Tata Steel negotiating for possible European JV
India’s Tata Steel Ltd. is negotiating with steel-industry players, such as Germany’s Thyssenkrupp AG, about a possible joint venture as it goes back to the drawing board for how to deal with its flagging European business after last month’s Brexit vote, the company said.
In April, the Mumbai-based firm formally said it planned to sell its ailing U.K. operations, citing a global glut of steel, high costs and funding strains and was considering a handful of bids for the British operations.
Late Friday, the company said, amid the uncertainty surrounding the June 23 referendum by Britons to leave the European Union, it had decided to look at more sustainable alternative solutions for the business.
Tata Steel said specifically that it had now entered into discussions with strategic players in the steel industry, including engineering conglomerate Thyssenkrupp, to explore the feasibility of strategic collaborations through a potential joint venture. The two had been discussing a tie-up for some time.
A potential European deal “offers the best prospects to create a premium, world-class strip steel business with the scale and scope of capabilities to compete successfully on the global stage,” said Koushik Chatterjee, Group Executive Director and Tata Steel’s Executive Director for Europe.
This could potentially include a combination of Tata Steel’s plants in Port Talbot, Wales, and Ijmuiden, Netherlands, with some of ThyssenKrupp’s steel operations in Duisburg, Germany, to create the EU’s second largest flat steel producer by production capacity, with 25% market share. ArcelorMittal is the largest EU flat steel producer with a 33% market share, according to Jefferies.
While Tata Steel contemplates a potential joint venture of its European flat-products business, it plans to separately forge ahead with the sale of its smaller U.K. specialty steel and pipe businesses.
Located in the English towns of Rotherham, Stocksbridge and Hartlepool, the smaller operations employ about 2,000 people and are run largely independently from Tata Steel’s much larger U.K. flat-products business, which employs about 9,000 people and includes the Port Talbot steel plant, Britain’s largest.
The Indian steelmaker said it has already received interest from several bidders for the specialty steel and pipes businesses and plans to start a formal sale process soon.
After a Friday meeting with Tata Steel Chairman Cyrus Mistry in Mumbai, U.K. Business Secretary Sajid Javid said he was encouraged by the company’s intention to pursue a joint venture with Thyssenkrupp and sell its smaller businesses.
“The government remains committed to doing all it can [to help Tata Steel find a buyer] and that our package of commercial support still stands,” he said. “We will continue to work closely with Tata to find a long-term solution for sustainable blast furnace steel manufacturing in Port Talbot.”
The U.K. government offered to provide loans and even purchase up to a 25% stake in the U.K. business to secure a buyer. It also said it would help find a solution to Tata Steel’s growing U.K. pensions deficit woes, a key obstacle in closing any deal.
Source: MarketWatch
