Thyssenkrupp deal will help address Indian market needs: N Chandrasekaran

Tata Steel Chairman N Chandrasekaran on Monday welcomed the definitive agreement with German steel major Thyssenkrupp to create a new joint venture company as a "historic" development that would strengthen the steel industry across Europe and India.

Chandrasekaran was addressing a joint press conference with Thyssenkrupp CEO Heinrich Hiesinger in Brussels after the creation of Europe's second-largest steel giant after Lakshmi Mittal's ArcelorMittal in the form of the new JV company was announced over the weekend.

"For Tata, this marks a significant milestone in the history of Tata Steel and the Tata Group. It strengthens and provides scale to our European operations, creates a strong steel enterprise and also helps the Indian operations to grow and address the needs of the Indian market," he told reporters.

Addressing a question on what the new company, named Thyssenkrupp Tata Steel BV, would mean for Tata Steel employees in India, he described it as a "great development" for all employees.
 

"We are structurally strong in India, which offers tremendous opportunities as a growing market. This JV creates an opportunity for us to create a good, strong and sustainable footprint in both geographies," he said.

Chandrasekaran also asserted Tata Steel's plans to "double down" in India, where the company plans to increase its presence from 13 million tonnes to 25 million tonnes a year capacity.

In reference to the company's recent acquisition of Bhushan Steel in India, he indicated that Tata Steel was negotiating another acquisition in India as part of its focus on creating a "strong Indian platform" through Brownfield and Greenfield opportunities.
 

Tata Steel's new 50-50 joint venture with Thyssenkrupp involves a total workforce of 48,000 employees, spread across 34 sites, producing about 21 million tonnes of steel a year with revenues of around EUROS 15 billion.

As the second-largest European steel company, after Lakshmi N Mittal's ArcelorMittal, the company has forecast cost savings of between 350 million pounds to 440 million pounds a year as it becomes a "one balance sheet" entity.

"There is industrial logic and strategic rationale behind this merger, which creates a new steel champion in EuropeWe are forming something great, which expresses our trust in the successful future for the steel business in Europe," said Thyssenkrupp CEO Hiesinger.

The JV will now undergo routine clearance process, with the new company board set to be announced within a few weeks. Both entities expressed confidence in being able to navigate the upheavals in store as a result of ongoing Brexit negotiations and US tariff wars, with Hiesinger expressing hope that a free market context will be maintained for the steel industry.

"Having integrated plants across Europe, gives us some flexibility but we will hope for free flow," he said.

"We need to wait and see what the outcome of Brexit is," added Chandrasekaran.

The definitive agreement signed between the two companies includes a "proper compensation" for a valuation gap between the companies, which means that in case of an Initial Public Offering (IPO) of the JV, Thyssenkrupp will receive a higher share of the proceeds, reflecting an economic ratio of 55/45.

Both companies stressed that the timing of the IPO is some way off, as the initial focus would be on kick-starting JV operations following the required regulatory approvals and "building credibility" of the new company.

The merger has been widely welcomed by workers' unions in Britain as the best solution to ensure the long-term future of Tata Steel's UK operations. The Indian company owns the UK's largest steelworks in Port Talbot, South Wales, employing thousands of staff.

"All sides of the JV will have appropriate support to prosper and progress under the new enterprise," said Koushik Chatterjee, Executive Director and Chief Financial Officer of Tata Steel.

The new company's complete production network is to be reviewed starting in 2020, with the aim of integrating and optimising the production strategy for the entire joint venture.

Until the JV gets all its clearances, Thyssenkrupp Steel Europe and Tata Steel in Europe still operate as separate companies and as competitors.