Tata Steel and Thyssenkrupp to create a European steel enterprise

Tata Steel Limited and Thyssenkrupp AG have signed a Memorandum of Understanding to create a leading European steel enterprise. The agreement will combine the flat steel businesses of the two companies in Europe and the steel mill services of the Thyssenkrupp Group.

The proposed 50:50 joint venture between the two steel giants will aim to focus upon quality and technology leadership as well as the supply of premium and differentiated products to customers with annual shipments of about 21 million tonnes of flat steel products.

The joint venture would have a pro forma turnover of about €15 billion per annum and in its existing form the both employ a combined 48,000 staff. The proposed combination of businesses would be formed through a non-cash transaction framework, based on fair valuation where both shareholders would contribute debt and liabilities to achieve an equal shareholding in the venture.

Thyssenkrupp Tata Steel will be headquartered in Amsterdam and the capital structure will be well matched by the underlying free cash flows of the company. It would benefit from the scale and distribution network capability of the combined assets to achieve quality, technology and cost leadership in the European steel industry. It is also the clear intent of both partners to remain as long term investors and continue the present network configuration of all the upstream hubs in the proposed joint venture company.

Commenting on the MoU, Mr. N Chandrasekaran, Chairman, Tata Steel said: “The Tata Group and Thyssenkrupp have a strong heritage in the global steel industry and share similar culture and values. This partnership is a momentous occasion for both partners, who will focus on building a strong European steel enterprise. 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.”

Mr. Koushik Chatterjee, Group Executive Director, Tata Steel, said: “Based on our initial assessment, cost synergies in the range of €400 to €600 million per annum may be realised through integration of commercial functions, R&D and other supporting activities. Both shareholders have taken care to ensure that the balance sheet of the combined venture will be structured to ensure a sustainable business going forward. The proposed transaction in Europe also paves the way for significant de-leveraging of the Tata Steel Group’s consolidated balance sheet and provides the platform for Tata Steel to pursue future growth.”