Tata Steel forges merger with thyssenkrupp, secures a lifeline for European assets

Our Bureau Mumbai | Updated on January 10, 2018

Koushik Chatterjee, Group ED, Tata Steel


UK unions cautiously welcome deal that creates Europe’s No 2 steel-maker

Ending uncertainty over its European assets, Tata Steel on Wednesday announced a plan to form an equal joint venture with Germany’s thyssenkrupp AG.

The non-cash transaction framework to combine the flat steel business of the two companies in Europe and the steel mill services of the thyssenkrupp group will create a behemoth that will ship about 21.3 million tonnes of flat products a year with a turnover of €15 billion (₹115,000 crore), an EBITDA of €1.5 billion, and employing some 48,000 workers.

Of this, Tata Steel’s European operations will contribute annual shipments of 9.8 million tonnes, a turnover of €7.3 billion and employ some 18,000 workers.

The proposed joint venture that will create Europe’s second largest steel maker (after ArcelorMittal) provides Tata Steel an opportunity to stem further bleeding of its heavily loss-making European operations by transferring some €2.5 billion of term debt and about 18,000 workers to the merged entity to be based in Amsterdam.

Tata Steel Europe has a debt of €3 billion, including working capital loans, of which €2.5 billion (₹17,000-18,000 crore depending on the exchange rate) will be moved to the merged entity along with another about €4 billion of pension and other legacy liabilities.

The capital structure of the new entity — thyssenkrupp Tata Steel — where both shareholders will contribute debt and liabilities, will be done in a manner that will help it “sustain downturn and service its obligations” on a standalone basis.

The joint venture — for which a memorandum was signed — will facilitate cost synergies of about €400-600 million a year through integration of sales and administration, research and development, optimisation of procurement, logistics, service centres and other support activities.

“Today’s announcement marks the latest step in building a future for Tata Steel’s activities in Europe which is sustainable in every sense,” said Andrew Robb, Chairman of Tata Steel Europe.

“The joint venture is being formed not for rationalisation and job cuts but for industrial and strategic logic,” said Koushik Chatterjee, Group Executive Director, Tata Steel. The joint venture would also seek to improve capacity utilisation of the network across the three hubs of Ijmuiden (The Netherlands), Duisburg (Germany) and Port Talbot (Wales, UK) and their related downstream facilities.

N Chandrasekaran, Chairman of Tata Steel, said that the merged entity will ensure that the production sites are intact and have a “sound and sustainable future”. The deal, designed to cope better with the structural challenges facing the European steel industry, is expected to be closed by December 2018 after receiving the requisite approvals from competition authorities.

Cautious welcome

British unions cautiously welcomed the deal they said delivered “industrial logic… as always the devil will be in the detail and we are seeking further assurances on jobs, investment and future production across the UK operations,” said a joint statement from the Unite, GMB and Community Unions, which said they were seeking a meeting with Tata Steel to ensure thyssenkrupp’s pension liabilities would be ring-fenced.

Published on September 20, 2017

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