Tata-Thyssenkrupp JV plan fails to clear Europe's anti-trust hurdle

Tata Steel’s plans to merge its European operations with German firm Thyssenkrupp’s steel business suffered a jolt with both companies announcing on Friday they were not going ahead with the proposed joint venture (JV) following objections from the antitrust authorities of the European Commission.  

Tata Steel, which operates the Port Talbot plant in the UK and a large plant in the Netherlands, said the Commission discussed the proposed JV with both partners, and based on the feedback, it was clear the Commission was not intending to approve the plan as it expected substantial remedies in the form of sale of assets of the proposed venture.

In a conference call with the media after market hours, T V Narendran, CEO & MD of Tata Steel, said the company would continue to work on improving performance, and be working on Plan B. “The business will keep running. We want to make sure we run the UK plant in a manner that is cash positive,” he said. The Netherlands operations are self-sustaining.

Koushik Chatterjee, ED & CFO, Tata Steel, said the company would continue to reduce its debt and would not move away from the target. Tata Steel’s gross debt was Rs 1,00,000 crore, of this the debt on European operations books is 2.2 billion euros (approx Rs 17,308 crore). 

“Our $1 billion deleveraging target doesn't change and depends on the cash flows. In the last six months, we have done more than that,” he said. The Tata Steel stock fell by 6.1 per cent on Friday to Rs 487 a share as its investors worried over the future of European operations, which are bleeding the finances of the Indian company since its acquisition in 2007. Analysts said the consolidated EBIDTA (earnings before interest, debt, tax and amortisation) per tonne would continue to get negatively impacted and overall leveraging would remain high.

Indian fund houses and foreign institutional investors, which held combined investments of Rs 18,167 crore in Tata Steel, saw the value of their holding drop by Rs 1,152 crore on Friday. The change in value is calculated on the basis of MFs and FIIs’ shareholding as of March 31, 2019, and change in market price since then. Tata Steel said it would now pursue an option that works best for Tata Steel and also ensure that business remained sustainable. “There will be no impact on borrowing cost,” said Chatterjee.

In a separate statement, Thyssenkrupp said its new plans submitted to the Commission did not resolve the Commission’s concerns. “Both the companies felt that further commitments or improvements would adversely affect the intended synergies of the merger to such an extent that the economic logic of the joint venture would no longer be valid,” it said.

Thyssenkrupp’s shares — listed in Germany — surged 17.5 per cent after the announcement.

In India Inc’s biggest takeover overseas, Tata Steel had acquired Corus Group for about $13 billion in 2007. The takeover failed to pay dividend to Tata Steel back home as the Lehman crisis in 2008 hit global markets. Since the takeover, Tata Steel has rationalised capacities in Europe from about 18 million tonnes to about 10 mt by either shutting down or selling unprofitable or unsustainable operations. In 2018, it decided to sell all UK plants but retained one in Port Talbot. The UK plant was not cash positive last year, but the management said it planned to make it cash positive this year.

In June last year, it decided to merge its European operations with Thyssenkrupp’s steel operations, giving it ultimately a 45 per cent stake in the merged entity. But the merger idea did not go down well with the labour unions of Thyssenkrupp which feared job losses. Besides, investor groups, which held 18 per cent in the German company, did not approve the plans.

With inputs from Ujjval Jauhari