would be carried out through a public share exchange offer which must be accepted by at least 90 per cent of shareholders for the deal to go through.

The German company, a diversified utility with a growing telecommunications business, said that under the exchange offer one Viag share would be swapped for 10 shares of the merged group and one Algroup share for 21.7 shares.

The new group will be based in Munich and will be headed by current Viag chairman Wilhelm Simson. Algroup chief, Theodor Tschopp will become head of the group's supervisory board.

The deal has yet to be approved by the two group's supervisory boards, regulatoryauthorities and shareholders. Shares in the merged group will be listed in Germany and Switzerland.

Viag said it expected the merger to boost profitability by creating what it called annual "synergy benefits" of 570 million marks after three years, set against a one-off cost of 400 million marks.

Viag also said that under the merger plan, about 2,500 of the combined group's 127,000 workforce would be shed.

The merger is to completed by August 1999 and shareholder meetings are set for May.

The deal was the latest in a string of takeovers involving German companies.

This week alone, Deutsche Bank AG said it was in talks to takeover Bankers Trust Corp and Germany's largest drug maker Hoechst AG announced it had entered into talks to merger its life sciences business with Rhone-Poulenc SA of France.