Thyssenkrupp, Tata Steel sign landmark steel joint venture deal

The joint venture forms the core of Thyssenkrupp CEO Heinrich Hiesinger’s, above, plan to turn his steel-to-submarines conglomerate into a technology company. (Reuters)
Updated 30 June 2018
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Thyssenkrupp, Tata Steel sign landmark steel joint venture deal

  • It is the largest deal in Europe’s steel industry since the takeover of Arcelor by Mittal in 2006
  • The deal comes as European steel makers face tariffs of 25 percent on their exports to the US, their biggest market

FRANKFURT/DUESSELDORF: Germany’s Thyssenkrupp and India’s Tata Steel signed a final agreement on Saturday to establish a long-expected steel joint venture, the European steel industry’s biggest shake-up in more than a decade.
The final agreement comes after months of negotiations since an initial agreement was announced in September. Both companies hope it will help them respond to challenges in the volatile steel industry, including overcapacity.
The largest deal in Europe’s steel industry since the takeover of Arcelor by Mittal in 2006, the 50-50 joint venture — to be named Thyssenkrupp Tata Steel — will have about 48,000 workers and about €17 billion ($19.9 billion) in sales.
Based in the Netherlands, it will be the continent’s second-largest steelmaker after ArcelorMittal. It forms the core of Thyssenkrupp CEO Heinrich Hiesinger’s plan to turn his steel-to-submarines conglomerate into a technology company.
“The joint venture not only addresses the challenges of the European steel industry,” Hiesinger said. “It is the only solution to create significant additional value of around 5 billion euros for both Thyssenkrupp and Tata Steel due to joint synergies which cannot be realized in a stand-alone scenario.”
Tata Steel Chairman Natarajan Chandrasekaran, in a separate statement, said the joint venture will create “a strong pan- European steel company that is structurally robust and competitive.”
The deal comes as European steel makers face tariffs of 25 percent on their exports to the US, their biggest market. That might force local market to absorb more volume as a result.
Since the tariffs were announced in late May, shares in European steelmakers ArcelorMittal, Thyssenkrupp, Salzgitter and Voestalpine have lost 8 to 17 percent.
Hiesinger had faced pressure from activist shareholders Cevian and Elliott to extract more commitments from Tata Steel, whose European business has performed worse than Thyssen’s since the agreement was first announced, creating a valuation gap.
Thyssenkrupp said the deal included “proper compensation” for the gap, which it said was in the mid-triple-digit million- euro range: if the joint venture makes a widely expected initial public offering it would get a bigger share of the proceeds.
Thyssenkrupp said it also secured the right to decide when a listing might take place, adding the joint venture was aiming for a dividend payout in the low-to-mid-triple-digit million- euro range.
The German group also said it now expects annual synergies of €400 million to €500 million from the transaction. It said additional synergies were possible through managing capital expenditure and optimizing working capital.
Tata Steel will remain liable for environmental risks in Britain, where its Port Talbot factory, the least profitable of the joint venture, is based, said Markus Grolms, vice chairman of Thyssenkrupp’s supervisory board.
He also said that Tata Steel’s Dutch unit would be part of the joint venture’s cash-pooling mechanism. That had been a key demand for German workers concerned that Tata would give its own workers better conditions in the new company.
“Yes, we do want to protect people. But we also want a company with better chances and less risks,” Grolms said.
Thyssenkrupp’s management will present a refined strategy to its supervisory board in the second week of July. Sources said that may include a sale of its Materials Services unit and further cost cuts.


US-Saudi business council reports $13bn in contracts

Updated 24 May 2019
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US-Saudi business council reports $13bn in contracts

  • Improved oil prices, combined with a government focus on spending, contributed to the rise, the council said

LONDON: The value of joint Saudi-US contracts rose to $13 billion in the first quarter of 2019, according to a business council report.

That marked the highest value of awarded contracts since the first quarter of 2015, the US-Saudi Arabian Business Council said.

The value of contracts awarded during the first quarter amounted to about half of the total value in all of last year, it added.

The contracts “included many vital projects, notably in the oil, gas, water and transport sectors,” Abdallah Jum’ah, the co-chair of the council, was reported as saying by Asharq Al-Awsat.

Energy was the top sector, with $3.1 billion of the value of contracts awarded, with many struck by Saudi Aramco. 

Improved oil prices, combined with a government focus on spending, contributed to the rise, the council said.

The construction sector also looks set for a recovery after many projects were put on hold due to the oil-price crash.

“If the pace of awarding construction contracts witnessed during the first quarter of 2019 continues for the rest of the year, the index of awarding construction contracts may return to the range we witnessed before the canceling and postponing of mega projects due to lower oil revenue,” the council said.