Tata Steel and Thyssenkrupp deal collapse

Materials World magazine
14 May 2019

Tata Steel Limited’s merger with Thyssenkrupp AG has fallen through, leaving the Tata group looking for alternatives to address its US$13.15bln debt. 

The proposed 50-50 merger would have created a powerful steelmaking major – the second biggest in Europe – so faced fierce scrutiny from the European Commission and a rigorous competition investigation. Feedback from the EC in early May indicated that the commission would not approve the proposal. Both firms had commented that, while they were willing to divest several key businesses, the number of asset sales required to gain EC approval was excessive and would have undermined the value of the deal. 

India-owned Tata Steel planned to offset a portion of its debt to the newly established joint venture, which would have enabled the company to expand its business in India while bolstering that in Europe, which alone accounts for US$2.5bln of the total.  

With the company now in a precarious position, it still plans to payoff US$1bln of debt and to invest in the Indian steelmaking market. India’s government is currently aiming to funnel support into infrastructure projects, including taking on mills and facilities to boost building, which will present significant opportunities for steelmakers such as Tata. 

The European arm of the group has been a cause for concern for more than a decade, however, with slowing demands from manufacturers and increasing levels of imports. 

Conversely, Thyssenkrupp’s shares spiked following the announcement of the scrapping of the deal, rising by 27% per share. Since the merger collapse, Thyssenkrupp has said it is considering spinning off its lifts business – the core of the company – which has been welcomed by investors wanting to pursue mergers with more suitable businesses. 

Meanwhile, Tata Steel’s Port Talbot steelworks will stay open, but fears have been voiced over operating costs and protecting jobs. 

The Press Association reported Tata Steel Chief Executive T V Narendran as saying, ‘obviously the plant will keep running’. ‘We have plans to keep [the UK site] running as long as they are performing well and is cash positive, and I think the team there is working hard to make it that way. We want to make sure this year we run it well and we run it in a manner that is cash positive,’ he said.