By Shweta Arya
Mega
mergers aren't very common, but when they happen, the numbers involved are
truly massive, as seen from a very recent development in business.
Leading
German Steel maker Thyssenkrupp AG and India's Tata Steel Ltd. signed a
memorandum of understanding to form a 50-50 joint venture in a non-cash deal on
Wednesday. The newly formed entity will be called — Thyssenkrupp Tata Steel, to be headquartered in Amsterdam
region of the Netherlands and will supply premium and differentiated products
to customers.
The move to
create Europe's second-largest steel company is an effort to affiliate the
industry, which has long struggled with excess capacity and competition,
particularly from China.
Speculations
regarding this proposed merger started one year ago, the company is estimated
to have a revenue of about €15 billion (₹1.16 lakh crore) per year, shipments
worth 21 million tons a year and, at present, some 48,000 employees. The
companies expect to save between €400 million and €600 million (₹40 crore to
₹60 crore) in costs per year by integrating activities including research and
development.
The effect
of this merger is supposed to help both the companies as the steel assets and
identified liabilities will be transferred from their books to the Joint
Venture, leading to a leaner balance sheet for both the firms. The combined
business profitability will be higher than the Tata Steel Europe's current
magnitude.
The
critical point arises that up to 2,000 administrative jobs and around 2,000
jobs in production sector will likely be cut, the impact estimated to be shared
between both sides. Another major contrast is that Tata Steel is a focused
steel company whereas Thyssenkrupp has a more profitable 'capital goods
business' it would like to focus on and producing steel is not it's prime
initiative. More details are to be concluded in time for a formal signing of
the transaction at the beginning of 2018.
The
trend of regional consolidation is quite extensive, pointing to other four
large combinations in China and ArcelorMittal acquiring ILVA, Italy's largest
producer. Hence, how the two firms work to make the European steel business
more rewarding and the eventual outcome are the aspects to watch out for in the
years ahead.
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