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Tata Steel and thyssenkrupp sign definitive agreement to combine European steel operations in 50/50 joint venture

Tata Steel and thyssenkrupp AG signed a definitive agreement to create a new company by combining their European steel businesses in a 50/50 joint venture. This follows the signing of a Memorandum of Understanding in September 2017. (Earlier post.)

The joint venture not only addresses the challenges of the European steel industry. It is the only solution to create significant additional value of around 5 billion euros for both thyssenkrupp and Tata Steel due to joint synergies which cannot be realized in a stand-alone scenario. For both partners the stake in the joint venture means a significant lift up of value.

—Dr. Heinrich Hiesinger, CEO of thyssenkrupp AG

Since the signing of the Memorandum of Understanding, the different performance development of thyssenkrupp Steel Europe and Tata Steel Europe has led to a valuation gap between the two entities. The definitive agreement includes compensation for this valuation gap: In case of an Initial Public Offering (IPO) of the joint venture thyssenkrupp will receive a higher share of the proceeds, reflecting an economic ratio of 55/45 in favour of thyssenkrupp. Furthermore, thyssenkrupp has the right to exclusively decide on the timing for a potential IPO.

The proposed new company, to be named thyssenkrupp Tata Steel B.V., will be positioned as a leading pan-European high quality flat steel producer with a strong focus on performance and technology leadership. The transaction is subject to merger control clearance in several jurisdictions, including the European Union.

Due diligence and fairness opinions have confirmed the economic viability of the new company and the expected annual recurring synergies of approximately €400 to €500 million. After closing, the synergies will be generated in several areas including procurement, consolidation of overhead and through a better asset utilization. It is expected that there will be opportunities in capital expenditure management and working capital optimization to realize additional synergies.

Until closing, thyssenkrupp Steel Europe and Tata Steel in Europe will still operate as separate companies and as competitors. Only after closing, thyssenkrupp Steel Europe and Tata Steel in Europe will be integrated as one company.

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