KOLKATA: Tata SteelNSE 0.04 % and Thyssenkrupp AG have signed a definitive agreement to create a 50:50 joint venture that will combine the European steel businesses of the German and Indian giants. The decision follows the signing of an MoU between the two in September 2017.
In a statement on Saturday, Thyssenkrupp called the joint venture with Tata Steel “an important milestone” for the transformation of Thyssenkrupp to an industrial and service group and said it would lead to a significant improvement of its financials. “The JV will have a two-tier management structure with a supervisory board and a management board with equal representation from both partners.”
Thyssenkrupp also said due diligence and independent expert opinions have confirmed the economic viability of the new company. An official statement said since the signing of the memorandum of understanding, development in performance of Thyssenkrupp Steel Europe and Tata Steel Europe led to a valuation gap between the two entities. “The definitive agreement includes a proper compensation of this valuation gap: In case of an initial public offering (IPO) of the joint venture, Thyssenkrupp will receive a higher share of the proceeds, reflecting an economic ratio of 55:45 in favour of the German company.”
The joint venture will issue warrants equivalent to 10% of the equity capital of Thyssenkrupp, subject to certain dilution provisions, which can be monetised through secondary sale in case of an IPO. The warrants would be triggered only when the venture decides to go public. “Thyssenkrupp has performed better than Tata Steel Europe in the past four quarters,” said Ritesh Shah, metals analyst at Investec Securities. “Therefore, on the basis of net present value of future cash flows, the two parties decided to insert the clause of warrants issue that will give Thyssenkrupp a greater share in the JV at the time of the IPO.” The better performance had also made some investors in Thyssenkrupp question the creation of the joint venture.
Sources : Economic Times