Joint venture with Thyssenkrupp to help Tata Steel double capacity

“Tata Steel India is in a strong position to grow faster and set to double its capacity through organic or inorganic route, post deal with Thyssenkrupp,” Tata Group Chairman N Chandrasekaran said.

The domestic steel-maker announced signing of an agreement with Thyssenkrupp to merge their steel operations in Europe in a 50:50 joint venture company. The deal creates a strong and clean balance sheet, coupled with strong products and research and development capabilities to grow, Chandrasekaran told reporters here. He further said the two partners expect the deal to close by December this year or early next year.

As per the MoU signed between the two, the proposed JV – Thyssenkrupp Tata Steel – would be headquartered in Amsterdam region of the Netherlands and will supply premium and differentiated products to customers, with annual shipments of about 21 mn tonnes of flat steel products. The two companies expect annual synergies of 400-600 mn euros.

The joint venture would have a pro forma turnover of about 15 bn euros per annum (Rs 1,15,000 cr). It currently employs about 48,000 people spread across locations and would be headquartered in Amsterdam, the Netherlands.

“Based on our initial assessment, cost synergies in the range of 400-600 euros mn per annum may be realised through integration of commercial functions, R&D and other supporting activities. “Both shareholders have taken care to ensure that the balance sheet of the combined venture will be structured to ensure a sustainable business going forward,” Tata Steel’s Group Executive Director Kaushik Chatterjee said. The proposed transaction in Europe also paves the way for significant de-leveraging of the Tata Steel group’s consolidated balance sheet and provides a platform for it to pursue future growth, he added.

The proposed combination of businesses would be formed through a non-cash transaction framework, based on fair valuation where both shareholders would contribute debt and liabilities to achieve an equal shareholding in the venture. In a statement Heinrich Hiesinger, CEO of thyssenkrupp AG said: “Under the planned joint venture, we are giving the European steel activities of thyssenkrupp and Tata a lasting future. We are tackling the structural challenges of the European steel industry and creating a strong No. 2.”

“In Tata, we have found a partner with a very good strategic, cultural fit. Not only do we share a clear performance orientation, but also the same understanding of entrepreneurial responsibility toward workforce and society,” Hiesinger added. The German steel maker also said, in the months ahead, due diligence will be conducted. “In the process, the negotiating parties will give each other access to confidential business documents to the extent permissible between competitors.