London, Frankfurt, New Delhi: Germany’s ThyssenKrupp AG and India’s Tata Steel Ltd reached a final agreement to set up a European steel company with equal share of ownership, more than nine months after signing a memorandum of understanding to establish the venture.
The proposed name of the new company is ThyssenKrupp Tata Steel B.V., focusing on high-quality flat steel production, the companies said in a joint statement on Saturday. The deal is still subject to regulatory approval in several jurisdictions including the European Union.
Tata Steel rose as much as 3.3 per cent in Mumbai on Monday and was the best performer on the benchmark S&P BSE Sensex Index.
It’s expected that the merger will go into effect in 2019, and the headquarters of the new company will be based in the Amsterdam region, with its management and supervisory boards each made up of six representatives, divided between the companies.
“One company, one balance sheet, one cash flow,” Thyssenkrupp’s Chief Executive Officer Heinrich Hiesinger said Saturday on a conference call with investors.
Talks over the venture have dragged on for more than a year and faced opposition from labour representatives, as well as activist shareholders, and earlier in the week there was disagreement over the share of ownership. The companies will jointly hold more than 50 per cent of the venture for six years, with most of the cost savings occurring in the first three years, Tata’s executive director Koushik Chatterjee said Saturday on a call with analysts.
For the Mumbai-based company, “the unchanged deal contours are a significant relief,” Edelweiss Financial Services Ltd. said in a note on Monday. Jefferies Group LLC said the venture will help Tata Steel cut debt and alleviate concerns over its stock, which has fallen this year.
Still, in the event of an initial public offering, ThyssenKrupp would receive a higher share of proceeds, reflecting an economic ratio of 55-45, according to the Essen, Germany-based company. ThyssenKrupp said it expects around 4,000 jobs to be cut from the joint venture in order to make cost savings, estimated at as much as €500 million (Dh2.1 billion or $584 million) annually. It gave no further details on the timing of job cuts.
Global steelmakers are enjoying the best market conditions in years, with demand in almost every major market forecast to grow this year. At the same time, US President Donald Trump’s threat of tariffs has caused prices to soar to the highest levels in years.