Mind the gap - Thyssenkrupp in value struggle with Tata Steel
Reuters
Published Jun 13, 2018 16:49
Mind the gap - Thyssenkrupp in value struggle with Tata Steel
By Christoph Steitz, Tom Käckenhoff and Arno Schuetze
FRANKFURT/DUESSELDORF (Reuters) - Germany's Thyssenkrupp (DE:TKAG) and India's Tata Steel (NS:TISC) are struggling to get the planned merger of their European steel operations on track due to diverging values of their businesses, people familiar with the matter said.
Since the two struck an initial deal in September, Thyssenkrupp's businesses have performed better than Tata Steel's, requiring both firms to reassess what their operations are worth and potentially rethink the deal, four sources said.
The so-called valuation gap could be anywhere between 500 million and 3 billion euros (2.6 billion pounds), one source said.
However, another source told Reuters that it might be smaller than this as valuations were based on the future, not past, performance of the businesses being combined.
Options now include adjusting the amount of debt both groups will transfer to the venture or Tata Steel making a cash payment to Thyssenkrupp to settle the difference or changing the 50-50 ownership of the planned entity, the sources said.
Of these, the third option was the least likely scenario, although a solution could involve more than one option.
"Changing this structure is not on the table," one of the people said.
Although Thyssenkrupp's supervisory board is scheduled to meet on Wednesday to discuss the joint venture, it is not expected to make a decision, the people said.
Thyssenkrupp and Tata Steel both declined to comment.
UNDER PRESSURE
Thyssenkrupp has come under investor pressures to seek better terms following a divergence of the operating performance of both entities since the joint venture, which will create Europe's No.2 steelmaker, was first announced.
Talks have already gone on for more than two years and the fact that there is still no final deal - now scheduled for the end of June - has caused concern among key shareholders, including activists Cevian and Elliott.
The initial memorandum of understanding foresees a 50-50 ownership split, with Thyssenkrupp's steel business accounting for a bigger share of the combined profit. To address this, Thyssenkrupp will transfer about 4 billion euros of debt, more than Tata Steel's 2.5 billion.
Changing the ownership structure is Thyssenkrupp's least preferred option as it would prevent it from deconsolidating its steel business, the sources said.
It would also raise the question over an agreed equal representation on the joint venture's management and supervisory boards, seen as key by labour unions.
Alternatively, Thyssenkrupp could transfer more liabilities than previously planned and Tata Steel might lower its debt contribution - or simply compensate its German partner in cash.
Get The App
"In defining the debt level you have to make sure that the new company is viable," one of the people said.
Written By: Reuters
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.