Tata steel merger could produce €600m synergies

20 September 2017

India’s Tata Steel and Germany’s steel manufacturer ThyssenKrupp AG have agreed to merge their European operations to create Europe’s second largest steel group.

The two companies announced a memorandum of understanding on Wednesday which creates a 50-50 joint venture that would produce synergies of up to €600m.

“Based on our initial assessment, cost synergies in the range of €400 to €600 million per annum may be realised through integration of commercial functions, R&D and other supporting activities,” said Koushik Chatterjee, group executive director of Tata.

“Through the combination, both companies would benefit from significant synergies. In the early years, these synergies would primarily derive from an integration of sales and administration, research and development, a joint optimisation of procurement, logistics and service centres.”

Thyssenkrupp said: "The production network is to be reviewed starting in 2020 with the aim of integrating and optimising the production strategy for the entire joint venture. It’s not yet possible to quantify additional synergies as they depend on the outcome of external factors such as Brexit and its implications."

Greg Clark, the UK business secretary and Roy Rickhuss, the chair of the National Trade Union Steel Co-ordinating Committee, said the deal between Tata and ThyssenKrupp had the potential to protect the long-term future of steelmaking at Tata’s site in South Wales, its 4,000 jobs and the wider supply chain. The site is home to the Indian conglomerate’s strip steel business.

“Today’s agreement between Tata Steel and ThyssenKrupp is an important next step in establishing their shared ambition for Port Talbot as a world-class steel manufacturer, with a focus on quality, technology and innovation,” said Clark.

Rickhuss added: “The steel trade unions cautiously welcome this news and recognise the industrial logic of such a partnership. This would create the second biggest steel business in Europe which could deliver significant benefits for the UK.”

The joint venture partners expect to cut the workforce by 2,000 jobs in administration and potentially up to 2,000 jobs in production. This burden is expected to be shared roughly evenly between the two parties.

The new business, to be named ThyssenKrupp Tata Steel, will be managed via a holding company in the Netherlands and it’s expected that the merger will be signed in early 2018.

The new enterprise is set to have sales of about €15bn and a workforce of 48,000 at 34 locations. Steel shipments are envisioned to be about 21m tons a year.

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