Tata, ThyssenKrupp Discuss European Steel Alliance
German steelmaker ThyssenKrupp on Monday confirmed it was in talks with Indian rival Tata Steel, after the Mumbai company put the planned sale of its U.K. business on hold while it explores "more sustainable" alternatives.
In an announcement late on Friday, Tata said it had decided to "explore the feasibility of strategic collaborations through a potential joint venture." It said it had entered discussions with other strategic players in the industry, although it named only ThyssenKrupp.
"A potential strategic combination of strip products businesses offers the best prospects to create a premium, world-class strip steel business with the scale and scope of capabilities to compete successfully on the global stage," said Tata Steel executive director for Europe, Koushik Chatterjee, in a statement.
However, as the talks applied specifically to the strip-steel operation, led by the company's biggest U.K. plant at Port Talbot in Wales, Chatterjee said he would also begin separate sales processes for its specialty steels business, based in Stocksbridge and Rotherham in the northern English region of South Yorkshire, and its pipe mills. The latter operate from the north eastern English town of Hartlepool.
In its response, Monday, ThyssekKrupp said, "The entire steel industry in Europe is currently struggling to safeguard the future of its business. Just a few steelmakers in Europe are profitable in the current environment - our steel business is one of these few companies.
"We have repeatedly emphasized that in this situation we believe a consolidation of the European Steel Industry is necessary, and we have outlined that in this situation everyone is talking to one another in the industry. Among others, we also are in talks with Tata Steel.
"However, it still remains open whether and if, when and with whom such a step in consolidating the industry would take place."
ThyssenKrupp shares were recently up 5.5% at €19.10 ($21.08).
Jefferies analysts called news of the talks "a positive catalyst" for the German company.
Meanwhile, Roy Rickhuss, general secretary of the steelworkers' union, Community, said that while the talks with ThyssenKrupp and the separate sales of the specialty and pipe-making units might have positive outcomes, they would prolong the uncertainty for thousands of U.K. workers and success depended on both the choice of buyer and Tata's own commitment to behaving as a responsible seller.
He said Tata had agreed to allow Community to have the opportunity to examine and "if necessary, challenge," any plans arising from the discussions with ThyssenKrupp and access to any potential bidder for the other businesses.
"Neither the speciality business nor two of the Hartlepool tube mills are part of the Port Talbot supply chain, so an argument could be made that they could have a successful future on their own with the right vision and investment," Rikhuss continued.
"However, we do believe that making these businesses stand alone is unnecessary as there are significant advantages to being part of a larger steel group. Indeed, this has been an important factor in sustaining these businesses in recent years."
Tata had earlier said it planned to sell the whole U.K. business, and let it be known that, without a sale, the Port Talbot plant could close, putting thousands of jobs and the future of the remaining industry at risk.
In more recent weeks, there have been reports, never publicly commented on by the company, that the steel market had improved sufficiently for Tata to consider retaining the U.K business itself, possibly with an eye to collaborating with European partners. There have been rumors of contacts with ThyssenKrupp since at least last year, although nothing has previously been confirmed.
In Friday's statement, however, Tata said it had looked in detail at bids from seven possible buyers for the U.K. operations, including the Port Talbot plant. It had looked at each offer on the basis of its commercial value and the prospects for the future sustainability of the U.K. business "for a range of stakeholders."
But it had also taken into account the uncertainties caused by the U.K.'s June 23 referendum vote to leave the European Union as well as the U.K. government's continuing consultation on the British Steel pension scheme.
The group also has operations in the Netherlands, which are reportedly more successful than their British counterparts and have not previously been included in the sale plans. It was not clear on Monday, whether the Dutch operations would be part of the discussions with ThyssenKrupp. Neither side was prepared to comment beyond what was in their official statements.