ThyssenKrupp-Tata merger at risk of being blocked
Regulator believes deal lead to less choice and higher steel prices
The landmark steel merger between Germany’s ThyssenKrupp and India’s Tata Steel looks increasingly likely to be blocked by Brussels unless the companies offer greater concessions, according to three people familiar with the matter.
EU antitrust regulators are concerned that the 50:50 joint venture — which would create Europe’s second-largest steel producer — would lead to less choice and higher prices for steel used in the car industry, electrical products — such as transformers — as well as the coated steel used for food packaging and aerosol cans.
The EU has already provoked the ire of the German and French governments when it blocked the proposed rail merger between Siemens and Alstom on competition grounds in February. The hope had been to create a European champion to rival Chinese rail competitors, but Brussels vetoed the deal saying that the two companies “were not willing to address our serious competition concerns” by offering greater concessions.
Margrethe Vestager, EU competition commissioner, must decide on the steel deal at an intensely political time in Brussels. Elections for the European Parliament take place this month and many of the key executive positions in Brussels are waiting to be filled.
Steel industry experts say consolidation is vital in the face of overcapacity, cheap imports and US tariffs. However, EU regulators believe the continent’s industry is already highly concentrated; they forced ArcelorMittal to make significant divestments to gain regulatory approval for its acquisition of Italian steelmaker Ilva last year.
Talks between ThyssenKrupp, Tata Steel and EU officials continue and an improved offer is possible. However, difficulties persist. Tata’s labour unions in the Netherlands and UK are concerned they are giving up too much and have threatened not to support the deal.
Further disposals from ThyssenKrupp could undermine the logic of the deal, two people familiar with the matter said, as the company had already enhanced its offer in early April and there was now little leeway left.
The two companies recently proposed a ‘remedy package’ with offers to sell factories that make hot-dip galvanised steel for automotive and packaging.
Rivals, customers and other market participants have told EU officials that the offer falls far short of what is needed to ensure that the combined group is not too powerful, according to people familiar with the process.
“Steel is a crucial input for many of the goods we use in our everyday life, and competitive steel prices are vital for the European economy,” said Ms Vestager in October when she opened the probe. “Industries dependent on steel employ over 30m people in Europe and we must be able to compete in global markets.”
ThyssenKrupp said: “There are still various ways to adjust the commitments already made, without compromising on the economic logic of the joint venture. Next week, there will be a further discussion with commissioner Vestager on the assessment of the commitments by the commission.
A spokesperson for the Tata Steel group said: “Tata Steel and ThyssenKrupp believe the comprehensive package of solutions proposed do address the concerns expressed by the European Commission, while also supporting the industrial logic of the joint venture and the interests of all our stakeholders.”
EU officials declined to comment.
Ms Vestager must announce her decision by June 17, though in practice she must finalise her decision several weeks before the announcement.
The deal was agreed in September 2017, with the groups saying they could save up to €600m a year.
The stakes are high for Thyssenkrupp, whose shares are languishing near a seven-year low despite years of pressure from activist investors Cevian Capital and Elliott Management.
Some investors say ThyssenKrupp’s broader plan to split into two entities — essentially separating its steel businesses from its capital goods divisions — is contingent on the merger with Tata.
If the deal fails to get a green light, then the overall strategy of the group would be in doubt, which could lead to the exit of ThyssenKrupp’s newly installed CEO Guido Kerkhoff, said Ingo Speich, head of corporate governance at Deka Investment, which owns 5m shares in ThyssenKrupp.
“Faith in the management and the success of the split are closely linked,” Mr Speich added. “If you want to change the strategy you have to change the management.”