Thyssenkrupp, Tata Steel agree to forge Europe's No. 2 steelmaker

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Tata Steel Ltd and German major thyssenkrupp AG have signed a memorandum of understanding (MoU) to create a 50:50 joint venture by combining the flat steel businesses of the two companies in Europe and steel mill services of the German company, a top company official said on Wednesday.

German Labour Minister Andrea Nahles said on Wednesday that a merger between Germany's Thyssenkrupp and Tata Steel should not happen at any cost and the headquarters needed to be in Germany if it did happen.

The two companies said they intent to remain as long-term partners and continue the present network configuration of all the upstream hubs in the proposed joint venture.

'We cautiously welcome the announcement that Tata has signed an MOU with ThyssenKrupp regarding a potential joint venture.

Roy Rickhuss, the chairman of the steel coordinating committee representing UK unions Unite, GMB and Community, said the unions recognise the industrial logic of the deal, but will still press Tata to confirm it will invest in the relining of Port Talbot's blast furnace No 5. Over the longer term they expect those annual synergies to amount to between €400m and €600m (£355m and £533m) across areas like sales, administration, logistics and research and development.

Slaughters is advising longstanding client Tata Steel on the deal, with a team led by M&A partners Robin Ogle and Padraig Cronin, and finance partner Andrew McClean.

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It will be Europe's biggest steelmaker after ArcelorMittal, with combined production capacity of 27 million tonnes, giving it 25 percent market share in Europe, versus ArcelorMittal's 38 percent share.

With this deal, both the companies will be able to form a strong number 2 player in the European steel market.

Shares in Tata Steel closed up 1.7 percent at 687.65 rupees, having earlier hit a high of 691.80 rupees.

"As always, the devil will be in the detail and we are seeking further assurances on jobs, investment and future production across the United Kingdom operations", Roy Rickhuss, chair of the committee, told the BBC. "Beyond a clear per performance driven orientation, we also share the same philosophy of corporate responsibility towards employees and society", said Heinrich Hiesinger chairman, executive board, Thyssenkrupp.

The new company includes the former Hoogovens plant in IJmuiden which was merged with British Steel to create Corus in 1999.

Tata made the commitments to safeguard jobs and invest in Britain's Port Talbot steelworks previous year in return for the unions agreeing to close their final salary pension scheme to future accrual.