ThyssenKrupp and Tata Steel plan to merge by 2018. However, about 4,000 layoffs are expected due to too much production capacity and not enough demand.
BE2C2 Report — India’s Tata Steel and Germany’s ThyssenKrupp have signed a memorandum of understanding to merge their European operations on Wednesday, a statement from the Indian company said. Thyssenkrupp shares were up 5.4 percent in pre-market today, report Reuters.
The statement from Tata Steel notes that the 50:50 venture would be focused on quality and technology leadership and supplying premium and differentiated products to their customers, with an estimated annual revenue of around $18 billion.
Headquartered in Amsterdam, the merged business will be named Thyssenkrupp Tata Steel with more than 48,000 employees and ship about 21m tons of steel per year in a deal that would create an industry giant aimed at safeguarding their future– it would be Europe’s second largest steel business, behind only ArclorMittal, giving it the scale to compete more evenly in tough international markets.
“The strategic logic of the proposed joint venture in Europe is based on very strong fundamentals,” said N Chandrasekaran, chairman of Tata Steel.
“This partnership is a momentous occasion for both partners, who will focus on building a strong European steel enterprise,”
“I am confident that ThyssenKrupp Tata Steel will have a great future,” Chandrasekaran added.
Europe’s steel makers have been under intense pressure from cheap imports. China – which produces half of the 1.6bn tons of steel made globally each year – has been a particular threat with its state-subsidized plants dumping their output worldwide as domestic demand wanes.
Thousands of jobs in the European steel industry have gone as businesses have collapsed in the face of such competition.
Thyssenkrupp chairman Heinrich Hiesinger said the merger would create “a strong number two and is thus much better positioned to cope with the structural challenges in the European steel industry.”
Andrew Robb, chairman of Tata Steel Europe, called the plans “the latest step in building a future for Tata Steel’s activities in Europe which is sustainable in every sense”.
He added: “The combination of our two businesses would provide the strongest possible foundation for achieving this vision, creating a global leader for the long term.”
Joining forces will create an integrated steel production and distribution network offering more products and better service, something Tata said would give “greater long-term sustainability to workers”.
The merger is expected to generate cost savings of between €400m and €600m a year once the completed, with efficiencies coming through combining administrative and R&D functions.
However, about 4,000 layoffs (about 8 percent of joint workforce) are expected with the merger due to too much production capacity and not enough demand.
ThyssenKrupp CEO Heinrich Hiesinger said, “Even with the joint venture it will not be possible to avoid job cuts.”
The next step will be to negotiate definitive detailed agreements between the companies and anticipate to close the deal by 2018.
As part of the deal, Tata pledged to invest £100m a year over the coming decade in its British business to secure its future.
Tata Steel is among the top steel companies in the world and is the world’s second-most geographically diversified steel producer, with operations in 26 countries and a commercial presence in 50 countries.