Tata Steel's new start with ThyssenKrupp JV: Deal decoded

How will the two steelmakers benefit from the JV and where do the workers stand on the deal? BS answers

Even while concerns regarding loss of jobs and opposition from politicians in Berlin continue, German steelmaker ThyssenKrupp and Tata Steel have agreed to form an equal joint venture that would create Europe’s second-largest steel firm, after ArcelorMittal.  

The new entity — ThyssenKrupp Tata Steel — would be headquartered in Amsterdam, the Netherlands. The entity would have 21.3-million tonne (mt) capacity, sales of about €15 billion and a workforce of about 48,000 at 34 locations. The merger is, however, likely to lead to 4,000 people losing their jobs both on the production side and administration side. 

According to agency reports, ThyssenKrupp's supervisory board will gather on September 24, the day of Germany's general elections, to discuss the plan, while unions will stage protests against the plans in the city of Bochum on September 22.

Deal to close by December

Tata Steel has said it would shift €2.5 billion of its debt to the new entity. ThyssenKrupp would also be shifting its liabilities worth €3.6 billion that it had gathered from its pension schemes. (Read our full report on the joint venture )

Koushik Chatterjee, Tata group executive director, has said the partners expect the deal to close by December this year or early next year. 

Chatterjee said, “Fundamentally, we can look at the €2.5 billion as structural deconsolidation, or as deleveraging, once the joint venture is done in about a year.” 

'Tata Steel can double capacity in 5 years'

Tata Group Chairman N Chandrasekaran is hopeful that a deleveraged Tata Steel is better positioned to grow faster and double capacity over the next five years after its deal with ThyssenKrupp to merge their steel operations in Europe. (Read more here) 

The steelmaker has around 13-mt capacity at its two plants in Kalinganagar in Odisha and Jamshedpur and hopes to double it over the next five years, organically or inorganically.  

"For Tata Steel India, which has huge opportunities to grow both organically and inorganically, this merger gives opportunities to focus on rapid growth so that we can maintain our leadership position and continue to grow and capture the markets," Chandrasekaran told reporters after announcing the 50:50 joint venture with ThyssenKrupp. 

Deal new start for Tata Steel

Tata Steel is making a new start with the signing of a memorandum of understanding for a joint venture between Tata Steel Europe (TSE) and ThyssenKrupp AG of Germany. (Read our full report on how the deal is a new start for Tata Steel) 

Among the gains, the debt reduction directly would not be much at $2.7-2.8 billion of the $7.7 billion debt for the European operations. However, the JV will provide significant cash flow for balance debt servicing and supporting further debt reduction in the medium term, says Abhisar Jain at Centrum Broking.

With continued restructuring and improving steel prices, TSE has already boosted per-tonne profitability to $100, from losses earlier. A JV with a speciality steel player would improve prospects further (estimates peg boost of $30-40 per-tonne).

All eyes on labour leaders' stand

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

Any change in tone among labour representatives, who hold half of the 20 seats on ThyssenKrupp's supervisory board, is closely watched ahead of the scheduled meeting of the committee, where the plans will be discussed.

"We will examine it and if in the end our conditions are fulfilled and the whole unit is debt-free then it's a possibility," Wilhelm Segerath, head of Thyssenkrupp's works council and member of the group's supervisory board, told reporters.

German ministers raise objections

German Economy Minister Brigitte Zypries said on Wednesday that employees were not yet convinced about plans for ThyssenKrupp and Tata Steel to merge and added that all affected parties needed to accept any deal. (Read more here) 

"The employees are not yet convinced about this decision and they are very concerned about job losses," Zypries said in an emailed statement.

Adding her voice on the issue, German Labour Minister Andrea Nahles said on Wednesday that the merger should not happen at any cost and the headquarters needed to be in Germany if it did happen. (Read more here)

"There must not be a merger at any price. The sites in Germany must be maintained and compulsory redundancies must be ruled out," Nahles said in an emailed statement, adding that the sites in Germany were "absolutely competitive".

ThyssenKrupp to not be liable for Tata Steel-sponsored pension scheme

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. (Read more here)

Tata Steel last month received approval to separate itself from the existing British Steel Pension Scheme (BSPS) through a deal that will cut the scheme's 15 billion pounds ($20.29 billion) in liabilities.