STOCKHOLM--Swedish steel maker SSAB AB (SSAB-A.SK) Wednesday launched a share offer worth 10.1 billion Swedish kronor ($1.56 billion) for Finnish peer Rautaruukki Oyj (RTRKS.HE) as they try to combat the weak demand and falling prices that have blighted them both in recent years.

The combined company would hope to realize annual cost synergies of up to SEK1.4 billion through more efficient production systems, supply chains and administration, while also cutting working capital requirements.

The companies expect around 5% of the total combined workforce, around 870 people, will lose their jobs.

SSAB said its offer comprises 0.4752 newly issued SSAB class A shares and 1.2131 newly issued class B shares for each Rautaruukki share, representing a 20% premium for Rautaruukki shareholders based on three-month volume-weighted average share prices.

Assuming full acceptance of the offer, pro-forma ownership of the combined company will be 58% of the capital and 75% of the votes for current SSAB shareholders and 42% of the capital and 25% of the votes for current Rautaruukki shareholders.

Rautaruukki have recommended shareholders accept the offer, while Industrivarden AB (INDU-A.SK) and Solidium, the two main shareholders in the companies, have both pledged their support for the deal.

Should the offer be accepted, the combined company will apply for a secondary listing on NASDAQ OMX Helsinki, while the combined company's domicile and headquarters will be in Stockholm.

Both SSAB and Rautaruukki said they will propose that neither company pay a dividend for the financial year 2013.

-Write to Dominic Chopping at dominic.chopping@wsj.com; Twitter: @WSJNordics

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