Investors say Thyssenkrupp-Tata Steel deal favours India, express concern

Thyssenkrupp AG and Tata Steel Ltd. reached a final agreement to set up a European steel giant as some of the German company’s biggest investors expressed concern that the deal favors its Indian partner.

The tie-up to create Europe’s largest steel producer after ArcelorMittal is part of efforts to tackle industry overcapacity as Chinese exports fed a global glut last year. The market has rebounded since the joint venture was announced as steel demand strengthens and Donald Trump’s threat of tariffs pushes prices to their highest level in years.

While the consolidation raised hopes of greater pricing discipline, some of Thyssenkrupp’s largest shareholders have criticized the terms of a venture for being skewed toward Tata Steel. Cevian Capital, Thyssenkrupp’s biggest investor, voted against the deal, according to a person familiar with the matter.

Thyssenkrupp fell as much as 2.7 per cent in Frankfurt on Monday, and was down 1.5 per cent as of 10:27 a.m. Tata Steel dropped 0.8 per cent in Mumbai, after earlier gaining as much as 3.3 per cent.

The two companies will hold an equal share in Thyssenkrupp Tata Steel BV, which will focus on high-quality flat steel production, they said in a joint statement on Saturday. The deal comes nine months after the two steelmakers signed a memorandum of understanding to establish the venture, and is still subject to regulatory approval in several jurisdictions including the European Union.

All For One

"One company, one balance sheet, one cash flow," Thyssenkrupp Chief Executive Officer Heinrich Hiesinger said Saturday on a conference call with investors.

The companies will jointly hold more than 50 percent of the venture for six years, with most of the cost savings occurring in the first three years, Tata Executive Director Koushik Chatterjee said Saturday. It’s expected that the merger will go into effect in 2019, and the headquarters of the new company will be based in the Amsterdam region, with its management and supervisory boards each made up of six representatives, divided between the companies.

For the Mumbai-based company, “the unchanged deal contours are a significant relief,” Edelweiss Financial Services Ltd. said in a note Monday. Jefferies Group LLC said the venture will help Tata Steel cut debt and alleviate concerns over its stock, which has fallen this year.

Still, in the event of an initial public offering, Thyssenkrupp would receive a higher share of proceeds, reflecting an economic ratio of 55-45, according to the Essen, Germany-based company. Thyssenkrupp said it expects around 4,000 jobs to be cut from the joint venture to achieve annual cost savings estimated at as much as 500 million euros ($582 million). It gave no further details on the timing of job cuts.