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Thyssenkrupp and Tata Steel have signed a memorandum of understanding to combine their European steel activities in a 50/50 joint venture.

Their aim is to create a leading European flat steel player to be positioned as quality and technology leader. The new entity is set to have pro-forma sales of about €15 billion and a workforce of about 48,000, currently at 34 locations. Shipments are envisioned to be about 21 million tons a year.

To be named Thyssenkrupp Tata Steel, the planned joint venture will be managed through a lean holding company based in the Netherlands. It is to have a two tier management structure comprising a management board and a supervisory board. Both boards are to have equal representation from Thyssenkrupp and Tata. The codetermination structures in Germany, the Netherlands and Great Britain will be retained.

Thyssenkrupp intends to contribute its Steel Europe business to the planned joint venture. There are also plans for the joint venture to include Thyssenkrupp Mill Services & Systems GmbH, a steel mill services provider that is part of the materials services business. Tata would add all of their flat steel activities in Europe.

The memorandum of understanding paves the way for Thyssenkrupp to involve employee representatives at Thyssenkrupp AG and in the steel business in the process ahead on an ongoing basis. All employee participation rights will continue to be respected as before.

In the months ahead, due diligence will be conducted. In the process, the negotiating parties will give each other access to confidential business documents to the extent permissible between competitors. Based on this as well as on discussions with the entire Supervisory Board, it is envisaged to sign a contract in early 2018. Closing – the effective start of the joint venture – could take place in late 2018 following antitrust approval by the relevant authorities.

The two joint venture partners expect that leveraging the cost synergies across the entire entity will require a reduction in workforce over the years ahead by up to 2,000 jobs in administration and potentially up to 2,000 jobs in production. This burden is expected to be shared roughly evenly between the two parties, which means a total of about 2,000 jobs at Thyssenkrupp.

The planned joint venture marks another key milestone on Thyssenkrupp’s strategic way forward. In its evolution into a strong industrial group, Thyssenkrupp has two priority aims: reducing dependency on the highly volatile steel business and enabling optimum development of all business areas.

Published in the November 2017 Edition of American Recycler News