MUMBAI/BERLIN (BLOOMBERG, AFP) - Industrial conglomerate ThyssenKrupp and Indian group Tata have agreed to merge their steel operations in Europe, aiming to take second place in the market behind ArcelorMittal, the two companies said in a statement on Wednesday (Sept 20)
The two conglomerates, which will finalise the deal in 2018, expect annual synergies of between 400 and 600 million euros (S$646 million and S$969 million) and are likely to get rid of 4,000 jobs in production and administration. These losses would be divided roughly equally between the two groups.
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, and based in the Netherlands. The transaction is expected to be finalized at the beginning of next year and will require the approval of the European Union.
The venture would have a pro-forma turnover of about 15 billion euros annually and shipments of about 21 million metric tons of flat steel products, the companies said. No cash would change hands under the proposed combination.
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 less than half the level they were in 2008, according to Metal Bulletin Ltd.
Shares of Tata Steel jumped as much as 2 per cent in Mumbai on news of the deal, extending gains for the year to 74 per cent.
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.
Activist investor Cevian Capital AB may oppose the venture and instead favour a breakup of the German engineering company, people familiar with the matter said last week. Labor 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 CEO Hiesinger had said was potentially a major stumbling block to the combination.
