U.K. Unions Cautious On Tata Steel-Thyssenkrupp Deal; Mixed Response By Brokerages
What lies ahead for the European joint venture between Thyssenkrupp and Tata Steel.
A key condition of Thyssenkrupp AG and Tata Steel Ltd.’s merger pact to create Europe’s second-largest steelmaker, is job cuts. British trade unions were cautious about the downsizing clause.
The new entity will be a joint venture that will be equally owned by both parties, according to the memorandum of understanding signed between the companies. The merger, which is expected to be completed in 2018, will require each partner to reduce manpower by 2,000.
“As always, the devil will be in the detail and we are seeking further assurances on jobs, investment and future production across the UK operations,” Roy Rickhuss, general secretary of Community and chair of the coordinating committee representing the Unite, GMB and Community unions said in a media statement. “As a priority, we will be pressing Tata to demonstrate their long-term commitment to steelmaking in the U.K. by confirming they will invest in the reline of Port Talbot’s Blast Furnace No.5.”
Synergies
The joint venture, Thyssenkrupp Tata Steel, will be based in the Netherlands and will have 21 million tonnes of flat steel products shipments and an annual turnover of 15-billion euros (Rs 1.15 lakh crore), Koushik Chatterjee, group executive director of Tata Steel said in a separate statement. It will employ nearly 48,000 employees, he said.
“Cost synergies in the range of €400-600 million a year may be realised through integration of commercial functions, R&D and other supporting activities. The proposed transaction in Europe also paves the way for significant develeraging of the Tata Steel Group’s consolidated balance sheet,” Chatterjee said.
Tata Steel Shareholders May Not Be Bullish: JPMorgan
Shareholders of Tata Steel could conceive the joint venture partially negative, JPMorgan said in a note. Merger synergies apart, the other important variable would be Tata Steel’s equity stake, the bank wrote. Investors would like to see the Indian steel major’s stake at below 50 percent as that would make the joint venture a pure equity investment for Tata Steel, it added.
Operational Benefits: Investec
The joint venture will offer several operational benefits, said Investec. The advantages are likely to be in the form of better pricing power, product mix, logistics costs savings and raw material procurement synergies, according to a note by the asset management company.