Tata Steel Ltd. and Thyssenkrupp AG, one of world’s largest steel producer from Germany, have signed a memorandum of understanding (MoU) for a 50-50 joint venture. The deal will be named Thyssenkrupp Tata Steel after receiving approval from the European Union.
This joint venture is expected to be finalized by the European Union towards the beginning of 2018.
The companies are coming together to address the overcapacity in the European steel market, which is a victim of cheap imports from China and inefficient plants.
As per Tata Steel, the deal will not involve any cash. Both the steel moguls will contribute to the debt and liabilities to achieve an equal shareholding and remain long-term investors.
The German and the Indian company will foresee annual synergies of £400 million ($480 million) to £600 million. The venture will be closer in size to ArcelorMittal, Europe’s top producer of steel. The merger will save in areas of capacity, utilization, sales and administration, and research and development. The combined workforce of 48,000 people will jeopardize 4,000 jobs.
The German steel maker’s shares went up more than five percent in pre-market trade in their home turf while Tata Steel witnessed up to 0.7 percent rise in India.
Heinrich Hiesinger, CEO of Thyssenkrupp said, “Under the planned joint venture, we are giving European steel activities of Thyssenkrupp and Tata lasting future. We are tackling the structural changes of the European steel industry and creating a strong positing at number two.”
According to the German steel company, the MoU will be followed by negotiations about the details of the transactions before a joint venture contract can be signed at the beginning of 2018.
The deal will be examined by Thyssenkrupp’s supervisory board along with Tata Steel’s board of directors and European Commission.
The Thyssenkrupp Tata Steel headquarters is set to be in Amsterdam, the sources stated after signing the MoU.