Thyssenkrupp, Tata to pool their assets as overcapacity weighs
on the sector
By Zeke Turner and Scott Patterson
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (September 21, 2017).
German steel giant Thyssenkrupp AG and India's Tata Steel Ltd.
unveiled plans to fuse their steelmaking businesses in Europe -- a
move the two have discussed for years amid a glut of steel in the
region that has depressed prices.
European steelmakers have battled protracted overcapacity and a
wave of cheap imports from countries such as China. In response,
the industry has pursued deals, shed thousands of jobs and closed
unprofitable plants.
The deal is structured as 50-50 joint venture, in which both
companies will pool their European assets into a new company called
Thyssenkrupp Tata Steel, based in the Netherlands. It will be
Europe's second-largest steelmaker behind ArcelorMittal SA and rank
just outside the world's top 10 by production. It will generate
annual revenue of EUR15 billion ($18 billion), ship about 21
million tons of flat steel a year and have a workforce of about
48,000 employees at 34 sites.
Thyssenkrupp CEO Heinrich Hiesinger said the deal was aimed at
attacking the overcapacity plaguing the European steel
business.
"We are giving the European steel activities of Thyssenkrupp and
Tata a lasting future," Mr. Hiesinger said. "We are tackling the
structural challenges of the European steel industry and creating a
strong No. 2."
Steel customers have faced mounting pressure to buy up cheaper
Chinese steel on the market, leaving the region's producers with
excess production capacity that Mr. Hiesinger said has created a
"vicious cycle" and made restructuring the business every three or
four years unavoidable.
Despite efforts by Chinese authorities to tamp down excess
production, the country's steel output continues to rise, gaining
9% in August from the previous year to a monthly record of 74.6
million metric tons, according to RBC Capital Markets.
While Chinese exports have fallen in recent months as domestic
demand rises, the flood of steel has spurred consolidation in
Europe, sometimes irking unions. Tata Steel explored selling its
U.K. operations at Port Talbot in Wales but eventually reached an
agreement with workers to restructure its retirement plan and keep
the plant operating until 2021.
U.S. steelmakers have also struggled amid declining steel
prices, and President Donald Trump has repeatedly vowed to cut
steel imports in the name of national security. But so far no
action has been taken as the administration explores the impact of
such a move on the economy
For Thyssenkrupp and Tata Steel, the combination of their
European steel assets is expected to generate cost savings of
between EUR400 million and EUR600 million through streamlined
logistics, supply lines and, most importantly, production capacity.
They also warned the deal could result in the loss of up to 4,000
jobs, which would be shouldered by both companies in a mix of
steelworker and administrative positions.
Investors welcomed the news, with shares in Thyssenkrupp trading
3.5% higher in morning trading and Tata Steel up 1.6%.
The deal represents Thyssenkrupp's latest move to reduce
exposure to steel and focus on its capital-goods operations such as
elevators, sophisticated car components and submarines. It follows
the sale of its Brazilian steel plant, the last of its steel assets
in the Americas, earlier this year.
But Mr. Hiesinger denied the move represented a departure from
steel.
"It's been said that we want to separate ourselves from steel or
get rid of steel -- that's not true," Mr. Hiesinger added.
The companies said they hoped to formally sign the deal in 2018
and complete and start the JV in late 2018, following regulatory
approval, including from European Union competition
authorities.
The deal also needs the approval of Thyssenkrupp's workers who
have a vote on the company's supervisory board and have previously
said they strongly oppose a merger in any form.
Mr. Hiesinger said job cuts were inevitable either way. "In the
joint venture, we won't have to resort to any measures that we
wouldn't have also needed to implement alone," he said. "Quite the
opposite."
Germany's IG Metall union said it was expecting thousands of
protesters on Friday at Thyssenkrupp's steel mill in Bochum,
Germany.
Thyssenkrupp's supervisory board is set to meet on Saturday,
according to a person familiar with the matter, to begin
negotiations to approve the signing of a preliminary contract with
Tata Steel.
Wilhelm Segerath, who represents Thyssenkrupp's workers on the
company's supervisory board, said Wednesday he expected
negotiations to be difficult but was willing to examine the
joint-venture plans.
"We continue to oppose a merger," he said.
--Marc Navarro Gonzalez contributed to this article.
Write to Zeke Turner at Zeke.Turner@wsj.com and Scott Patterson
at scott.patterson@wsj.com
(END) Dow Jones Newswires
September 21, 2017 05:15 ET (09:15 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.