Prince Mathews Thomas Moneycontrol News
Tata Steel Europe’s proposed merger with Thyssenkrupp’s steel business in the continent is crucial for the two companies’ future.
While Tata Steel wants to channel its resources and regain dominance in the domestic market, for Thyseenkrupp, the merger is crucial for its long-term strategy to become an engineering conglomerate.
Much of the responsibility for the merger’s success lies on the shoulders of two men – TV Narendran, Tata Steel’s Global CEO and Managing Director, and his German counterpart Heinrich Hiesinger, CEO, Thyssenkrupp.
India focus
Narendran, who in 2013 took over as the Managing Director for India and South Asia, was promoted last year. He became Tata Steel’s first ever Global CEO and Managing Director.
Also, Group Executive Director and CFO Koushik Chatterjee was redesignated as Executive Director and CFO. Chatterjee had earlier led many of the negotiations at Tata Steel Europe and now had his sight on the Indian side of operations.
The change in designations reflected Tata Steel’s changing priority – to get back the numero uno position in the Indian market, which is among the fastest growing in the world. Meanwhile, the European market, especially the UK, is still to get back to its pre-2008 levels.
Tata Sons Chairman N Chandrasekaran had already set the target for India market, which was to double the domestic capacity from 13 million tonnes a year. The company has already added 5 million tons to it, with the acquisition of Bhushan Steel. The deal has taken Tata Steel past JSW Steel as India's largest steelmaker. The Tata company is also among the favourites to bag Bhushan Power & Steel and Usha Martin.
These acquisitions add to Tata Steel’s capacity expansion plans at Jamshedpur and Kalinganagar.
Tata Steel Europe, on the other hand, continues to reel under adverse economic conditions and bloated costs. The parent has bore the brunt, burning up to USD 1 billion a year because of the European operations.
The deal
Terms of the merger, which was signed in September last year, are still being worked out and the two companies may come up with an initial agreement by the end of this month. But even as the deadline looks like a tough one now, a report by rating agency Moody’s reiterated the positives of the merger.
The agency said that the merger will lead to initial savings of up to 600 million euros. The new entity, in which both Tata Steel and Thyssenkurpp will hold equal equity, will become the second-largest steelmaker in Europe after ArcelorMittal.
Future strategy
But the last couple of weeks have seen pressure mounting on Hiesinger to rework the merger terms. Some of the prominent shareholders, and labour union representatives, have pointed out the differing financial performance of Tata Steel Europe and Thyssenkrupp.
While Tata Steel Europe’s EBITDA has declined by a fifth since the merger was announced, that of Thyssenkrupp has risen by a third.
Despite the fresh challenges, Hiesinger is keen that the merger goes ahead. The veteran, who joined the company in 2011, sees the merger as an important part of his plan to revive the company and make it into an engineering giant.
Apart from the steel business, Thyssenkrupp has varied interests, ranging from submarines to elevators.
But Hiesinger hasn’t delivered yet, at least in the eyes of investors. Thyssenkrupp’s shares have lost 30 percent since he took over in 2011.
The merger will not just save his plan for Thyssenkrupp, but also perhaps cement his place in the conglomerate.
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