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‘Different visions’ for joint venture


MAJORITY
MOVE?
Tata Steel
MAJORITY MOVE? Tata Steel

TATA STEEL EYES BIG STAKE IN THYSSENKRUPP DEAL

INDIA’S Tata Steel would consider taking a major­ity stake in its planned European steel joint ven­ture with Germany’s Thyssenkrupp after the busi­ness has publicly-listed, according to two sources familiar with the matter.  

Tata’s willingness to increase its holding is a sign of its commitment to expanding its steel empire globally, said the sources.  

Such a development in the planned joint venture – which would create Europe’s second-largest steel group after ArcelorMittal – would also fit with Thys­senkrupp’s strategy of reducing exposure to steel­making to concentrate on manufacturing high-mar­gin industrial and technology goods.  

“They have different visions. Thyssenkrupp is looking to exit the steel sector while Tata is looking to stay and grow,” said one of the sources. Tata Steel and Thyssenkrupp declined to comment.  

The two companies struck a preliminary deal last year to merge their European steel assets into the 50:50 joint venture. Investors widely expect a flota­tion of the business, something that both companies have said could happen.  

Tata Steel would “down the road be open to taking over a larger piece of the pie” in the Thyssenkrupp tie-up once the merged entity is publicly-listed, the second source said.  

The source added that this would depend on mar­ket conditions at the time of a listing and how well the company’s operations were in doing in India.  

Thyssenkrupp and Tata must retain a joint stake of at least 50.1 per cent in the venture for at least six years following the deal’s closing in the event of an IPO, according to a labour agreement between Thyssenkrupp and its workers.  

The deal does not specify how that stake should be split up, however, meaning that Thyssenkrupp could in theory reduce its stake to, for example, one per cent if Tata Steel agreed to take on the other 49.1 per cent.  

“We haven’t addressed at all the question of an end, of a minimum (stake),” Thyssenkrupp chief fi­nancial officer Guido Kerkhoff told journalists in February when asked about whether both groups would equally divide the 50.1 per cent stake.  

Tata’s push to expand reflects a broader global trend towards consolidation of a fragmented steel­making industry.  

The biggest players, including industry leader Ar­celorMittal, China’s Hebei Iron and Steel Group (Hesteel) and India’s JSW Steel, are looking to snap up assets across the world as the market rebounds.  

Thyssenkrupp, an industrial firm as opposed to a pure steel player like the others, has long been open about its desire to sell out of steel.  

Both the Tata tie-up and last year’s sale of its Bra­zilian steel mill CSA were done with a view to drasti­cally lower Thyssenkrupp’s exposure to steel and transform the group into a technology and industri­als powerhouse.  

For Tata Steel, by contrast, the joint venture is a move to save its ailing European steel business, which has been burning through about $1 billion a year, by getting better economies of scale. (Reuters)