Thyssenkrupp and Tata Steel have finally made it to the altar.
After 18 months of mostly behind-the-scenes negotiations to resolve several potentially “deal-off” stumbling blocks, all the major issues have been resolved. The two firms have signed a memorandum of understanding to create a 50:50 joint venture based in Amsterdam, Netherlands, called Thyssenkrupp Tata Steel (TTS).
The behemoth will rank second to ArcelorMittal with 21 million tons of annual steel capacity generating sales of €15 billion ($17.8 billion) and employing 48,000 people, The Telegraph reported.
TTS will focus on three main production hubs: Ijmuiden in the Netherlands, Duisburg in Germany and Port Talbot in South Wales, the paper reports, Analysts say improved viability will come from cost savings of between €400 million and €600 million a year arising after 2,000 redundancies and another 2,000 jobs going out of the combined business as overlapping operations are removed.
Not surprisingly, TTS sees the value proposition as the enhanced opportunity for the combined group to move its business up the value chain in cooperation rather than competition with each other.
Hans Fischer, Tata Steel Europe’s chief executive, said “We need to focus on higher value products, China has huge overcapacity and there is a risk they will flood the market. The answer is not to compete with them, but try but find a solution where we have products that cannot be produced easily. We need to be a technology leader.”
Tata wriggling out of the old British Steel Pension fund liabilities was the final major hurdle to overcome — albeit to be fair, at considerable cost to the parent — and the willingness of British workers to agree to an end to the final salary scheme and reduced benefits for existing members underlines their desperation for a deal, matched by compromises made in Germany by workers fearful of the prospects of foreign competition with the European steel industry.
But therein lies the dilemma.