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  • 4 things you need to know about the Tata Steel-Thyssenkrupp merger

    Mergers and acquisitions make big headlines in newspapers and a big impact in the financial markets. Mergers have the potential to shake up markets and move them in new directions. One such is the merger between Tata Steel and ThyssenKrupp (TK). Tata Steel and Thyssenkrupp (TK), a German multinational conglomerate, have signed a deal to merge their European steel operations. Ten months after they officially announced their intentions for a merger, the two companies signed a definitive agreement. Here is all you need to know about this deal.

  • Details of the deal

    As per the final terms of the deal, each company shall hold a 50% stake in the new venture, known as Thyssenkrupp Tata Steel B.V. This merger is set to become the second-largest steel company in Europe, only behind ArcelorMittal. The company is expected to have a labour force of around 48,000 workers.

  • What this means for Tata Steel

    The joint venture (JV) could help Tata Steel to reduce leverage and focus on creating a strong Indian platform in the European market, according to Tata Sons Chairman, N Chandrasekaran. This deal would reduce Tata Steel Europe’s debt by Rs 20,000 crore or €2.5 billion.

  • What this means for Thyssenkrupp

    During the ten-month long wait after the MOU was signed in September 2017, the performance of Thyssenkrupp was better than Tata Steel. As a result, the investors and employee union of Thyssenkrupp demanded a better deal.

    The two have decided that TK will receive a higher share of the IPO (initial public offering) proceeds with a 55:45 split. In addition, TK has the exclusive right to decide the timing on the possible IPO.

  • What this means for shareholders

    The merger between Tata Steel and TK is expected to have a positive impact on Tata Steel’s shareholders. The merger could contribute around Rs 57,000 crore to Tata Steel’s consolidated financials. In the past few years, Tata Steel Europe has not performed very well due to high competition in Europe, weak global conditions and cheap Chinese imports in the market. All of these factors resulted in a negative Profit after Tax (PAT) of Rs 304 crore for Tata Steel in 2017, according to a report by Business Line.

    However, the merger with TK and Tata Steel Europe’s restructuring activities in the past year could help improve operational performance. This could benefit shareholders’ prospects. In the last month, Tata Steel’s stock price increased by around 10% in view of the merger.

    • Research recommendation: Add Tata Steel with target price of Rs 700   Read more

    • Learn more about the primary market and IPOs    Read here

  • Rs 13 lakh crore

    The joint venture between Tata Steel and Thyssenkrupp could result in sales equal to Rs 13 lakh crore ($ 19.9 billion). In addition, the joint synergies of both the companies could help them to realise additional significant value of around Rs 40,000 crore (€5 billion) for each company, according to TK CEO Heinrich Hiesinger.