heavier metal

ThyssenKrupp bonds with Tata in long-awaited steel merger

Economy And Community Around The Port Talbot Tata Steel Plant
Europe's newest steel company has a golden future – or at least a brighter one. Source: Getty

After two years of tough negotiations, the merger between ThyssenKrupp’s steel division and Tata Steel was finally signed early on Saturday morning, creating Europe’s second-largest steel manufacturer.

But Cevian, Thyssen’s second-largest shareholder, voted against the deal, hinting at possible future trouble for Heinrich Hiesinger, the long-serving, long-suffering Thyssen chief.

The commercial logic underlying the merger deal is irrefutable: The new giant could save up to €500 million ($580 million) per year with production sites in Germany, the Netherlands and Britain becoming more efficient. The combined company’s new girth will also allow it to better weather economic fluctuations, to which the steel industry is particularly vulnerable. And European steelmakers now face 25 percent tariffs on their products in the United States, exacerbating their difficulties.

ThyssenKrupp Tata Steel – the new company’s unwieldy name – will produce 22 million tons of steel annually, with joint sales of €17 billion. The company currently employs 48,000 across Europe. But this number will gradually fall: some 4,000 jobs will be lost as a result of the merger, about half at Thyssen facilities.

But trimming the workforce will be a slow process: In order to win workers’ approval for the merger, ThyssenKrupp had to agree to wide-ranging job guarantees, including no mandatory redundancies until 2026.

But these concessions mean the powerful labor unions are on board with the new direction. On Saturday, Tekin Nasikkol, a labor representative on ThyssenKrupp’s supervisory board, called the deal a “great success” which gives the company a new strategic direction while guaranteeing jobs. “There is clarity now. We know where we are going,” he told Handelsblatt.

But opponents hammered home their dismay, including Swedish investment firm Cevian, Thyssen’s second-largest investor. Jens Tischendorf, Cevian’s representative on the board, voted against the proposal.

Decentralize now!

In the past, Cevian generally supported a merger with Tata. Its current opposition has more to do with a long-standing dispute with ThyssenKrupp’s management, and very different visions of the company’s future. The Swedish investor wants drastic restructuring of the steel and industrial giant, including the dissolution of its holding company, and a lucrative sell-off of some divisions.

On Sunday, Cevian founder Lars Förberg confirmed his opposition to ThyssenKrupp’s corporate structure, suggesting he wanted to dispose of parts of the conglomerate. He called for a review of each division and how it should be owned, guided by industrial logic, “rather than history, emotions or personal ambitions.”

Although the boss, Mr. Hiesinger, has long wanted to free Thyssen of the volatile steel business, he still strongly opposes radically restructuring the company, which spans elevator manufacturing, plant engineering and raw materials, alongside traditional steel.

His strategic plan is more evolutionary than revolutionary, with a focus on existing technology divisions, including elevators and plant construction. The Tata merger frees up considerable capital for Thyssen, meaning acquisitions may once more be on the horizon. Divisions that could be sold off include the company’s loss-making ship and submarine manufacturing business, as well as its raw materials trading division.

Cost-cutting is also on the agenda: The sale of the steel business should spell considerable savings in administration. That would be a popular move with Cevian, which has long argued the company is over-managed. On Sunday, Mr. Förberg repeated his criticism: “ThyssenKrupp’s different divisions can only thrive without the costs and bureaucracy of a centralized structure.”

Martin Murphy covers the steel, car and defense industries for Handelsblatt. To contact the author: murphy@handelsblatt.com

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