Thyssenkrupp, Tata to merge steel units

ESSEN, GERMANY: Germany’s Thyssenkrupp AG and India’s Tata Steel Ltd agreed yesterday to merge their European steel operations in a preliminary deal that would create the continent’s No. 2 steelmaker after ArcelorMittal SA.

“The deal will not involve any cash,’’ Tata Steel said, adding that both groups would contribute debt and liabilities to achieve an equal shareholding and remain longterm investors.

The companies say they need to consolidate to address overcapacity in the European steel market, which faces cheap imports from China and elsewhere, subdued demand for construction and inefficient legacy plants.

“We want to avoid our steel team restructuring itself to death,” Thyssenkrupp CEO Heinrich Hiesinger told reporters, noting its steel operations would face deeper restructuring needs if they remained part of the group.

“No one is able to solve the structural issues in Europe alone. We all suffer from overcapacity and that means that everyone is making the same restructuring efforts,” he told broadcaster n-tv.

The memorandum of understanding (MoU) outlines annual synergies of €400 million-600 million ($480 million-720 million) as well as up to 4,000 job cuts, or about 8% of the joint workforce.

Thyssenkrupp, whose operations span construction steel, car parts, submarines and materials distribution, is 15% owned by activist shareholder Cevian Capital and has faced calls to split off other parts of the business, most notably its elevator unit.

Tata Steel Europe had been a strain on Tata Steel Ltd for a decade, causing the parent to burn cash at a rate of approximately $1 billion a year.

Pooling its operations with Thyssenkrupp would ease Tata Steel’s debt burden, freeing up cash flow to allow it to invest to meet growing steel demand in India.

Tata Steel last month reached a landmark deal that will allow it to reduce £15 billion ($20 billion) in British pension liabilities, long seen as the main hurdle in talks between the companies, which have lasted more than a year and a half.

The new joint venture, to be named Thyssenkrupp Tata Steel, would be headquartered in Amsterdam, the companies said.