The unforeseen hurdles in Naveen Jindal’s Thyssenkrupp bid: Pension liabilities, job cuts

At the heart of the negotiations is how to manage TKSE’s pension liabilities, estimated at €2-3 billion, and a potential workforce restructuring plan that could involve significant layoffs. Both issues have long deterred buyers and complicated thyssenkrupp’s efforts to offload its loss-making steel unit.

The European steel division accounts for roughly €2.7 billion, or about half of thyssenkrupp’s total pension liabilities of €5.4 billion, while employing just 28% of the group’s workforce, the first of the two persons cited earlier said, both of whom spoke on the condition of anonymity.

This follows Jindal leading a delegation to Germany last week for discussions with thyssenkrupp management and other stakeholders, Mint had reported earlier.

“The company and its employees are seeking firm assurances that these obligations will be met in full," this person added.

As the talks continue, Jindal is also being informally considered for a seat on TKSE’s supervisory board, where he could advise on employee negotiations and pension reforms, this person said.

Notably, a shareholder position is not required to serve on the board under German corporate law.

Mint could not independently verify whether this board berth will be granted or not.

The Naveen Jindal Group is yet to respond to queries emailed by Mint.

Privately-held Jindal Steel International (JSI), part of the Naveen Jindal Group, made a non-binding bid in September to acquire thyssenkrupp’s European steel arm. The proposal includes taking on a portion of the pension liabilities and investing in green steel technologies to revive operations.

Jindal Steel International’s potential deal is estimated to be valued in the range of €3-4 billion, according to an ICICI Direct report dated 17 September.

The potential transaction could mark one of the largest overseas bets by an Indian promoter in Europe’s industrial sector. Jindal has also pledged over €2 billion of fresh investment to complete thyssenkrupp’s Direct Reduction Iron (DRI) project in Duisburg and add electric arc furnace capacity, essential for decarbonising steel production.

thyssenkrupp, in an emailed response, said its executive board would “carefully review this offer with particular attention to its economic viability, continuation of the green transformation, and employment at our steel locations." It declined to comment on commercial details or transaction structure.

German legal framework

Under German law, companies operate with a dual-board structure, separating the executive and supervisory boards. The latter comprises an equal number of shareholder and employee representatives. Jindal’s appointment, if it happens, would require only approval from the shareholder side, one of the people cited earlier said.

The Stock Corporation Act (AktG) and the Codetermination Act (Mitbestimmungsgesetz) allow supervisory board members to be appointed from outside the company, irrespective of shareholding status.

Pension liabilities and negotiations

Jindal, who had written to union representatives before officially announcing his bid, is believed to have emphasised continuity of employment and long-term sustainability in his proposal.

Incidentally, for Indian steelmakers who have tried to get a foothold in Europe through acquisitions, negotiating pension liabilities has been a major concern.

For instance, in the case of the 2007 acquisition of Corus by Tata Steel, the pension liabilities were a major concern and were addressed through the establishment of a special purpose vehicle for acquisition and creation of the British Steel Pension Scheme (BSPS). The BSPS was created in an attempt to separate the pension liabilities from the main company. However, Tata Steel had to bear the pension liabilities of a specific division between 2008 and 2016.

In the case of thyssenkrupp too, the company had announced significant job cuts years before Jindal’ bid for the steel unit. These job cuts were part of a broader, long -running effort to deal with challenges like cheaper Asian competition, high energy costs and a weakening global economy.

In October, thyssenkrupp called off its joint venture plan with Czech billionaire Daniel Kretinsky’s EP Group (EPG). Before Jindal’s bid, EPG had acquired a 20% stake in TKSE in July with an agreement to discuss an additional 30% for a 50/50 joint venture.

A thyssenkrupp executive, requesting anonymity, had then said that the mood within the company was “positive".

One of the two persons cited above said that social security and job protection commitments will be central to any deal approved by the supervisory board.

Analyst views

According to Sumangal Nevatia, director at Kotak Securities, the bid represents the promoter group’s global expansion push, rather than a move by the listed Indian entity.

“With CBAM (Carbon Border Adjustment Mechanism) coming into play and protectionist policies improving European steel economics, the promoter group is betting on a structural recovery," Nevatia said. “However, the deal’s success hinges on Jindal’s ability to provide credible commitments on pensions, jobs, and green transformation."

Analysts at ICICI Direct noted that if the deal goes through, it could be among the largest in the global steel industry, given TKSE’s scale —Germany’s biggest steelmaker and Europe’s second-largest flat steel producer, with an annual capacity of 10.3 million tonnes.

A JP Morgan note dated 2 October said the steel division carries a negative equity value after accounting for its €3 billion in pension liabilities. “Our Neutral recommendation reflects the high degree of uncertainty regarding key elements of Thyssenkrupp’s restructuring," it said.