Thyssenkrupp CEO keen for Tata steel merger deal before end-September: sources

By Maytaal Angel, Edward Taylor and Carolyn Cohn

LONDON/FRANKFURT (Reuters) - Thyssenkrupp's chief executive is pushing for a deal to fold its steel operations into a joint venture with Tata Steel as early as September, after two years of talks, sources told Reuters.

The talks are more advanced than previously thought, the sources said.

With earnings from Thyssenkrupp's industrials businesses sound and those at the steel unit weak due to structural overcapacity in the sector, Chief Executive Heinrich Hiesinger is facing pressure from investors to deliver the merger.

"The fiscal year will come to an end soon (in September) and Hiesinger wants to have a story for investors. If it would not come to a merger it would be a severe defeat for (him)," a German union source said.

Hiesinger has staked his reputation on transforming Thyssenkrupp from a loss-making steelmaker into a diversified industrials group, with steel now contributing just under a quarter of the firm's revenues.

His ultimate aim is for Thyssenkrupp to exit the steel business altogether.

"He (Hiesinger) has invested too much time for it to now fail," a banking source familiar with the matter said.

The biggest stumbling block in talks to merge the two firms' European steel assets was largely resolved in May, when Tata said it had agreed the main terms of a deal with the British regulator to cut benefits for its 15 billion pound ($19.40 billion) UK pension scheme.

With Thyssenkrupp said to be satisfied with the preliminary deal and German unions acknowledging behind the scenes that they cannot stop the merger, sources said the long-running talks should be formalised in the next couple of months.

One source familiar with the matter said much still hinged on final clearance from the regulator for the Tata pensions deal and that both sides were unlikely to make any announcement before then. A pensions source, however, said regulatory clearance was pending.

"I would be surprised if it (clearance) didn't happen by September," he said.

Tata Steel and Thyssenkrupp declined to comment.

With both companies having suffered heavy losses in steel in recent years, they are intent on a merger would bring capacity cuts, consolidation, pricing power and synergy savings.

While German unions are publicly against the venture, they privately acknowledge they cannot stop a deal even if all 10 union representatives on Thyssenkrupp's supervisory board vote against it.

They are concerned, however, that Thyssenkrupp is looking to take on a minority stake in the joint venture and is keen on handing over day to day management to Tata. Unions fear any future job cuts would fall disproportionately on them versus legacy Tata staff.

It could take three to four years to integrate the two operations and deliver the sort of savings - 500 million euros a year by some estimates - that could help pave the way for an initial public offering that would see Thyssenkrupp finally exit the steel sector.

The Tata pensions deal alone could take until early next year to implement even though it is due to be cleared shortly, pensions sources say.

However, Martin Hunter, principal at consultants Punter Southall, said that to avoid delay, Tata and Thyssenkrupp could announce the deal but make a final tie-up contingent on the end shape of the Tata pension deal.

(Additional reporting by Arno Schuetze, Tom Kaeckenhoff, Alexander Huebner and Georgina Prodhan in Frankfurt; and Euan Rocha in Mumbai; Editing by Veronica Brown and Susan Thomas)