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Largest EU Steel Joint Venture In A Decade Signed Between Thyssenkrupp And Tata Steel

Largest EU Steel Joint Venture In A Decade Signed Between Thyssenkrupp And Tata Steel
In what is the biggest event for the steel industry of Europe in over a decade, a final agreement has been signed between Germany's Thyssenkrupp and India's Tata Steel for creating a joint venture that has been in the pipeline for quite some time now.
The two companies have been in negotiations for months from the time announcement of the initial agreement back in September. The companies aim to help each other to tackle the challenges in the steel industry such as overcapacity.
The new venture with about 48,000 employees and about 17 billion euros ($19.9 billion) in revenues would be named Thyssenkrupp Tata Steel and would is the largest acquisition in the steel industry in Europe since the takeover of Arcelor by Mittal in 2006. The new venture will have a 50-50 partnership.
The joint venture would become the second largest steel maker in Europe after ArcelorMittal and would be based in the Netherlands. This joint venture is at the center of the plans of Thyssenkrupp CEO Heinrich Hiesinger to transform his steel-to-submarines conglomerate into a technology company.
"The joint venture not only addresses the challenges of the European steel industry," Hiesinger said. "It is the only solution to create significant additional value of around 5 billion euros for both Thyssenkrupp and Tata Steel due to joint synergies which cannot be realized in a stand-alone scenario."
"A strong pan- European steel company that is structurally robust and competitive" would be created by the joint venture, said Tata Steel Chairman Natarajan Chandrasekaran in a separate statement.
The deal is taking place at a time when the US has imposed a 25 per cent tariff on European Steel with the US being the largest steel exporting market for them. the tariff can mean the local market having to quench up more of the output.
There has been fall of between 8 to 17 percent in the shares of the European steelmakers ArcelorMittal, Thyssenkrupp, Salzgitter and Voestalpine since the announcement of the tariffs in late May.
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Activist shareholders Cevian and Elliott have pressurized Hiesinger to get more out of Tata Steel in the agreement. There has been a valuation gap between the companies since the initial agreement was announced as Tata Steel has underperformed compared to its partner in the European market.
"Proper compensation" for the gap was included in the deal, Thyssenkrupp said. The compensation package was in the mid-triple-digit million- euro range, Thyssenkrupp said.  This means that when and if the joint venture goes public, Thyssenkrupp would get a bigger share of the revenue generated.

Christopher J. Mitchell

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