New Steel Giant: Tata Steel Wins JV with Thyssenkrupp

Tata Steel and the German industrial group Thyssenkrupp AG have signed definitive agreements to consolidate their European steel operations into a 50-50 joint venture in a new company, according to a press release of society
Saturday. This decision follows the signing of a memorandum of understanding signed by the two companies in September 2017.

As part of the agreement, both parties had agreed to combine the activities of Flat steel of the two companies in Europe and the Thyssenkrupp Group steelworks through a 50:50 joint venture – a move that would lead to the formation of a new player in the European market's second largest market share. steel, with a combined business turnover of 17 billion euros a year and about 48,000 workers.

Commenting on the development, Natarajan Chandrasekaran, President of Tata Steel, said: "The joint venture will create a strong, structurally robust and competitive pan-European steel company."

Heinrich Hiesinger, CEO of Thyssenkrupp, said: "We are going to create a highly competitive European steel player based on a strong industrial logic and strategic logic, we will guarantee jobs and help maintain the chains. value in European basic industries. "

The proposed new company, Thyssenkrupp Tata Steel BV, will position itself as the leading pan-European producer of flat steel. This is the largest steel contract in Europe since 2006, when Arcelor was bought by Mittal. The proposed joint venture will also lead to significant deleveraging for Tata Steel, which will transfer 2.5 billion euros to the joint venture, which badysts estimate accounts for around 35 to 40 percent of its European business debt.

For its part, Thyssenkrupp transfers approximately 3.6 billion euros from its retirement obligations to the joint venture. The transaction is subject to merger control approval in several jurisdictions, including the European Union.

During a conference call, Koushik Chatterjee, executive director of the group (finance and business), Tata Steel, told badysts at a conference call. Based on these figures, the joint venture 's sales figure at the date of the last reporting would be in the order of 17 billion euros and the pre – synergistic Ebitda (earnings before interest, taxes, depreciation and amortization) of approximately 1.5 billion euros. "We have also agreed to transfer our external debt of approximately 2.5 billion euros into the joint venture, and with identified synergies of 400 to 500 million euros, the credit profile of the joint venture is very healthy, "he said. ] The deal is expected to be completed by December 2018, and Chatterjee says the schedule remains.

The agreement clarifies the uncertainty that hovered over the agreement in recent weeks. However, in a separate statement, Thyssenkrupp stated that since the signing of the Memorandum of Understanding, the different development of the performances of Thyssenkrupp Steel Europe and Tata Steel Europe has led to a valuation gap between the two entities. "The definitive agreement includes appropriate compensation for this valuation gap; In the case of the IPO of the joint venture, Thyssenkrupp will receive a higher share of the product, reflecting an economic ratio of 55:45 in favor of Thyssenkrupp.In addition, Thyssenkrupp has the right to decide exclusively the moment of a potential IPO, "the statement said.

According to media reports, Thyssenkrupp is facing pressure from some of its shareholders who are asking Tata Steel Europe to There has been a deterioration in the company's performance since the announcement of the joint venture in September, creating gaps in valuation.

However, commenting on the details of the IPO, Chatterjee told badysts that he continued to be a 50: 50 JV and needs to be examined on this basis from the point of view of governance, earnings, cash flow, dividends, including representation on boards of directors. "Only at the time of the IPO on the basis of the affirmative rights that Thyssenkrupp has, the company JV will issue warrants that will convert into shares and they will actually be entitled to a first monetization of 10% and the market will pay for that. "

He added that if the IPOs of a specific country require additional liquidation, this amount will be mutually decided at the level of the joint venture by both shareholders. In addition, the figure of 400-500 million euros on annual synergies is lower than 100 million euros at the top end. However, Chatterjee explained that the previous figures were only indicative, and the current badessment could have another benefit for them. These synergies will be fully realized over the next two to three years.

TV Narendran, chief executive of Tata Steel, said that about one-third of the synergies are in supply and can be realized as soon as the formation of the JV. "Synergies on network optimization, which represent 20% more, can be achieved in the first 12 months." He added that with this merger, the company creates a structurally sound and self-sustaining business. "This partnership will help us serve our customers in Europe in terms of technology and R & D."

The management of capital expenditures and the optimization of working capital should generate additional synergies, Thyssenkrupp said. declaration. At the same time, the future configuration and positioning of the joint venture will enable growth in higher value segments, exceeding industry growth rates. This will be achieved by, among other things, redeploying R & D efforts to strengthen positioning as a leader in quality and technology, he said.

The German company also said that cost synergies would require streamlining. 4,000 jobs in operations and support functions, which should be shared fairly equally between the two parties. In addition, the complete production network must be reviewed from 2020 with the aim of integrating and optimizing the production strategy for the whole of the joint venture.

Until closing, Thyssenkrupp Steel Europe and Tata Steel in Europe still operate as separate companies. competitors. It is only after the closing that Thyssenkrupp Steel Europe and Tata Steel in Europe will be integrated into one company, according to the companies.