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Tata Steel, ThyssenKrupp sign MoU to merge European units

The massive expansion of steel capacity by China and its aggressive marketing, often offering at low prices, had severely impacted steel producers in developed countries in Europe, Japan and elsewhere. Tata Steel Ltd (TSL) that acquired the European giant Corus Steel, much larger than its Indian operations, was among the severely hit. TSL has been vigorously looking out for solutions to get out of their European operations that were pulling down the operations of the Tatas in India.

There was the added problem of tackling the huge burden of employee costs. Last year the company sold off its long products facility at Scunthorpe in northern England for just 1 pound to investment firm Greybull Capital LLP. Still, the other mills with annual losses of around a million euro could not be sold.

In this background the recent news on a partnership with the German steel giant ThyssenKrupp in a 50:50 joint venture is welcome news. Tata Steel and ThyssenKrupp have signed a MoU to combine their European steel operations in an equal joint venture to be named - ThyssenKrupp Tata Steel (TKTS). 

The non-cash transaction framework will combine the flat steel business of the two companies in Europe and the steel mill services of the ThyssenKrupp group. 

The deal will create the second largest player in Europe with annual shipments upwards of 21 million tonnes and total revenue and EBITDA of €15 billion (Rs.115,000 crore), and €1.5 billion respectively. The new entity is expected to have a workforce of 48,000 spread over 34 locations.

TKTS is expected to emerge a major flats producer with TSL adding all its flat steel business in Europe and ThyssenKrupp (TK) contributing its Steel Europe division. 

TKTS would be based out of the Netherlands and comprise a 2 tier structure with a management board and supervisory board. Both boards will have equal representation from Tata Steel and ThyssenKrupp.

“We see the agreement between Tata Steel and ThyssenKrupp to combine their European steel operations as mutually rewarding as not only will it aid consolidation in the European steel sector, but could likely pare debt from both partners’ balance sheets,’’ pointed out a report by Edelweiss Securities. 

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