London, Jun 30 (PTI): Tata Steel today 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. Also Read - International Flights: Air India Closes 5 Stations in Europe Over Losses Amid COVID-19 Pandemic
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. Also Read - Vande Bharat Mission Phase 5: SpiceJet Repatriates 269 Stranded Indians From Amsterdam to Bengaluru, Hyderabad
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. Also Read - Govt Allows Operation of Electricity Futures in India
“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 in a statement on Saturday in accordance with the Securities and Exchange Board of India (Sebi) regulations.
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 initial public offering (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.
“…With the joint venture we create a highly competitive European steel player based on a strong industrial logic and strategic rationale. This will help secure jobs and value chains in European core industries,” Heinrich Hiesinger, CEO of Thyssenkrupp AG said.
The merger was welcomed by workers’ unions in Britain as the best solution to ensure the long-term future of Tata Steel’s UK operations. The Indian company owns the UK’s largest steelworks in Port Talbot, South Wales, employing thousands of staff.
“Steelworkers have fought hard to ensure the future of British steelmaking. As part of this joint venture, we have secured significant investment across Tata Steel’s UK business, including a repair of Port Talbot’s blast furnace number five, which could see it produce steel until at least 2026, said Roy Rickhuss, General Secretary of the union Community.
Tony Brady, National Officer for Unite, stressed that his union would be seeking guarantees for jobs and investment for Tata Steel’s UK “world class” workforce.
“Those steelworkers have made great sacrifices in working to secure a future for Tata Steel,” he said.
“We will continue to ensure jobs and investment remain the key underpinning priorities within any final joint venture, which must equate to opportunities for our members in the UK, particularly after the difficult and uncertain recent times they have faced,” Ross Murdoch, National Officer for GMB said.
The local MP from the Port Talbot area in Wales, Stephen Kinnock, also welcomed the new JV announcement, calling for “sustained investment” in the region’s steel industry.
“With Brexit looming large and Trump recklessly spoiling for a trade war there are still all sorts of risks and challenges facing our industry. By teaming up with Thyssenkrupp, Tata Steel has added strength and resilience to its recovery…,” the Labour party MP, who has been part of crisis talks since Tata Steel had announced major changes to its European operations, said in a statement.
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 each with six members, on which Thyssenkrupp and Tata Steel will have equal representation.
Respective employee representation structures in European countries and a European Works Council (EWC) will be retained.
In addition, an Employee Executive Committee (EEC) will be established, in which the management board and employee representatives of the joint venture will regularly discuss strategic issues.
“Due diligence and fairness opinions have confirmed the economic viability of the new company and the expected annual recurring synergies (savings) of approximately EUROS 400 to EUROS 500 million. After closing, the synergies will be generated in several areas including procurement, consolidation of overhead and through a better asset utilisation.
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 Europe and Tata Steel in Europe still operate as separate companies and as competitors.
This is published unedited from the PTI feed.