Thyssenkrupp, Tata in Talks on Steel Tie-Up -- 3rd Update
April 01 2016 - 11:50AM
Dow Jones News
By Eyk Henning and Alex MacDonald
FRANKFURT--German engineering conglomerate Thyssenkrupp AG and
India's Tata Steel Ltd. have held talks on combining their
continental European steel operations as overcapacity continues to
weigh on prices and profits, people familiar with the matter
said.
The companies have been holding high-level talks for over a
year, the people said, noting that Thyssenkrupp's preferred
structure might be a tie-up of the two companies' steel assets in a
joint venture. It also wasn't immediately clear where the talks now
stand.
There is no guarantee a deal will be reached, one of the people
said, adding an agreement is unlikely in the short term.
German daily Rheinische Post reported earlier that the companies
were in advanced talks on combining their steel operations.
Thyssenkrupp's shares soared following the report, rising as
much as 7.7%, in morning trading.
Tata said earlier this week it would explore the sale of its
entire U.K. business, a move analysts say could pave the way for a
combination of Tata's Dutch assets with Thyssenkrupp's European
steel operations.
Should Tata sell its U.K. operations, its European "exposure
would focus exclusively on Netherlands-based flat products business
at Ijmuiden. Given Thyssen's interest in pursuing consolidation
solely with another premium flat steel producer, we believe this
cleaning-up of Tata's portfolio may help free-up the core Dutch
assets for Thyssenkrupp", Jefferies analysts said in a note this
week.
Credit Suisse analysts came to the same conclusion, saying
Tata's planned exit from the U.K. was a prerequisite to any
potential deal with Thyssenkrupp.
"This scenario in turn could lead to the creation of a 20
million tons high quality steel producer in Europe, and the
eventual exit of steel for Thyssenkrupp, with arguably a strong
synergy story," they said.
Tata Steel is Europe's second-largest steelmaker by production
capacity, after Luxembourg-based ArcelorMittal SA. The company has
in recent months announced several rounds of layoffs at its U.K.
operations, which include steel mills across Wales and England. The
company said in January it aimed to reduce its workforce to 14,000
once it completed consultations with unions about the proposed
cuts.
The company employed 17,000 workers just before it began
eliminating jobs in 2015.
On Friday, Fitch Ratings cut Tata Steel's credit rating by one
notch to BB from BB+, citing lower profitability across all
regions, especially the U.K., and rising debt. The ratings agency
said it would consider a further cut should the steelmaker accrue
more debt to close any loss-making operations in the U.K. By the
same token, it may consider raising the steelmaker's rating if Tata
uses any proceeds from its proposed U.K. asset sales to reduce net
debt.
Tata's Chief Financial Officer Koushik Chatterjee told the
Financial Times this week that Tata Steel has written the value of
its U.K. operations to " almost zero," adding "We have taken about
GBP2 billion of impairment. It is not a valuation exercise, it is a
question of reducing an exposure." The comments were confirmed by a
Tata spokesman.
Thyssenkrupp's chief executive, Heinrich Hiesinger, has said in
the past consolidation in the sector would make sense, but has also
stressed that combining assets was more likely than one company
acquiring another.
Combining Tata's Dutch plant with Thyssenkrupp's operations
could yield EUR1 billion in annual synergies and create roughly
EUR6 billion in shareholder value, Credit Suisse said.
Hendrik Varnholt contributed to this article.
Write to Eyk Henning at eyk.henning@wsj.com and Alex MacDonald
at alex.macdonald@wsj.com
(END) Dow Jones Newswires
April 01, 2016 12:35 ET (16:35 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
ArcelorMittal (EU:MT)
Historical Stock Chart
From Jun 2024 to Jul 2024
ArcelorMittal (EU:MT)
Historical Stock Chart
From Jul 2023 to Jul 2024