Indian steel conglomerate Tata Steel and German steelmaker Thyssenkrupp on Friday said they expect the European antitrust regulators to block their proposed joint venture due to "continuing concerns".
Tata Steel and ThyssenKrupp had signed definitive agreements in June 2018 to combine their steel businesses in Europe to create a 50-50 pan European joint venture company which would be the continent's second-largest steel company after Lakshmi Mittal's ArcelorMittal.
The European Commission opened an "in-depth" investigation into the proposed merger in October last year amid concerns that the proposed deal between the two steel majors may reduce competition in the supply of various high-end steels.
Following an agreed extension last month for further negotiations, ThyssenKrupp confirmed that it had submitted a "substantial" offer to the European Commission - the executive arm of the 28-member economic bloc.
However, the German major said that after a latest conversation it now seemed like the planned joint venture of their European steel activities will not go ahead.
Tata Steel, in a statement in Mumbai, said that based on the feedback received from the Commission, "it is increasingly clear that the Commission is not intending to clear the proposed joint venture as it expects substantial remedies in the form of sale of assets of the proposed venture".
The proposed JV firm called ThyssenKrupp Tata Steel, which had been under discussions since September 2017, was to have a total workforce of 48,000 employees spread across 34 sites, producing about 21 million tons of steel a year with revenues of around 15 billion euros.
The German steel giant said that the EU took the improvements of the submitted covenants proposed by ThyssenKrupp and Tata Steel as an opportunity to conduct another market test.
"The European Commission took the improvements of the submitted covenants proposed by ThyssenKrupp and Tata Steel as an opportunity to conduct another market test. The new market survey did not resolve the Commission's concerns, although the partners had offered significant further concessions," ThyssenKrupp said in a statement.
"From the point of the view of ThyssenKrupp and Tata Steel, further commitments or improvements would adversely affect the intended synergies of the merger to such an extent that the economic logic of the joint venture would no longer be valid. Consequently, the partners assume that the European Commission will not approve the joint venture," the statement said.
Under the EU rules, the Commission has a duty to assess mergers and acquisitions involving companies with a turnover above certain thresholds and to prevent concentrations that would significantly impede effective competition in the EEA or any substantial part of it.
Tata Steel termed the proposed JV as an important strategic initiative for the company to create a sustainable portfolio in Europe, and now it being thrown off-track, it said it would explore all options to achieve similar outcomes in the future.
"Our strategy is to be the leading and most sustainable flat steel company in Europe with a strong focus on delivering value, especially for our customers, our employees and our shareholders. This strategy will continue to guide us and I'm confident we will chart a strong path forward for all our stakeholders," said Hans Fischer, CEO of Tata Steel's European operations.
"The India business is well positioned to continue to enhance its earnings and cash flow performance levels from that achieved in 2018-19 with extensive market reach, strong brands, differentiated products, enhanced asset base post Kalinganagar expansion and a strong talent pipeline," a company statement said.
"While pursuing the end state strategy for the European business in the near term, Tata Steel will also continue to focus on its performance management to enhance its earnings and cash flows to build a sustainable and self-sustaining future for the business.
"Tata Steel has also undertaken significant de-leveraging in the last six months and would continue to pursue the same through internal cash generation and asset sales," the company said.
Meanwhile, Steel workers' unions in the UK, where Tata Steel has the country's largest steelworks at Port Talbot in Wales, asked the Indian company not to take any "kneejerk" decisions.
Roy Rickhuss, General Secretary of the steelworkers' trade union community, said: "It's important that there are no kneejerk reactions by Tata Steel in response to this development. Now is the time for calm heads and a clear focus on the future of Tata Steel Europe.
"It's vital that the business is kept intact and the right steps are taken to safeguard jobs and continue investment to ensure a sustainable future. Sadly, this may mean yet another period of uncertainty for steelworkers and their families," he added.
Thyssenkrupp also said it would fundamentally realign itself to significantly improve its operating performance.
"At the same time, the company will sustainably strengthen its capital base in order to gain the necessary financial leeway for necessary restructuring and business development," the Essen-based company said.
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