ThyssenKrupp and Tata Steal to Create Europe's Second Largest Steel Producer

ThyssenKrupp and Tata Steal to Create Europe's Second Largest Steel Producer”

The 50-50 joint venture is expected to yield "synergies" of between EUR400 million and EUR600 million ($480 million and $719 million) a year but may result in the loss of up to 4,000 jobs, which would be shouldered by both companies.

Tata Steel will inject 2.5 billion euros worth of debt into the joint venture, the Indian company said at a press conference in Mumbai.

'We cautiously welcome the announcement that Tata has signed an MOU with ThyssenKrupp regarding a potential joint venture. Employee representatives hold half of ThyssenKrupp's supervisory board seats, and may resist any job cuts or plant shutdowns.

"We believe Thyssenkrupp's medium-term goal is to completely spin-out steel ops, leaving Thyssenkrupp as a near pure-play capital goods business, and today's proposed merger structure is attractively "IPO-able", in our view", Jefferies analyst Seth Rosenfeld said in a note, reiterating his "buy" rating.

Tata Steel on Wednesday said it has signed an agreement with German steel giant Thyssenkrup to merge their steel operations in Europe in a 50:50 joint venture company. 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.

"This partnership is a momentous occasion for both partners, who will focus on building a strong European steel enterprise", he said. "As a priority, we will be pressing Tata to demonstrate their long-term commitment to steel-making in the United Kingdom by confirming they will invest in the reline of Port Talbot's Blast Furnace No 5".

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"This business combination creates a strong number two, and is thus much better positioned to cope with the structural challenges in the European steel industry. Not only do we share a clear performance orientation, but also the same understanding of entrepreneurial responsibility toward workforce and society".

Thyssenkrupp shares were indicated up more than 5 percent in pre-market trade in Germany while Tata Steel was up 0.7 percent in India.

How big will the new company be?

The deal could have sweeping implications for the industry and for 8,000 workers employed in the United Kingdom in particular.

They have been in negotiations since past year when Tata withdrew from a sales process to sell its entire United Kingdom operations, including Port Talbot - the largest steel works in the UK.

The steel giants have been in negotiations for 18 months after Tata decided not to sell its United Kingdom business, which includes its plant in Port Talbot in South Wales.

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