Logos sit on the side of a building at the steel works operated by Tata Steel Ltd. in Port Talbot, U.K. (Photographer: Simon Dawson/Bloomberg)

Tata's Steel Plan Thrown Back Into Doubt as Merger Collapses

(Bloomberg) -- The future of Tata Steel Ltd.’s two giant European plants has been thrown into doubt after a long-proposed venture with German rival Thyssenkrupp AG looked at risk of collapsing. The shares slid the most in two years.

Tata, which operates the iconic blast furnace at Port Talbot in the U.K. and another big plant in the Netherlands, has been trying to find a solution for its European business since being hit by the 2016 commodity crisis, though many of its troubles stem from before then. With a European joint venture now likely to be rejected, it’ll have to find a plan B.

Thyssenkrupp said Friday that it’s abandoning plans to split itself in two and that it didn’t expect regulators to approve the joint venture with Tata. The reaction from shareholders was telling: Thyssenkrupp surged the most on record while Tata slumped as much as 7.7% in Mumbai. The Indian company said it’ll keep focusing on improving its European business, while looking for new options that can clear regulatory hurdles.

Tata's Steel Plan Thrown Back Into Doubt as Merger Collapses

“The proposed joint venture was an important strategic initiative for Tata Steel to create a sustainable portfolio in Europe” that would have benefited its balance sheet, Tata said in a statement. “Tata Steel remains committed to the above strategy and would explore all options to achieve similar outcomes in the future.”

The Indian steelmaker bought Corus Group Plc for about $13 billion in 2007 to gain control of its European units, but has been closing and selling plants in the U.K. since the 2008 financial crisis to make the business more profitable. The nadir came in 2016, when it put all its British sites up for sale, though it resolved to keep the Port Talbot plant.

Port Talbot

“The plant will obviously keep running. We want to make sure we run it well,” Tata Chief Financial Officer Koushik Chatterjee said on a conference call, adding that he expects Port Talbot to be profitable this year.

The U.K.’s largest labor union, Unite, demanded assurances on the future of Tata’s operations.

“Tata Steel’s workforce has been on a roller-coaster of uncertainty for several years,” the union said. “When we meet the Tata board we will be telling it that it is a ride that has to end and demanding assurances over jobs and investment.”

Thyssenkrupp and Tata had offered concessions to regulators earlier this year to win antitrust approval for the European joint venture, including selling plants in Belgium, Spain and the U.K. The companies said today that offering further concessions would have undermined the business case for the deal.

The venture would have created the region’s second-largest producer, behind ArcelorMittal, the world’s top steelmaker. The entity would be highly focused on flat steel, used to make products like appliances and cars, and would have produced about a quarter of the region’s flat steel. Carmakers have long been reluctant to become too dependent on one or two suppliers, especially since the high-tech product they require can’t be produced by all steelmakers.

The breakdown comes at a bad time for the region’s producers of flat steel, which is being hit hard by weak demand from carmakers and high imports, especially from Turkey.

©2019 Bloomberg L.P.