The European Commission is unlikely to give the go ahead to the European steel joint venture planned by Tata Steel and ThyssenKrupp, the two companies said on Friday following conversations with the regulator. The two companies may now have to reassess their plans for their European businesses’ future.

They said while approval might have been possible were they to offer further remedies to allay concerns around the impact of the joint venture on the market, such solutions would negate the deal’s synergies and “adversely affect the basic foundation” of the joint venture.

Tata Steel said it assumed the deal would not be approved, and as a result it would explore “all options” for maintaining a sustainable business in Europe. ThyssenKrupp said it would scrap plans to split its business into two and will instead seek to spin off its elevator business.

The European Commission, which has conducted two market tests based on the companies’ remedy proposals, said the case was ongoing, with a provisional deadline of June 17 for a decision by the Commission.

Unions have urged Tata Steel to give workers assurances on their future.

The acknowledgement of the problems facing the deal — which Tata Steel had said would give the structural strength it needed to combat the headwinds facing the European steel industry — follows concerns already expressed by unions and politicians about the lengths that the companies would have to go to see the deal through.

Last month Tata Steel’s European Works Council expressed “profound concerns” about the package of remedies, accusing the company of failing to honour agreements struck with unions and warned that they were “unconvinced” the joint venture was in the best interests of Tata Steel Europe.

Among their concerns was the potential sale of Trostre, a Welsh plant that produces packaging material supplied by the Port Talbot steel works, the Tata Steel-owned plant, which is at the heart of its British operations. In addition to concerns about the future of the Trostre plant and its workers, unions had been concerned about the consequent impact on Port Talbot.

However, following another market test conducted by the European Commission, based on the concessions offered by the companies, the Commission told the company its concerns remained. “From the point of view of ThyssenKrupp and Tata Steel, further commitments or improvements would adversely affect the intended synergies of the merger to such an extent that the economic logic of the joint venture would no longer be valid,” said ThyssenKrupp.

“Hence both partners are unable to offer any further remedies to the Commission to meet its requirements. Consequently, the partners assume with deep disappointment that the European Commission will not approve the joint venture,” said Tata Steel.

Unions worried

Unions urged Tata Steel to avoid a knee-jerk reaction. “Now is the time for calm heads and a clear focus on the future of Tata Steel Europe,” said Roy Rickhuss, general secretary of the union Community. “It’s vital that the business is kept in tact and the right steps are taken to safeguard jobs and continue investment to ensure a sustainable future. Sadly, this may mean yet another period of uncertainty for steelworkers and their families.”

“Tata Steel’s workforce has been on a rollercoaster of uncertainty for several years. When we meet the Tata board we will be telling it that it is a ride that has to end and demand assurances over jobs and investment,” said Tony Brady, of the Unite union. “Tata Steel needs to give workers the assurances that their futures are secure. The government must stand ready to step in with assistance for Tata Steel and play its part too.”

The European Commission’s stance has required both firms to revisit their strategies. ThyssenKrupp has said given the developments it no longer plans to split its company into two divisions — a strategy that has faced questions from investors. Instead, it plans an initial public offering of its elevator business.

Tata Steel emphasised the strengths of its Indian business, which accounted for two thirds of its business, and said that its share would likely to continue to grow following the commissioning of Phase 2 of Kalinganagar in the next 30 months.

“While pursuing the end state strategy for the European business in the near term, Tata Steel will also continue to focus on its performance management to enhance its earnings and cash flows to build a sustainable and self-sustaining future for the business. Tata Steel has also undertaken significant de-leveraging in the last six months and would continue to pursue the same through internal cash generation and asset sales.”

It was only in July last year that Tata Steel and ThyssenKrupp signed a definitive agreement for a new “steel champion”, including for a 55-45 per cent split in the event of an IPO – which they insisted was the “perfect” answer to the challenges facing the European steel industry. It followed over two years of discussions between the two firms, as they sought to reach agreement with unions on possible synergies, prepare for regulatory demands and also agree on the appropriate valuation for the deal.

However, while welcomed by Tata Steel investors, the deal swiftly faced criticism from ThyssenKrupp investors, with the company’s chairman and chief executive at the time of the deal resigning soon after.