DUISBURG (dpa-AFX) - Tata Steel and thyssenkrupp signed a definitive agreement to create a new company by combining their European steel businesses in a 50/50 joint venture. This follows the signing of a Memorandum of Understanding in September 2017.
Dr. Heinrich Hiesinger, CEO of thyssenkrupp AG said, 'The joint venture not only addresses the challenges of the European steel industry. It is the only solution to create significant additional value of around 5 billion euros for both thyssenkrupp and Tata Steel due to joint synergies which cannot be realized in a stand-alone scenario. For both partners the stake in the joint venture means a significant lift up of value.'
The definitive agreement includes a proper compensation of this valuation gap: In case of an Initial Public Offering (IPO) of the joint venture thyssenkrupp will receive a higher share of the proceeds, reflecting an economic ratio of 55/45 in favour of thyssenkrupp. Furthermore, thyssenkrupp has the right to exclusively decide on the timing for a potential IPO.
Negotiations with employee representatives and the respective consultation processes have been successfully completed. Taking the different forms of co-determination in the respective countries into account, the basic idea of an integrated company with joint management was secured.
The proposed new company, to be named thyssenkrupp Tata Steel B.V., will be positioned as a leading pan-European high quality flat steel producer with a strong focus on performance and technology leadership. The transaction is subject to merger control clearance in several jurisdictions, including the European Union.
The joint venture will be managed as one integrated business through a holding company headquartered in the Amsterdam region of the Netherlands. thyssenkrupp Tata Steel will have a two-tier governance structure that comprises a Supervisory Board and a Management Board each with six members, on which thyssenkrupp and Tata Steel will have equal representation. In the time ahead, thyssenkrupp and Tata Steel will jointly make decisions on the leadership team and their responsibilities. Respective employee representation structures in European countries and a European Works Council (EWC) will be retained. In addition, an Employee Executive Committee (EEC) will be established, in which the Management Board and employee representatives of the joint venture will regularly discuss strategic issues.
Due diligence and fairness opinions have confirmed the economic viability of the new company and the expected annual recurring synergies of approximately 400 million euros to 500 million euros.
Leveraging cost synergies will require a rationalization in workforce over the years ahead by up to 4,000 jobs in operations and support functions that is expected to be shared roughly evenly between the two parties. Furthermore, the complete production network is to be reviewed starting in 2020 with the aim of integrating and optimizing the production strategy for the entire joint venture.
Until closing, thyssenkrupp Steel Europe and Tata Steel in Europe still operate as separate companies and as competitors. Only after closing, thyssenkrupp Steel Europe and Tata Steel in Europe will be integrated as one company.
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