Thyssenkrupp says Tata Steel Europe merger deal may come in September
Tata Steel says UK unit freed of £15 billion pension fund liability even as Thyssenkrupp spokesperson indicated merger talks have entered the final stretch
Frankfurt/Duesseldorf/London: Thyssenkrupp AG could reach an in principle agreement this month to merge its European steel business with that of Tata Steel Ltd, the German group said on Monday, adding talks were constructive and had entered the final stretch.
Shareholders last week put pressure on Thyssenkrupp to clinch a deal after talks over a potential combination dragged on for a year-and-a-half, mainly held up by negotiations over Tata Steel’s British pension liabilities.
That hurdle was removed after Tata Steel received regulatory clearance on a pension deal initially reached a month ago, enabling it to separate its UK pension scheme from the group.
Tata Steel on Monday said Britain’s pensions regulator has approved a regulated apportionment arrangement (RAA) in respect of the British Steel Pension Scheme (BSPS).
Estimated to be worth £15 billion, the pension fund threatened to drag the company into insolvency, making it less attractive to a potential buyer of its assets.
As part of the RAA, a payment of £550 million from Tata Steel UK has been made to the BSPS and shares in Tata Steel UK, equivalent to a 33% economic equity stake in the company, have been issued to the BSPS Trustee under the terms of a shareholders’ agreement.
“Tata Steel UK has also agreed to sponsor a proposed new pension scheme, subject to certain qualifying conditions being met. Now the RAA has completed; all members of the BSPS will be invited to transfer to the new scheme,” the company said in a statement.
“If the qualifying conditions are met, members who choose to will transfer to the new scheme. The new scheme would have lower future annual increases for pensioners and deferred members than the British Steel Pension Scheme, giving it an improved funding position which would pose significantly less risk for Tata Steel UK.”
Koushik Chatterjee, Tata Steel’s group executive director, said the approval came following months of hard work to provide the most sustainable outcome for pensioners, current employees and the business.
“This will take some time to implement, given the wide membership base of the scheme. The net financial impact of the RAA, including the payment of the agreed £550 million settlement amount, will be reflected in the Q2 FY18 financials for the company.”
A spokeswoman for Thyssenkrupp said both groups were now close to a memorandum of understanding, paving the way for a detailed look at one another’s books and detailed negotiations before creating the second largest steelmaker in Europe.
Thyssenkrupp chief executive Heinrich Hiesinger favours a steel joint venture, saying this would be the best option to eliminate overcapacities in the volatile steel sector but drawing opposition from labour representatives, who fear job cuts.
Trade union IG Metall said it remained opposed to a joint venture, adding there were no signs the labour representatives it has on Thyssenkrupp’s supervisory board would agree.
Monthly Manager Magazin reported that Thyssenkrupp’s supervisory board could agree to a combination either on 23 or 24 September, citing people involved in the negotiations.
A spokesman for Thyssenkrupp’s works council confirmed that a board meeting initially scheduled for 12 September had been pushed back to 23 or 24 September.
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