Thyssenkrupp deal to help Tata Steel double capacity, says Chandrasekaran

Germany's Thyssenkrupp and India's Tata Steel struck a preliminary deal on Wednesday to merge their European steel operations in a 50-50 joint venture to create the continent's second-biggest steelmaker after ArcelorMittal.

Thyssenkrupp's (TKAG.DE) works council is prepared to consider a merger of the group's European steel operations with those of Tata Steel (TISC.NS), it said on Tuesday, softening its no-go rhetoric over the consolidation plan.

4,000 jobs are set to be axed in the Thyssenkrupp Tata Steel joint venture which has a combined workforce of 48,000 employees.

Analysts said the long-anticipated deal was likely to benefit both companies, allowing them to save money by integrating activities like logistics, sales, and research and development.

Thyssenkrupp, whose fiscal year ends September 30, has said there could still be a memorandum of understanding (MoU) with Tata Steel this month, which would pave the way for due diligence, a detailed look at each other's accounts.

The merger would be through a non-cash transaction framework based on fair valuation where both shareholders would contribute debt and liabilities to achieve an equal shareholder in the venture.

The two companies expect annual synergies of 400-600 million euros.

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Slaughters is advising longstanding client Tata Steel on the deal, with a team led by M&A partners Robin Ogle and Padraig Cronin, and finance partner Andrew McClean. This business combination creates a strong number 2, and is thus much better positioned to cope with the structural challenges in the European steel industry.

Shares in Tata Steel were up 0.7 per cent.

"As always, the devil will be in the detail and we are seeking further assurances on jobs, investment and future production" in the United Kingdom, said trade union representative Roy Rickhuss, while adding that workers "recognise the industrial logic of such a partnership".

But he said "question marks" remained over Tata Steel's British plants, which the company has wanted to exit. Under the agreement, both the companies will have 50% stake in the newly formed entity.

"As a priority, we will be pressing Tata to demonstrate their long term commitment to steelmaking in the United Kingdom by confirming they will invest in the reline of Port Talbot's Blast Furnace No 5".

The deal will require approval of Thyssenkrupp's supervisory board, Tata Steel's board of directors and European regulators.

  • Ronnie Bowen