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Tata, Thyssenkrupp Still Haggling Over Merger Terms

The merger would create Europe’s second-biggest steelmaker.The merger would create Europe’s second-biggest steelmaker.

India’s Tata Steel and Germany’s Thyssenkrupp are struggling to combine their European steel businesses as a June 30 deadline to finalize terms looms.

The two companies have yet to resolve fundamental differences on how to implement the preliminary deal reached last September. Thyssenkrupp shareholders and unions are questioning whether the two businesses should be valued as equals in a 50/50 joint venture, given that Thyssenkrupp’s operation has been performing much better than Tata’s of late, Nikkei reported.

Thyssenkrupp’s trade unions and activist shareholders, which include Elliott Management of the US and Sweden’s Cevian Capital, are heaping pressure on Chief Executive Heinrich Hiesinger to negotiate a better deal. Opponents are also likely to urge European regulators to block it.

The merger would create Europe’s second-biggest steelmaker behind ArcelorMittal, formed in 2006 following a takeover of Luxembourg-headquartered Arcelor by Indian-owned Mittal Steel. It could tighten the supply of some niche steel products, affecting manufacturers such as automakers.

Profits at the two businesses are moving in opposite directions amid the steel industry’s tentative recovery from years of slumping prices. Thyssenkrupp’s European steel business generated €198 million ($230.9 million) in profit before interest and tax in the January-March quarter, up from €91 million a year earlier. By contrast, earnings before interest, tax, depreciation and amortization from Tata’s European operations fell 41.5% over the same period to 11.54 billion rupees ($170.5 million).

It had been expected that the diverging profitability might be addressed by adjusting the value of debt and pension obligations to be transferred to the new company. But Germany’s Manager Magazin reported on June 21 that Thyssenkrupp would have its stake in the venture increased to 55%.

“The process is taking significantly longer than anticipated by us in the beginning,” Hiesinger said in a note to staff dated June 14, which was obtained by Reuters. He added that he was aiming for a “constructive dialogue with all investors”.

For Thyssenkrupp, the merger may mark the end of a prolonged period of restructuring. It has been diversifying away from steel, spinning off its stainless-steel business in 2011, for example. The merger with Tata will help it to focus on products such as elevators, but Tata Steel also has expertise in automotive steels, suggesting that the larger group could consolidate research and production in that area.

The two sides have projected about €400 million of synergy gains from the merger.

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