Thyssenkrupp-Tata Deal Talks Said Focused on U.K. Unit Value

(Bloomberg) -- Thyssenkrupp AG and Tata Steel Ltd.’s attempts to combine their European steel operations are centered on how to value Tata’s troubled U.K. assets, according to people familiar with the matter.

While Thyssenkrupp is open to integrating Tata’s British unit in the joint venture, the Essen, Germany-based company wants Tata to find a way to fund its U.K. pension-scheme obligations as a precondition, the people said, asking not to be identified because the negotiations are private. Tata wants to include the U.K. division in the Thyssenkrupp project, which would give it a bigger stake in the overall venture, one of the people said.

A representative for Tata declined to comment. A spokesman for Thyssenkrupp reiterated the company’s July statement that it wouldn’t comment on talks with Tata until there are material developments.

The British Steel Pension Scheme had a deficit of about 300 million pounds ($393 million) as of March on a “consistent basis,” the fund said in a statement to members this month. That’s down from 485 million pounds a year earlier, according to its annual report.

Tata is looking for “more sustainable solutions” for its European business and it “would not be realistic to expect that a buyer of the U.K. business or a joint venture would take on responsibility for funding the current or future deficit,” the pension scheme said.

‘Nightmare’ Prices

European steelmakers are struggling with overcapacity, worsened by Chinese exports flooding the market. Combining forces would enable Tata, Europe’s second-biggest steelmaker, and third-ranked Thyssenkrupp to better use their facilities and cut costs.

Tata Steel closed down 2 percent in Indian trading, the biggest drop since July 28. Thyssenkrupp lost 0.6 percent by 3:23 p.m. in Frankfurt.

Mumbai-based Tata said last month it’s in talks with companies, including Thyssenkrupp, about a joint venture. The German steelmaker has been pushing for consolidation in the European industry, which struggles with a “nightmare” of low prices, Chief Executive Officer Heinrich Hiesinger said in June.

Thousands of Thyssenkrupp workers demonstrated against consolidation and restructuring in front of the steel unit’s headquarters in Duisburg, Germany on Wednesday.

“The meaningfulness of a consolidation doesn’t explain itself,” Detlef Wetzel, who represents the IG Metall labor union as deputy chairman of the unit’s supervisory board, told the demonstration. He urged the company’s executives to justify why and how they plan to cut costs by as much as 1.6 billion euros, which may include site closures. “Take the staff’s concerns seriously!”

Tata said in March that it would consider selling its U.K. operations after years of losses.

To contact the reporters on this story: Tino Andresen in Dusseldorf at tandresen1@bloomberg.net, Siddharth Philip in Mumbai at sphilip3@bloomberg.net, Aaron Kirchfeld in London at akirchfeld@bloomberg.net. To contact the editors responsible for this story: Young-Sam Cho at ycho2@bloomberg.net, Aaron Kirchfeld at akirchfeld@bloomberg.net, Amy Thomson, Nicholas Larkin