Tata Steel Group on Friday said the proposed merger of its European operations with Thyssenkrupp of Germany has hit a road block after the European Commission has raised many objections to the deal. Tata Steel Europe and Thyssenkrupp had signed definitive agreements on June 30, 2018 to create a 50:50 pan-European joint venture. "The European Commission on Friday discussed the proposed joint venture with both Thyssenkrupp and Tata Steel Europe.
Based on the feedback received from the Commission, it is increasingly clear that the Commission is not intending to clear the proposed JV as it expects substantial remedies in the form of sale of assets of the proposed venture," Tata Steel said in a statement.
The steel major further said based on the statement of objections published by the Commission, a comprehensive package of remedies was offered covering all the areas of concern highlighted by the Commission.
The remedies offered were aimed at developing the overall industrial strategy for the proposed JV, the integrated and complex nature of the supply chain to service customers and the need to build a sustainable business which would be able to endure the structural challenges faced by the European steel industry.
"However, the feedback from the Commission based on the market test it has undertaken suggests that it is unlikely to clear the proposal in spite of the significant remedies offered," Tata Steel said.
It further said further commitments or improvements to the remedy package would adversely affect the basic foundation of the proposed joint venture and the intended synergies arising from the merger to such an extent that the economic logic of the joint venture would no longer be valid and it's the fundamental sustainability would be severely impacted.
"Hence both partners are unable to offer any further remedies. Consequently, we assume with deep disappointment that the Commission will not approve the JV," it noted.
While the proposed JV was an important strategic initiative for it to create a sustainable portfolio in Europe that would have also helped to de-consolidate the European business and de-leverage its balance sheet, the company is committed to the strategy and would explore all options to achieve similar outcomes in the future, it said.
While pursuing the end state strategy for the European business in the near-term, Tata Steel will also continue to focus on its performance management to enhance its earnings and cash flows to build a sustainable and self-sustaining future for the business.
Tata Steel has also undertaken significant de-leveraging in the last six months and would continue to pursue the same through internal cash generation and asset sales, it added.
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