International Steel Mills

Tata Steel and Thyssenkrupp in Talks on European Venture

April 2, 2016

Tata Steel’s exit from the United Kingdom may be a precursor to a merger with Thyssenkrupp. Wall Street Journal reports Tata and Thyssenkrupp have been in high-level talks for more than a year about combining their European steel operations.

Whether the two companies are considering a buyout or forming a joint venture is unclear at this point. With the UK business out of the way, Tata’s major European asset would be the profitable Ijmuiden Works in the Netherlands. The steel plant has an annual crude steel production capacity of 7 million tonnes that is mainly used in automotive, construction and packaging applications.

“Given Thyssen’s interest in pursuing consolidation solely with another premium flat-steel producer, we believe this cleaning up of Tata’s portfolio may help free up the core Dutch assets for Thyssenkrupp,” said analysts at Jeffries.

Credit Suisse analysts agreed, noting Tata Steel’s exit from the UK would make a Thyssenkrupp deal more attractive. “This scenario, in turn, could lead to the creation of a 20 million tons high-quality steel producer in Europe and the eventual exit of steel for Thyssenkrupp, with arguably a strong synergy story,” said analysts at Credit Suisse as quoted by WSJ.

Tata Steel’s Dutch plant is about 124 milles from Thyssenkrupp’s Duisburg steel plant and in a good position logistically for Thyssenkrupp. Combining the 7 million tonnes of capacity at Ijmuiden Works with Thyssenkrupp’s 15 million tonnes at its Steel Europe division would make it a strong competitor to steel giant ArcelorMittal.