Two weeks before the shareholders' meeting called to approve the $2 billion (£1.33 billion) merger with Stone Container, ratings agency Moody's has lowered its rating for Jefferson Smurfit Corporation (JS Corp) and has warned of further downgradings if the merged group does not achieve its targeted $2 billion worth of asset sales.

Moody's has left its rating for Stone's debt unchanged, reinforcing the view of many in the industry that the merger is a better deal for Stone than for JS Corp. The shares of the two companies, which logically should be virtually the same price given the near one one-for-one share swap in the merger terms, remain almost $1 1/2 apart - again reflecting market uncertainty about the merger.

In a distinctly downbeat assessment of the financial impact of the merger, Moody's said: "The revised JSCUS (JS Corp) rating also reflects the increase in debt related to the transaction and the decline in debt protection measurements resulting from a merger with a financially weaker company.

"Moody's believes that while Stone and JSCUS will initially remain legally segregated, there will be strong motivation for JSCUS to provide ongoing support to Stone, meaning that the debt protection measurements of the two companies will converge over the long term."

It added: "Moody's expects interest coverage to remain weak for the foreseeable future, with Smurfit-Stone Container Corp at or below a break-even level through the end of 1999, and Stone (on its own) below breakeven until the year 2000.

The revised ratings assume significant progress on cost savings is achieved over the near term, and that proceeds from planned asset sales are used for debt reduction.