Thyssenkrupp and Tata signed their agreement in the european steel

by Christoph Steitz and Tom Käckenhoff

FRANKFURT/DUSSELDORF (Reuters) – German Thyssenkrupp and the indian Tata Steel have finally signed on Saturday, their final agreement for the creation of a joint venture, the most important operation in the european sector of the steel for more than ten years.

This signing follows months of negotiations since the initial agreement announced in September. The two companies hope that this will enable them to withstand the volatility of the steel industry, marked by excess capacity.

The largest transaction in the sector since the acquisition of Arcelor by Mittal in 2006, creates a new set, which will be christened Thyssenkrupp Tata Steel and will employ 48.000 people, for a combined turnover of € 15 billion.

The joint company, whose headquarters will be located in the netherlands, will be the largest steel producer, european behind ArcelorMittal (AS:MT), the largest steelmaker in the world.

The realization of the merger, which required two years of negotiations, is expected to occur in the fourth quarter of 2018 or the first quarter of 2019 according to the advanced negotiations with the antitrust authorities in europe, said Thyssenkrupp.

The joint venture does not merely respond to the challenges of the steel industry in Europe, said the chairman of the management board of the German group, Heinrich Hiesinger. “It is the only solution to create an additional value of approximately five billion euros for Thyssenkrupp and Tata Steel due to synergies which cannot be cleared in a scenario solo.”

This completion takes place while the steelmakers of europe are faced with customs duties of 25% on their exports to the United States since the beginning of the month.

Since the announcement in late may by the us president Donald Trump of his intention to impose these duties, the actions of the steel europe, ArcelorMittal, Thyssenkrupp, Salzgitter and Voestalpine have lost between 8% and 17% of their value.

The steel division of Thyssenkrupp has recorded better operational performance than that of Tata Steel in Europe since their preliminary agreement last September, which has brought the two groups to have to adjust the value of the assets they will bring to the future joint venture.

Thyssenkrupp said that the agreement provided “adequate compensation” to fill the gap of valuation, which is a range around 500 million euros: if Thyssenkrupp Tata Steel is introduced on the stock Exchange, as is widely expected, the German group added that it would get a larger share of the proceeds of the sale.

He also said to expect annual synergies of at least 400 million to 500 million euros from the transaction. The bulk of synergies will be reached in the first three years of the joint venture, said the chief financial officer Guido Kzerkoff.

The management of Thyssenkrupp will present a detailed strategic plan to the board of supervisors in the second week of July. According to sources, it could include the sale of its division, Material Services, and other cost reductions.

The fund activist Cevian, the second shareholder of Thyssenkrupp, has called for new measures for the restructuring of the conglomerate German, judging that there is a margin of manoeuvre important for improving the performance of the group.

(Juliette Rouillon for the French service)