Thyssenkrupp and Tata to create Europe’s No. 2 steelmaker

LONDON: Thyssenkrupp AG and Tata Steel Ltd reached a tentative deal to merge their European steel businesses in a bid to create the region’s second-largest producer and tackle overcapacity in the industry.

The German and Indian companies have signed a memorandum of understanding for the joint venture to be named Thyssenkrupp Tata Steel, which will be equally owned by both parties, the companies said yesterday.

The transaction is expected to be finalised at the beginning of next year and will require the approval of the European Union.

The two foresee annual synergies of � �

400mil (US$480 million) to 600mil, helped by savings on areas including capacity utilisation, sales and administration and research and development.

The companies flagged the possible loss of as many as 4,000 jobs, from a newly combined workforce of about 48,000.

Thyssenkrupp and Tata have been in tie-up talks for more than a year to drive the latest wave of consolidation as steelmakers seek ways to counter overcapacity and cut costs.

While prices have recovered since early last year, the industry still faces a global glut caused by large Chinese exports and too much capacity around the world. Benchmark prices in Europe are about half the level they were in 2008, according to Metal Bulletin Ltd.

“We have always clearly stated that we believe in consolidation as the best solution for steel,” Thyssenkrupp chief financial officer Guido Kerkhoff told Bloomberg TV.

“Now we’re taking another step in this journey to merge into an even bigger entity: Thyssenkrupp Tata Steel. The clear number two – a clear number two that we want to form.”

The venture would have a pro-forma reve

� nue of about 15bil annually and shipments of about 21 million tonnes of flat steel products, the companies said. No cash would change hands under the proposed combination.

Investors have mostly welcomed the prospect of Thyssenkrupp finding a partner for its cyclical and capital-intensive steel operations.

Still, chief executive officer Heinrich Hiesinger, who is working to transform Germany’s top steelmaker into a more diversified industrial group, has faced some opposition from activists and unions. For Tata Steel, the move would let it focus more on its Indian market, where it plans to grow aggressively.

The deal, which involves combining Tata’s plants in the Netherlands and UK with Thyssenkrupp’s German assets, would create a venture that’s closer in size to Europe’s top producer, ArcelorMittal. The venture will be based in the Netherlands. — Bloomberg