DNA Money Edit: Tatas script turnaround with German duet

Tata Steel is making a new start with the signing of a memorandum of understanding for a joint venture between its European operations and ThyssenKrupp AG of Germany. After months-long deliberations, German steelmaker and Tata Steel have agreed to form an equal joint venture that would create Europe’s second-largest steel firm, after ArcelorMittal. Amid concerns over job loss, the merger process has gathered pace. ThyssenKrupp’s supervisory Board will meet September 24 to discuss the plan as workers’ unions go on a protest against the merger. The new entity ThyssenKrupp Tata Steel, with its headquarters in Amsterdam, will have 21.3-million tonne capacity, sales of about €15 billion and a workforce of about 48,000 at 34 locations.

The deal is definitely a feather in the cap of Natarajan Chandrasekaran who, soon after taking charge as the chairman of Tata Group in February, decided to dispose of some legal hotspots in the salt-to-software Indian giant. Tata Steel said it would shift €2.5 billion of its debt to the new entity. The German giant will also shift its liabilities worth €3.6 billion that it had gathered from its pension schemes.

Chandrasekaran is hopeful that a deleveraged Tata Steel is better positioned to grow faster and double the capacity over the next five years after the merger deal. In India, the merger gives opportunities to focus on rapid growth so that it can maintain its leadership position and continue to grow and capture the markets. While the direct debt reduction may not be anything huge, the joint venture will provide significant cash flow for servicing the remaining debt and supporting further debt reduction in the near future.