Tata and ThyssenKrupp 'agree' first stage of merger deal

Tata and ThyssenKrupp 'agree' first stage of merger deal

The two companies have been in talks to combine their European operations since Tata abandoned plans to sell its United Kingdom steel business a year ago, safeguarding the immediate future of the Port Talbot steelworks in south Wales.

The new combine, which will have a global workforce of 48,000 expects to cut 4,000 jobs in Europe, 2,000 in production and 2,000 in administration.

The joint venture would be focused on quality and technology leadership, with annual shipments of about 21 million tones of flat steel products to customers.

ThyssenKrupp and Tata Steel will need to conduct due diligence before a joint venture contract can be signed at the beginning of 2018, the German group said.

ThyssenKrupp must now submit the plan to its supervisory board - where worker representatives hold half of the seats - for approval at a meeting this weekend.

"We believe Thyssenkrupp's medium-term goal is to completely spin-out steel ops, leaving Thyssenkrupp as a near pure-play capital goods business, and today's proposed merger structure is attractively "IPO-able", in our view", Jefferies analyst Seth Rosenfeld said in a note, reiterating his "buy" rating.

The 50-50 joint venture is expected to produce annual cost savings of up to 600 million euros (£533 million; $720 million) for the firms.

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The pair announced they have signed a memorandum of understanding to create a European steel merger.

Tata, the Indian conglomerate that operates the Port Talbot steelworks, and Germany's Thyssenkrupp on Wednesday said that they had struck a preliminary deal to create the continent's second largest steel producer after ArcelorMittal, in a bid to tackle crippling oversupply in the market.

Tata blamed £1m a day losses on cheap imports of Chinese steel, high energy costs, and weak demand.

How big will the new company be?

In particular we will be pressing Tata to demonstrate their long term commitment to steelmaking in the United Kingdom by confirming they will invest in the reline of Port Talbot's Blast Furnace No.5.

"As always, the devil will be in the detail and we are seeking further assurances on jobs, investment and future production" in the United Kingdom, said trade union representative Roy Rickhuss, while adding that workers "recognise the industrial logic of such a partnership".

In addition to this, Thyssenkrupp Tata Steel would seek to improve capacity utilisation of the network across the three hubs of IJmuiden (the Netherlands), Duisburg (Germany) and Port Talbot (Wales, UK) and their related downstream facilities.

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