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Home / Business / Thyssenkrupp, Tata Steel Seal Joint Venture Joint Venture

Thyssenkrupp, Tata Steel Seal Joint Venture Joint Venture



FRANKFURT / DUSSELDORF (Reuters) – Germany's Thyssenkrupp ( TKAG.DE ) and India's Tata Steel ( TISC.NS ) signed a final agreement on Saturday for a long-awaited one establish steel joint venture, the largest transformation of the European steel industry for more than a decade.

FILE PHOTO: Thyssenkrupp's logo can be seen near the elevator test tower in Rottweil, Germany, September 25, 2017. REUTERS / Michaela Rehle / File Photo

The deal comes after months of negotiations since the announcement of a first September agreement. Both companies hope that it will help them to respond to challenges in the volatile steel industry, including overcapacity.

The largest European steel deal since Mittal's takeover of Arcelor in 2006, the 50-50 joint venture, which is to be called Thyssenkrupp Tata Steel, will provide some 48,000 workers and around 17 billion euros ($ 19.9 billion) ) Have sales.

Based in the Netherlands, ArcelorMittal ( MT.AS ) will be the continent's second largest steel producer. It forms the core of Thyssenkrupp CEO Heinrich Hiesinger's plan to turn his steel-to-submarine conglomerate into a technology company.

Completion of the transaction, which has been completed for more than two years, is expected in either the fourth quarter of this year or the first quarter of 2019, subject to cartel discussions with the European Commission, the company said.

The project not only addresses the challenges of the European steel industry, Hiesinger said, but is "the only solution to create a significant added value of around 5 billion euros for Thyssenkrupp and Tata Steel through joint synergies that are not possible A stand-alone scenario is realized. "

A company logo can be seen outside Tata's steel mill near Rotherham, UK, in this file photo from March 30, 2016. REUTERS / Phil Noble / File Photo [19659009] Tata Steel Chairman Natarajan Chandrasekaran said in a separate statement that the joint venture will "create a strong pan-European steel company that is structurally robust and competitive."

The deal comes about as European steelmakers face tariffs of 25 percent on their exports to the United States, their largest market. This could force local markets to absorb more of steel production.

Since the announcement of tariffs at the end of May, the shares in the European steel producers ArcelorMittal, Thyssenkrupp, Salzgitter ( SZGG.DE ) and Voestalpine ( VOES.VI ) have lost between 8 and 17 Percent.

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Hiesinger had been pressured by activists Cevian and Elliott to obtain more commitments from Tata Steel, whose European operations have been worse off than Thyssen since the announcement of the agreement, leading to a valuation gap.

Thyssenkrupp said the deal included a "reasonable compensation" for the gap in the mid three-digit million euro range: if the joint venture made a generally anticipated IPO, it would be a larger share of the proceeds.

Thyssenkrupp has also reserved the right to decide when an initial public offering could take place. The joint venture aimed to distribute a dividend in the low to mid three-digit million euro range.

The German group also said that it now expects annual synergies of between € 400 million and € 500 million from the transaction. Additional synergies are possible by managing investments and optimizing working capital.

Most synergies will be realized in the first three years of the joint venture, said Thyssenkrupp's CFO Guido Kerkhoff at a investor meeting.

Tata Steel will continue to be responsible for environmental risks in the UK, where its Port Talbot plant, the least profitable joint venture company, is based, said Markus Grolms, Deputy Chairman of Thyssenkrupp's Supervisory Board.

Due to large pension obligations, Port Talbot was an important issue in the early stages of inter-company bargaining before an agreement was reached last year.

Tony Brady, National Officer of Unite, the UK's largest union, said workers "are seeking guarantees of jobs and investment for British Joint Venture operations to secure the future of British steel."

The Dutch unit of Tata Steel will also be part of the joint venture's cash pooling mechanism, meaning that the unit's cash flow will not be restricted. This was an important requirement for the German workers concerned that Tata would give his own workers better conditions in the new company.

"Yes, we want to protect people, but we also want a company with better opportunities and fewer risks," said Grolms.

The management of Thyssenkrupp will present a refined strategy to its Supervisory Board in the second week of July. Sources said a sale of its Materials Services unit and could involve further cost reductions.

($ 1 = 0.8559 euros)

Additional coverage by Andy Bruce in London; Edited by Sabine Wollrab, Douglas Busvine, Cynthia Osterman, Clelia Oziel


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