Giants Mull European Steel Deal
April 02 2016 - 3:02AM
Dow Jones News
(FROM THE WALL STREET JOURNAL 4/2/16)
By Eyk Henning and Alex MacDonald
FRANKFURT -- German engineering conglomerate ThyssenKrupp AG and
India's Tata Steel Ltd. have held talks on combining their
continental European steel operations, as global overcapacity
weighs on prices and profits, according to people familiar with the
matter.
The companies have been holding high-level talks for over a
year, the people said, adding that Thyssenkrupp's preferred
structure might be a tie-up of the two companies' steel assets in a
joint venture.
It wasn't immediately clear where the talks now stand, though
one of the people said an agreement is unlikely in the short term.
If completed, the transaction would help both companies achieve
scale and cost savings.
ThyssenKrupp shares rose as much as 7.7% in morning trading
Friday after German daily Rheinische Post reported the companies
were in advanced talks about a combination. The stock ended the day
up 4.9%.
A reduction of its steel exposure would help ThyssenKrupp
sharpen its profile as an engineering company with a highly
profitable elevator business. Such a move would likely please
activist investor Cevian Capital Partners, the company's
second-largest shareholder, with a stake of more than 15%. A
spokesman for Cevian declined to comment on Friday.
Tata Steel earlier this week said it would explore the sale of
its entire U.K. business, a move analysts say could pave the way
for a combination of its Dutch assets with Thyssenkrupp's European
steel operations.
Should Tata Steel sell its U.K. operations, its European
exposure would focus on a Netherlands-based flat-products business,
Jefferies analysts noted this week. "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," they said.
Credit Suisse analysts came to the same conclusion, saying a
Tata Steel exit from the U.K. would be a prerequisite for any deal
with ThyssenKrupp. "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," they said.
Tata Steel is Europe's second-largest steelmaker by production
capacity, after Luxembourg-based ArcelorMittal SA. The company has
in recent months announced several rounds of layoffs at its U.K.
operations, which include steel mills across Wales and England. It
said in January that it aimed to reduce its workforce to 14,000
after consulting with unions about the proposed cuts.
The company employed 17,000 workers just before it began
eliminating jobs in 2015.
China has been swamping global markets with low-priced steel,
intensifying pressure on Western rivals already reeling from
overcapacity. Steel imports from China, the world's largest steel
producer, to the European Union have more than doubled over the
past two years.
On Friday, Fitch Ratings cut Tata Steel's credit rating, citing
rising debt and lower profitability across all regions, especially
the U.K. The ratings firm said it would consider a further cut
should the steelmaker accrue more debt to close any operations in
the U.K.
(END) Dow Jones Newswires
April 02, 2016 02:47 ET (06:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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