Thyssenkrupp, Tata Steel may need asset sales to get EU nod for JV
5 July 2018
Top managers at Thyssenkrupp and Tata Steel have reached out to the European Commission to seek approval for a landmark joint venture deal, with legal experts and analysts saying they might have to sell assets to get it.
Thyssenkrupp and Tata Steel on Saturday agreed to merge their European steel activities into a 50-50 joint venture, creating the continent’s No.2 steelmaker after ArcelorMittal (MT.AS) with 17 billion euros ($20 billion) in combined sales.
Informal talks with European Competition Commissioner Margrethe Vestager began a few weeks ago and will likely address the issue of disposals in some niche areas, including packaging, the sources say.
Tata Steel Europe already has an asset sale program underway.
“Even without knowing all the details of the transaction, much speaks in favor of discussing asset sales,” said Jens Steger, counsel at law firm Simmons & Simmons, who advised Monsanto (MON.MX) on antitrust matters in the takeover by Bayer
Steger said he had received several requests from third parties who are interested in becoming part of the process, adding these could, in theory, be competitors keen on assets that might come up for sale or shareholders who oppose the deal.
Earlier this year, larger rival ArcelorMittal was able to secure EU approval for its purchase of Italian group Ilva only after pledging to sell a string of businesses across Europe to address competition concerns.
Experts see few problems regarding crude steel production of the combined Thyssenkrupp-Tata Steel venture, which Moody’s reckons will own just 14 percent of the European market, a distant second to ArcelorMittal’s 29 percent, which includes Ilva.
“But there could be remedies with regard to niche products,” said a senior steel banker. “There you would have to sell individual parts. And that would not be a problem.”
Thyssenkrupp and Tata Steel would have about a 50 percent share of the European packaging steel, or tinplate, market, which could require them to dispose of some of those assets, a person familiar with the industry told Reuters.
“Our understanding is that while upstream consolidation does not raise red flags, downstream specialty products such as tinplate may require remedy measures,” Jefferies analyst Seth Rosenfeld said in a note.
Rasselstein, Thyssenkrupp’s packaging steel unit, made sales of 1.16 billion euros in the fiscal year 2015/2016 and employs about 2,400 employees.
It is also unclear how an ongoing asset disposal program at Tata Steel Europe, initiated before the signing of the joint venture deal, will play into antitrust negotiations.
It has put a number of assets on the block, including Cogent, a manufacturer and processor of electrical steels, and about 1,100 employees, or about 5 percent of Tata Steel Europe’s workforce, would leave the group should all deals be realized.
“I would be surprised if antitrust considerations did not play a role here,” Simmons & Simmons’ Steger said.
The European Commission and Tata Steel declined to comment. Thyssenkrupp also declined to comment, saying that merger control proceedings had not officially been opened yet.