Pensions

Why Thyssenkrupp wants India’s Tata Steel so badly

“He [Hiesinger] has invested too much time for it to now fail,” a banking source familiar with the matter said.

The biggest stumbling block in talks to merge the companies’ European steel assets was largely resolved in May, when Tata said it had agreed to the main terms of a deal with the UK regulator to cut benefits for its £15bn UK pension scheme.

With Thyssenkrupp said to be satisfied with the preliminary deal and German unions acknowledging behind the scenes that they cannot stop the merger, sources said the talks should be formalised in the next couple of months.

One source said much hinged on final clearance from the regulator for the Tata pensions deal. A pensions source, however, said regulatory clearance was pending. “I would be surprised if it [clearance] didn’t happen by September,” he said.

Tata Steel and Thyssenkrupp declined to comment.

With the companies having suffered heavy losses in steel in recent years, they are intent on a merger that would bring capacity cuts, consolidation, pricing power and synergy savings.

While German unions are publicly against the venture, they privately acknowledge they cannot stop a deal even if all 10 union representatives on Thyssenkrupp’s supervisory board vote against it.

They are concerned, however, that Thyssenkrupp is looking to take on a minority stake in the joint venture and is keen on handing over day-to-day management to Tata.

Unions fear job cuts would fall disproportionately on them versus legacy Tata staff.

It could take three to four years to integrate the two operations and deliver the sort of savings — €500m a year by some estimates — that could help pave the way for an initial public offering that would help Thyssenkrupp exit the sector.

The Tata pensions deal alone could take until early 2018 to implement even though it was due to be cleared shortly, pensions sources said.

However, Martin Hunter, principal at consultants Punter Southall, said to avoid delay, Tata and Thyssenkrupp could announce the deal but make a final tie-up contingent on the end shape of the pension deal.

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