Tata Steel clinches JV to create EU steel giant

London: Tata Steel on Saturday said it has agreed to the terms of a 50-50 joint venture with Germany’s Thyssenkrupp to create Europe’s second-largest steel company after Lakshmi Mittal’s ArcelorMittal.

The JV, which has been under discussions since September last year, combines the European steel businesses of the Indian steel major with the German firm to create Thyssenkrupp Tata Steel BV.

The new steel company will have a total workforce of 48,000 employees spread across 34 sites, producing about 21 million tonnes of steel a year with revenues of around Euro 15 billion.

“The Board of Tata Steel has approved the terms to create a 50:50 joint venture which will combine the European steel businesses of Tata Steel and Thyssenkrupp AG and has adopted resolutions for the signing of the definitive agreement,” Tata Steel said. The joint venture will create a strong pan-European steel company that is structurally robust and competitive, Tata Steel chairman N Chandrasekaran said.

“This is a significant milestone for Tata Steel and we remain fully committed to the long-term interest of the joint venture company.” The definitive agreement signed between the two companies includes a “proper compensation” for a valuation gap between the companies, which means that in case of an IPO of the JV, Thyssenkrupp will receive a higher share of the proceeds, reflecting an economic ratio of 55/45.

Thyssenkrupp said it also has the right to exclusively decide on the timing for a potential IPO. “The joint venture not only addresses the challenges of the European steel industry. It is the only solution to create significant additional value of around EUROS 5 billion for both Thyssenkrupp and Tata Steel due to joint synergies which cannot be realized in a stand-alone scenario.

The deal is yet to get EU nod

  • The proposed new JV is subject to merger control clearance in several jurisdictions, including the European Union (EU).
  • The JV will be managed as one integrated business through a holding company headquartered in the Amsterdam region of the Netherlands. Thyssenkrupp Tata Steel will have a two-tier governance structure that comprises a supervisory board and a management board.
  • Thyssenkrupp will present the latest agreement to its supervisory board in an extraordinary meeting in the week beginning July 9.
  • Until the JV gets all its clearances, Thyssenkrupp Steel and Tata Steel still operate as separate companies and as competitors.
  • Respective employee representation structures in European countries and a European Works Council (EWC) will be retained.
  • In addition, a committee will be established, in which the board and employee representatives of the JV will regularly discuss strategic issues.
  • After closing, the synergies will be generated in several areas including procurement, consolidation of overhead and through a better asset utilisation.