Thyssenkrupp and Tata Steel sign MoU to create European steel major

The proposed 50:50 JV between the two companies will combine Tata’s plants in the UK and Netherlands with Thyssenkrupp’s German assets

German major Thyssenkrupp AG and Tata Steel Ltd have signed a memorandum of understanding to create Europe’s second largest steel enterprise by combining the flat steel business of both the companies. The companies mentioned that the 50:50 joint venture will be focused on quality and technology leadership in addition to the supply of premium and differentiated products to the customers with an annual shipment of about 21 million tonnes of flat steel products.

The Joint venture involves combining the plants of Tata in Netherlands and the UK with German assets of Thyssenkrupp. They would be managed through a lean holding company based in the Netherlands and this entity will rival the top producer in Europe, ArcelorMittal. The joint venture will have a pro forma turnover of about €15 billion per annum (Rs1,15,000 crore). It employs 48,000 people currently which are spread across different locations and will be headquartered in Amsterdam.

Chairman of Tata Steel, N. Chandrasekaran mentioned that the Tata Group and Thyssenkrupp have a strong heritage in the steel industry globally and they also share similar values and culture. The strategic logic of the proposed joint venture in Europe is based on the same strong fundamentals and both the companies will have a great future.  This proposed combination of business will be formed through a non cash transaction framework which will be based on fair valuation. Both shareholders would contribute debt and liabilities in order to achieve an equal shareholding in the joint venture.

Thyssenkrupp Tata Steel would have a robust capital structure which is well matched by the free cash flows of the company. It would benefit from the scale and distribution network capability of the combined assets in order to achieve quality, cost leadership and technology in the European steel industry. The proposed joint venture has been under discussion for more than a year. Thyssenkrupp, in a press statement mentioned that the negotiating parties will provide each other the access to confidential information to the extent permissible between competitors. It is expected that the contract will be signed in early 2018.