Tata Steel under pressure to rework deal with Thyssenkrupp

2018-06-13

Jun. 12, 2018 - Tata Steel may be under pressure to rework the deal to merge its European operations with that of Thyssenkrupp after the Germany company's prominent shareholders  demanded a compensation to fill a 'valuation gap' in the merger.

Two of Thyssenkrupp's shareholders, Elliott Management Corp and Cevian Capital, have asked the company to renegotiate the terms of the merger, which was signed by the two sides in September last year.

Under the deal terms, both sides would have an equal equity in the merged entity. The merged entity would become the second largest steelmaker in Europe, after ArcelorMittal.

But in the months following the deal, performance of the two entities has differed. A Reuters report said that since the deal was announced, Tata Steel Europe's EBITDA has declined by a fifth on an annual basis. On the other hand, EBIDTA of Thyssenkrupp Steel Europe has risen by a third.

This has prompted several stakeholders to voice their concerns. Elliott in a letter to Thyssenkrupp management said that the deal terms are now unfavourable for the German company. "If the  initial terms of the deal are maintained, it represents a shift of about 1.9 billion euros less for Thyssenkrupp," the fund was reported as saying.

The opposition will now add pressure on Tata Steel and Thyssenkrupp as they work to save the merger, which is already delayed.

The merger was initially expected to be completed by the end of June, but the deadline was extended to December. The biggest sticking points are said to over labour agreements on job guarantees.

Unions protest

Separately, labour unions of both companies have also spoken against the merger.

Tata Steel Europe's European Works Council said that it remained unconvinced that the partnership would be of the best interests for employees.

On the other hand, Thyssenkrupp's labour representatives have aired concerns over the viability of Tata Steel Europe's operations.

It also doesn't help that the deal in the current form could let Tata Steel's Dutch plan retain cash flow and the current set up even after the merger is done.