Thyssenkrupp, Tata Steel Deal Talks Said Focused On UK Unit Value

1 September 2016

Thyssenkrupp AG and Tata Steel Ltd’s attempts to combine their European steel operations are centered on how to value Tata’s troubled UK assets, according to people familiar with the matter.

While Thyssenkrupp is open to integrating Tata’s British unit in the joint venture, the Essen, Germany-based company wants Tata to find a way to fund its UK pension scheme obligations as a precondition, the people said, asking not to be identified because the negotiations are private.

Tata wants to include the UK division in the Thyssenkrupp project, which would give it a bigger stake in the overall venture, one of the people said.

A representative for Tata declined to comment. A spokesman for Thyssenkrupp reiterated the company’s July statement that it wouldn’t comment on talks with Tata until there are material developments.

The British Steel Pension Scheme had a deficit of about £300 million ($393 million) as of March on a “consistent basis,” the fund said in a statement to members this month. That’s down from £485 million a year earlier, according to its annual report.

Tata is looking for “more sustainable solutions” for its European business and it “would not be realistic to expect that a buyer of the UK business or a joint venture would take on responsibility for funding the current or future deficit,” the pension scheme said.

‘Nightmare’ prices

European steel makers are struggling with overcapacity, worsened by Chinese exports flooding the market. Combining forces would enable Tata, Europe’s second-biggest steel maker, and third-ranked Thyssenkrupp to better use their facilities and cut costs.

Tata Steel closed down 2% in Indian trading, the biggest drop since 28 July. Thyssenkrupp lost 0.6% by 3:23 pm in Frankfurt.

Mumbai-based Tata said last month it’s in talks with companies, including Thyssenkrupp, about a joint venture. The German steel maker has been pushing for consolidation in the European industry, which struggles with a “nightmare” of low prices, chief executive Heinrich Hiesinger said in June.

Thousands of Thyssenkrupp workers demonstrated against consolidation and restructuring in front of the steel unit’s headquarters in Duisburg, Germany on Wednesday.

“The meaningfulness of a consolidation doesn’t explain itself,” Detlef Wetzel, who represents the IG Metall labour union as deputy chairman of the unit’s supervisory board, told the demonstration.

He urged the company’s executives to justify why and how they plan to cut costs by as much as €1.6 billion, which may include site closures. “Take the staff’s concerns seriously!”

Tata said in March that it would consider selling its UK operations after years of losses. Bloomberg


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