Tata Steel shares gain almost 2% on Thyssenkrupp deal

Tata Steel and Thyssenkrupp AG have signed a Memorandum of Understanding (MOU) which could lead to the creation of one of Europe's largest steel enterprises.

Europe's second-largest flat steel business is to be formed through the 50:50 merger of Mumbai-based Tata Steel´s Dutch and British operations with those of German steel major ThyssenKrupp.

The transaction will not involve any cash, Tata Steel said, adding both groups would contribute debt and liabilities to achieve an equal shareholding and remain long-term investors.

Natarajan Chandrasekaran, chairman of Tata said: "The Tata Group and Thyssenkrupp have a strong heritage in the global steel industry and share similar culture and values".

The agreement will now be followed by negotiations and due diligence by both the companies and they expect to close the deal as early as the beginning of 2018.

Thyssenkrupp will not be liable for any future funding demands of a new pension scheme sponsored by Tata Steel in Britain, its chief financial officer said, removing a key source of uncertainty in the companies' planned joint venture.

With this deal, both the companies will be able to form a strong number 2 player in the European steel market.

Tata Steel Europe has been a strain on the parent company Tata Steel for the past 10 years, causing it to burn cash at a rate of about US$1bn a year. "Beyond a clear performance orientation, we also share the same philosophy of corporate responsibility towards employees and society", added Heinrich Hiesinger, chairman of Thyssenkrupp's executive board.

Thyssenkrupp shares were indicated up more than 5 percent in pre-market trade in Germany while Tata Steel was up 0.7 percent in India. The companies flagged the possible loss of as many as 4,000 jobs, from a newly combined workforce of about 48,000.

They have been in negotiations since previous year when Tata withdrew from a sales process to sell its entire United Kingdom operations, including Port Talbot - the largest steel works in the UK.

Roy Rickhuss, chair of the steel coordinating committee representing UK unions Unite, GMB and Community, said the unions recognised the industrial logic of the deal, but would still press Tata to confirm it will invest in the Port Talbot steelworks, a vital regional employer.

Any deal is still subject to approval by Thyssenkrupp's supervisory board and Tata Steel's board of directors as well as that of the European Commission.

  • David Armstrong