Tata Steel and Thyssenkrupp strike deal to create second largest European steelmaker

The new venture would be Europe’s second biggest steel producer after ArcelorMittal

Tata Steel and Thyssenkrupp have reportedly been engaged in tie-up talks for over a year (AFP/Getty)

Tata Steel and Thyssenkrupp have struck a preliminary deal to merge their European steel operations, creating the continent’s second largest producer in a bid to tackle crippling oversupply in the market.

The Indian company and its German peer said on Wednesday that they had signed a so-called memorandum of understanding for a joint venture that will be called thyssenkrupp Tata Steel, if the deal goes ahead.

It will be owned equally by both companies and be based in or near Amsterdam. The EU will need to approve the tie-up and the companies said that they expect the transaction to be finalised early next year.

“Under the planned joint venture, we are giving the European steel activities of Thyssenkrupp and Tata a lasting future,” Thyssenkrupp CEO Heinrich Hiesinger said.

The new venture would be Europe’s second biggest steel producer after ArcelorMittal and Mr Hiesinger said that by combining their operations, the two companies are “tackling the structural challenges of the European steel industry”.

“In Tata, we have found a partner with a very good strategic and cultural fit. Not only do we share a clear performance orientation, but also the same understanding of entrepreneurial responsibility toward workforce and society,” he said.

Natarajan Chandrasekaran, chairman of Tata Steel, said that his own company and Thyssenkrupp “share similar culture and values”.

“This partnership is a momentous occasion for both partners, who will focus on building a strong European steel enterprise,” he said.

“The strategic logic of the proposed joint venture in Europe is based on very strong fundamentals and I am confident that thyssenkrupp Tata Steel will have a great future.”

The two firms said that in the years after the deal is completed, they will focus on leveraging synergies. Eventually, they expect annual synergies of between €400m and €600m (£355m and £533m) across areas like sales, administration, logistics and research and development.

They also said that, over the longer term, the joint workforce of around 48,000 would likely be reduced by up to 2,000 jobs in administration and potentially up to 2,000 jobs in production. Those cuts, they said, are likely to be split roughly evenly between the two companies.

Tata Steel and Thyssenkrupp have reportedly been engaged in tie-up talks for over a year, in a bid to cut costs as the market battles overcapacity.

Steel prices have recovered somewhat in recent months but the industry still faces a massive glut as a result of big Chinese exports.

“We have always targeted the best solution for Thyssenkrupp,” said Mr Hiesinger.

“A joint venture with Tata is the only option that addresses the structural overcapacities in the European steel market, that creates substantial added value through synergies and at the same time is in line with our corporate culture,” he said.

“This also marks a clear commitment to our roots, as the joint venture enables Thyssenkrupp to retain its involvement in steel.”

The signing of the joint deal will need the approval of Thyssenkrupp’s supervisory board and Tata Steel’s board of directors as well as that of the European Commission.