(Bloomberg) -- Thyssenkrupp AG’s labor representatives reiterated their concern over the company’s plans for a multi-billion dollar joint venture with Tata Steel Ltd. after a recent plunge in profits at the Indian company’s European operations.
Since Thyssenkrupp and Tata have agreed to the preliminary terms of a tie-up of their European steel operations, the Tata business has been under pressure. Earnings at Tata Steel Europe have dropped on rising raw-material costs, while Thyssenkrupp’s profit rose.
“We are still concerned that the JV is a sensible solution given the circumstances,” said Wilhelm Segerath, a senior official at the IG Metall labor union who sits on Thyssenkrupp’s supervisory board. “The diverging development at both companies emphasizes our concerns about the viability of Tata’s European operations, specifically the U.K. plant.”
Tata and Thyssenkrupp are currently putting the final touches on the deal that is to be inked in the coming weeks, according to people familiar with the matter, who asked not to be identified because the information is private.
Tata didn’t immediately respond to queries seeking comment. Thyssenkrupp reiterated that it plans to sign the agreement in the first half of this year, declining to comment further.
Thyssenkrupp’s Chief Executive Officer Heinrich Hiesinger, who has pledged his future on the deal with Tata, still needs to convince the company’s supervisory board to sign off on the deal. Because the board consists equally of shareholder and labor representatives, Hiesinger needs to convince both camps to do the deal.
The diverging performance between the two businesses would affect the outcome of the joint venture. The 50-50 split between Tata and Thyssenkrupp is based on both companies’ earnings before interest, tax, depreciation and amortization of the twelve months prior to last June.
Another sticking point of the deal is a plan to give Tata’s Dutch plant certain operational privileges after the merger, according to people familiar with the matter. The special rights would allow management at Tata’s Ijmuiden plant to retain cash flow and keep the current setup of the operations after the joint venture is completed, according to documents seen by Bloomberg.
Read: Thyssenkrupp Is Said to Oppose Dutch Plant Plan in Tata Merger
If Tata’s Dutch plant is protected, then Thyssenkrupp’s activities should get the same guarantees, Segerath said.
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