Merger creates No 2 steel giant in Europe
Thyssenkrupp and Tata Steel combine
THYSSENKRUPP and Tata Steel have 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, they said yesterday. The transaction is expected to be finalised at the beginning of next year and will require the approval of the EU.
The two foresee annual synergies of €400 million (R6.38 billion) to €600m and the venture will be closer in size to Europe’s top producer, ArcelorMittal. Savings will be made in 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 steel makers 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.
Stock climbs “We have always clearly stated that we believe in consolidation as the best solution for steel,” Thyssenkrupp chief financial officer Guido Kerkhoff said. “Now we’re taking another step in this journey to merge into an even bigger entity: Thyssenkrupp Tata Steel.”
Shares of Thyssenkrupp jumped as much as 5.3 percent, the most since February, and were up 3.2 percent as of 10.26am in Frankfurt. Tata Steel was up 0.9 percent in Mumbai.
The venture would have a pro-forma revenue of about €15bn annually and shipments of about 21 million tons 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 Heinrich Hiesinger, who is working to transform Germany’s top steel maker 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 involves combining Tata’s plants in the Netherlands and UK with Thyssenkrupp’s German assets. The venture will be based in the Netherlands.
Dutch Prime Minister Mark Rutte called the deal “good news” in a Twitter post. “This strengthens the leading role of Tata Steel Ijmuiden as one of the most efficient and sustainable steel plants in the world,” he said.
Activist investor Cevian Capital may oppose the venture and instead favour a break-up of the German engineering company, people familiar with the matter said last week. Labour representatives, who have half of the seats on Thyssenkrupp’s supervisory board, have also expressed concern over job losses.
Tata Steel cleared a hurdle for the venture after a UK regulator approved a deal to solve a long-running pension standoff, which Thyssenkrupp chief executive Hiesinger had said was potentially a major stumbling block to the combination.
Thyssenkrupp’s largest shareholder backed the planned combination.
“The Alfried Krupp von Bohlen and Halbach Foundation welcomes the planned co-operation between Thyssenkrupp and Tata,” the foundation, which owns more than 23 percent, said.