Steel giants Tata Steel and thyssenkrupp have been talking about it since 2016, but now they have finally managed to reach an agreement to merge their European operations into a 50-50 joint-venture, according to the BBC.
The merged business, to be called thyssenkrupp Tata Steel, will have annual sales of about £13 billion (U.S. $17 billion) and be able to produce 21 million tons of steel per year. The delays in reaching an agreement have in part been due to intense union lobbying to protect the two companies’ 48,000 workers.
The agreement is said to protect jobs with no compulsory redundancies for the next eight years, according to The Telegraph. While no compulsory redundancies have been agreed upon, the tie-up is expected to lead to about 4,000 voluntary redundancies as overlaps are eliminated between the three main hubs of the combined group – IJmuiden in the Netherlands, Duisburg in Germany and Port Talbot in South Wales — with the head office based in the Netherlands.
It is hoped the merged group will make cost savings of between £350-£440 million a year (approximately U.S. $520 million), although unions have secured an agreement for the first £200 million of operating profits to be reinvested back into the business. thyssenkrupp Tata Steel will be the second-largest steel producer in Europe after ArcelorMittal and it is hoped its size will help it compete against rising competition from Chinese imports (made worse by President Donald Trump’s recent imposition of a 25% import tariff on steel made in the European Union).
Heinrich Hiesinger, thyssenkrupp CEO, is quoted by the BBC as saying even prior to the U.S. import duty the two companies needed to consolidate and become more efficient because of increasing pressure from imports and an overcapacity within the industry. The loss of the two companies’ largest export market just makes matters worse.
The consequences for the combined group’s profitability in the event of Brexit have not, at least publicly, been discussed, probably because no one knows what the impact will be on moving products and people across borders post-Brexit. The only comment from the company came from Tata Steel UK CEO Bimlendra Jha who said it would be a “sorry state of affairs” when asked what a hard Brexit would mean.
Importantly, it gives the two companies an increased scale and opportunity to achieve some economies as a result.
Steel prices have picked up this year. Generally, Europe’s steelmakers are doing better, but they face considerable uncertainty as to the impact and duration of the current U.S.-European trade conflict, the level of increased Chinese imports and the possible impact of Brexit.
All in all, the merger may prove timely; the challenges ahead are many.