Mumbai: The European Commission’s (EC’s) investigation into a proposed joint venture (JV) between Tata Steel Ltd and Germany’s Thyssenkrupp AG may delay their plan to combine their European steel businesses, analysts say. The EC on Tuesday opened a deeper probe into the proposed joint venture over concerns that it may raise prices and hurt competition.
EU probe may delay Tata Steel-Thyssenkrupp merger deal
“While there could be a delay due to the probe by the European Commission, we feel that there is currently no risk of the joint venture falling through. The probe is generally expected in such big mergers in Europe. It was a similar scenario in the case of ArcelorMittal where it was trying to acquire ILVA, an Italian steelmaker and a remedy was worked out,” said Abhisar Jain, metals and mining analyst at Centrum Broking Ltd.
On 30 June, Tata Steel and Thyssenkrupp agreed to combine their steel businesses in an equal JV called Thyssenkrupp Tata Steel.
The proposed venture is subject to merger control clearance in several jurisdictions, including the European Union. Until the completion of the JV process, Thyssenkrupp Steel Europe and Tata Steel in Europe will operate as separate companies and as competitors.
“On 30 October, in line with the expected timelines of the merger review process, the EC announced that it will undertake a Phase II review of the merger proposal and will investigate certain areas of preliminary competition concern. Tata Steel has noted the EC’s concerns and will continue its discussions with the EC including providing further information and analysis, especially in relation to sectors they have identified, to secure approval for the proposed joint venture,” Tata Steel said in an exchange filing on Wednesday.
The company added that it envisions the business combination as a structurally robust, sustainable and competitive company, which will be a reliable, efficient and technologically strong partner for its customers. “We also remain committed to continued constructive engagement with the EC in the following months as part of the next phase of this review process,” Tata Steel added.
So far, there are three segments where EC has shown concern—automotive steel, electrical steel and packaging steel. ArcelorMittal has double the market share in automotive steel as compared to what this JV may have so the parties can argue for a relaxation.
The Tata Steel group is among the top global steel companies with an annual crude steel capacity of 27 million tonnes per annum (mtpa) as on 31 March.
It is the world’s second-most geographically diversified steel producer, with operations in 26 countries and a commercial presence in over 50 countries.
The company said that over the last few months, Tata Steel and Thyssenkrupp have engaged in parallel with EC to provide information in relation to the businesses which would be part of this joint venture. Following pre-notification engagement with the EC, both parties notified the proposed JV to the EC on 25 September. Jain at Centrum Broking said Tata Steel is looking to divest the electrical steel business. “On the packaging steel business, Tata Steel and Thyssenkrupp can work out an alternative which may include a potential divestment,” he said.
Tata Steel said, however, that along with Thyssenkrupp, it continues to believe in the strong industrial logic and rationale for the proposed JV, and regards it as the optimal outcome for the future of its European steel business as well as for wider stakeholders in the European steel industry.