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| Tata Steel and ThyssenKrupp Agree to Create European Steel Giant | Tata Steel and ThyssenKrupp Agree to Create European Steel Giant |
| (35 minutes later) | |
| LONDON — Two of the world’s leading steel makers said on Wednesday that they had agreed to combine their European operations, creating a regional giant they hope will be better equipped to tackle chronic problems like an excess of capacity in the industry. | LONDON — Two of the world’s leading steel makers said on Wednesday that they had agreed to combine their European operations, creating a regional giant they hope will be better equipped to tackle chronic problems like an excess of capacity in the industry. |
| The deal between ThyssenKrupp of Germany and Tata Steel, a unit of the Indian conglomerate, still faces major obstacles, ranging from union opposition to obtaining the approval of regulators. But if the two companies were to complete the 50-50 joint venture, it would create Europe’s second-largest steel maker. | The deal between ThyssenKrupp of Germany and Tata Steel, a unit of the Indian conglomerate, still faces major obstacles, ranging from union opposition to obtaining the approval of regulators. But if the two companies were to complete the 50-50 joint venture, it would create Europe’s second-largest steel maker. |
| Steel is a so-called old-line business, and major companies in the West have struggled in recent years to adapt to changes in the industry. They have been reluctant to close plants in the face of weak demand growth and the rapid rise of Chinese steel makers, who now account for about half of global production and have tended to export surpluses rather than curtail output. | Steel is a so-called old-line business, and major companies in the West have struggled in recent years to adapt to changes in the industry. They have been reluctant to close plants in the face of weak demand growth and the rapid rise of Chinese steel makers, who now account for about half of global production and have tended to export surpluses rather than curtail output. |
| Still, the products turned out by Europe’s steel mills remain vital for a wide range of economic activities from construction to energy, as well as carmaking, and of late, steel makers’ fortunes have improved somewhat. | Still, the products turned out by Europe’s steel mills remain vital for a wide range of economic activities from construction to energy, as well as carmaking, and of late, steel makers’ fortunes have improved somewhat. |
| Heinrich Hiesinger, ThyssenKrupp’s chief executive, said at a news conference on Wednesday that he hoped the deal, agreed in a memorandum of understanding, would be a way out of a “vicious circle” of constantly restructuring operations to deal with weak profitability. | |
| “We had to look at the basic problem, and that is overcapacity,” Mr. Hiesinger said. “That can only be done by achieving consolidation with other companies.” | “We had to look at the basic problem, and that is overcapacity,” Mr. Hiesinger said. “That can only be done by achieving consolidation with other companies.” |
| The two companies plan to combine operations and cut 4,000 jobs from a total of 48,000, resulting in planned annual savings of up to 600 million euros, or $720 million. Each company would own half of the new business, which would be based in Amsterdam. It would be Europe’s second largest steel company after ArcelorMittal, the Luxembourg-based global leader. | |
| Analysts said the long-anticipated deal was likely to benefit both companies, allowing them to save money by integrating activities like logistics, sales, and research and development. | Analysts said the long-anticipated deal was likely to benefit both companies, allowing them to save money by integrating activities like logistics, sales, and research and development. |
| “Overall, this is a good deal,” said Dalton Dwyer, managing director of Industry Corporate Finance, a London-based firm that advises on steel mergers. | “Overall, this is a good deal,” said Dalton Dwyer, managing director of Industry Corporate Finance, a London-based firm that advises on steel mergers. |
| Mr. Dwyer said that the deal would allow ThyssenKrupp’s German steel making operations to work with Tata’s well-regarded plant in the Netherlands. But he said “question marks” remained over Tata Steel’s British plants, which the company has wanted to exit. | Mr. Dwyer said that the deal would allow ThyssenKrupp’s German steel making operations to work with Tata’s well-regarded plant in the Netherlands. But he said “question marks” remained over Tata Steel’s British plants, which the company has wanted to exit. |
| The deal would also reduce the number of competitors in the European market, possibly leading to higher prices and expanded margins, analysts say. | The deal would also reduce the number of competitors in the European market, possibly leading to higher prices and expanded margins, analysts say. |
| The big question, though, is whether it will be concluded in its current form. The most important obstacle is likely to be the potential for opposition from German unions. Employee representatives hold half of ThyssenKrupp’s supervisory board seats, and may resist any job cuts or plant shutdowns. | The big question, though, is whether it will be concluded in its current form. The most important obstacle is likely to be the potential for opposition from German unions. Employee representatives hold half of ThyssenKrupp’s supervisory board seats, and may resist any job cuts or plant shutdowns. |
| By announcing the deal in the run-up to German federal elections on Sunday, ThyssenKrupp also risks making it a political issue. It has already attracted criticism from Germany’s labor minister, Andrea M. Nahles. “There must not be a merger at any price,” she said in a statement, according to Reuters. “The sites in Germany must be maintained and compulsory redundancies must be ruled out.” | By announcing the deal in the run-up to German federal elections on Sunday, ThyssenKrupp also risks making it a political issue. It has already attracted criticism from Germany’s labor minister, Andrea M. Nahles. “There must not be a merger at any price,” she said in a statement, according to Reuters. “The sites in Germany must be maintained and compulsory redundancies must be ruled out.” |
| Both companies have been trying for years to find solutions for their struggling steel businesses. ThyssenKrupp has already unloaded units in the United States and Brazil that had helped plunge it into deep losses, ushering in a new management team led by Mr. Hiesinger in 2011. | Both companies have been trying for years to find solutions for their struggling steel businesses. ThyssenKrupp has already unloaded units in the United States and Brazil that had helped plunge it into deep losses, ushering in a new management team led by Mr. Hiesinger in 2011. |
| Tata Steel, meanwhile, had been looking for a way to turn around or escape the European business — including its struggling British plants — which it bought in 2007 for 6.2 billion pounds, equivalent to $8.4 billion at current exchange rates. Tata has pressured its British workers into accepting changes to make the company’s pension program more affordable in order to hang on to their jobs. | Tata Steel, meanwhile, had been looking for a way to turn around or escape the European business — including its struggling British plants — which it bought in 2007 for 6.2 billion pounds, equivalent to $8.4 billion at current exchange rates. Tata has pressured its British workers into accepting changes to make the company’s pension program more affordable in order to hang on to their jobs. |
| Still, analysts say those British operations could yet be at risk when the companies look more closely at production operations, as Mr. Hiesinger said they would do beginning in 2020, when the terms of Britain’s planned exit from the European Union may be clearer. | Still, analysts say those British operations could yet be at risk when the companies look more closely at production operations, as Mr. Hiesinger said they would do beginning in 2020, when the terms of Britain’s planned exit from the European Union may be clearer. |
| “There are a lot of questions left,” said Carsten Riek, a steel analyst at the investment bank UBS in London. “There is still a long way to go.” | “There are a lot of questions left,” said Carsten Riek, a steel analyst at the investment bank UBS in London. “There is still a long way to go.” |