European Commission rejects Joint Venture between Tata Steel and Thyssenkrupp

Tata Steel Europe and Thyssenkrupp AG, a German multinational had signed an equal joint venture agreement in June last year to combine their steel business which had made it the region’s second-biggest steelmaker, first being ArcelorMittal.

Why joint venture was not approved?

As per the latest updates, European Commission, one of the approval agency have rejected this proposed joint venture between the two companies citing reason that the economic logic of the joint venture is no longer valid and its fundamental sustainability would be severely impacted.

Tata Steel and Thyssenkrupp had earlier submitted a remedial package in response to the 'Statement of Objection' issued by the European Commission against the JV. Both the companies offered to sell assets in Belgium, Spain and the UK to win antitrust approval. The two companies proposed divesting two automotive steel plants in Spain and Belgium. The companies may sell a UK steel operation but plan to keep the main Port Talbot mill.

However, despite these remedial measures, the joint venture deal between the two companies didn’t get the approval. This is because the European antitrust authorities have apprehensions that the joint venture will result in less choice and higher prices for steel in the automotive and electrical products sector. Apart from this, the deal seems to have fallen apart amid the change in market dynamics in the past one year due to trade war concerns, Brexit uncertainty, and labour issues.

A strong synergy lost

Thyssenkrupp- Tata Steel JV was expected to have 17 billion Euros in sales and joint labour force of 48,000 workers. Both companies had stated that the JV will help achieve annual synergies of 400-500 million Euros, through joint purchasing including logistics services, higher equipment utilization and reduced administrative expense. However, up to 2,000 administrative jobs and possibly up to 2,000 jobs in production will have to be cut in the coming years at both firms. These reductions would be shared roughly evenly between the two.

How JV would have benefited the two companies?

The joint venture with Tata Steel was an important milestone for the transformation of Thyssenkrupp to an industrial and service group and would have led to a significant improvement of its financial figure. On the other hand, this acquisition would have helped Tata Steel to de-consolidate its European business and deleverage its balance sheet. However, the company would continue to explore more options to achieve a similar outcome as mentioned in the statement released by the company. The company has two-third of its operations in India. In order to strengthen its portfolio, Tata Steel acquired an Indian steel major, Bhushan Steel with a capacity of 5.6 MnT under the IBC process.