Tata Steel and Thyssenkrupp have taken the first steps to merge with Thyssenkrupp
The steel giants have been in negotiations for 18 months after Tata decided not to sell its UK business, which includes its plant in Port Talbot in South Wales.
The pair announced they have signed a memorandum of understanding to create a European steel merger.
The move will lead to the creation of a leading European steal enterprise in a 50-50 joint venture, the companies said.
Together the companies employ about 48,000 workers.
The merger would secure the future of the Port Talbot steel works.
The joint venture, Thyssenkrupp Tata Steel, would focus on quality and technology leadership, and the supply of premium and differentiated products to customers, with annual shipments of about 21 million tonnes of flat steel products.
The steel trade unions cautiously welcome this news and recognise the industrial logic of such a partnership
Tata, which is headquartered in India, said 4,000 jobs would have to be cut in the joint venture, about eight per cent of the joint workforce.
There is no suggestion about where the jobs would be cut from. But unions are keen to secure commitments on jobs and investment for Tata’s 8,000 employees across the UK, including 4,000 at Port Talbot.
Roy Rickhuss, general secretary of Community and chairman of the co-ordinating committee representing the Unite, GMB and Community unions, said: “The steel trade unions cautiously welcome this news and recognise the industrial logic of such a partnership.
“This would create the second biggest steel business in Europe which could deliver significant benefits for the UK.
“As always, the devil will be in the detail and we are seeking further assurances on jobs, investment and future production across the UK operations.
The companies have been in negotiations for 18 months
“As a priority, we will be pressing Tata to demonstrate their long term commitment to steel making in the UK by confirming they will invest in the reline of Port Talbot’s Blast Furnace No.5.
“We must also be assured that Thyssenkrupp’s pension liabilities will be ringfenced with a cast-iron guarantee that UK steelworkers will never fund German pensions.
“We are now seeking an urgent meeting with Tata to fully understand their intentions for the UK in the context of the joint venture.
“We are also making arrangements to bring together senior representatives from across the UK to determine our approach to this significant new development.”
Tata’s UK business narrowly avoided closure in March 2016, as it struggled to compete with cheaper foreign steel, particularly from China.
Tata’s UK business narrowly avoided closure in March 2016
Its parent company revealed it was considering selling off all of its UK plants, sparking a crisis in the British steel industry which saw the closure of the Redcar steel plant.
Tata blamed £1m a day losses on cheap imports of Chinese steel, high energy costs, and weak demand.
However, after a turnaround Tata Steel revealed it would invest £1bn in modernising its UK operations in return for replacing its final salary pension scheme with a less generous contribution scheme.
This has since been agreed by its employees.
Business Secretary Greg Clark deemed the merge an “important step” for the steel industry.
He said: “The Government has been working hard with the unions to secure a sustainable future for Tata Steel in the UK, its 4,000 employees at the Port Talbot site and its supply chain.
“Today’s agreement between Tata Steel and Thyssenkrupp is an important next step in establishing their shared ambition for Port Talbot as a world-class steel manufacturer, with a focus on quality, technology and innovation.”
Thyssenkrupp said the merge will lead to annual synergies of €400million to €600m.
Andrew Robb, chairman of Tata Steel Europe said: “Today’s announcement marks the latest step in building a future for Tata Steel’s activities in Europe which is sustainable in every sense.
“Both Tata Steel Europe and Thyssenkrupp share a vision of supplying the most advanced quality products and services to customers in the world’s most demanding markets.
“The combination of our two businesses would provide the strongest possible foundation for achieving this vision, creating a global leader for the long term.”
Natarajan Chandrasekaran said the two groups share similar culture and values
Natarajan Chandrasekaran, chairman of Tata said: “The Tata Group and Thyssenkrupp have a strong heritage in the global steel industry and share similar culture and values. This partnership is a momentous occasion for both partners, who will focus on building a strong European steel enterprise.”
A final deal is likely to be signed next year.
Dr Heinrich Hiesinger, chairman of the executive board of Thyssenkrupp, said: “This business combination creates a strong number two and is thus much better positioned to cope with the structural challenges in the European steel industry.
“With Tata Steel, we have found a partner with a very good strategic and cultural fit.
“Beyond a clear performance orientation, we also share the same philosophy of corporate responsibility towards employees and society.”