Rational of the Deal
ThyssenKrupp AG and Tata Steel Group aim to create a JV that will combine their European flat-carbon steel businesses, a move that raised antitrust flags. After the ArcelorMittal-Ilva deal, EU regulators may be skeptical about further consolidation in the industry, as the deal could leave only two dominant players in Europe, one in the north and one in the south. While divestitures could appease regulators, the scope of the concessions may be too big for the parties.
50% chances of approval
Approval may come at such a high cost for ThyssenKrupp and Tata that they may have difficulties to divest all the assets that regulators will likely request without affecting the rational of the deal. For ArcelorMittal-Ilva, approved in 2Q18, regulators highlighted the risk of price coordination between EU producers. This deal will likely increase that risk for northern Europe and also give the companies enough leverage to unilaterally raise prices.
Companies likely to divest assets
The companies may need to sell assets in Germany, the Netherlands (Ijmuiden) or France (Louvroil) to get antitrust approval, in our view. Bloomberg reported the companies have offered to sell assets in Belgium, Spain and the U.K. to win approval, but additional divestitures may be needed. After the initial review, EU regulators found the deal may raise concerns about galvanized steel for automotive applications, metallic-coated steel for packaging and grain-oriented electrical steel.
A few potential buyers for divetitures
The companies are likely negotiating deals with buyers for the assets they will need to sell to secure EU approval. The parties probably included the names of potential buyers for the divestitures in the remedy package offered in April to be cleared. Salzgitter, Voestalpine and NLMK Europe could be suitable candidates, while ArcelorMittal will likely be ruled out, given it’s the market leader. SSAB declared that they aren’t interested in any possible asset divested from this deal.
Decision Likely in June
Thyssenkrupp and Tata are likely to get a final decision by mid-June as regulators aren’t likely to extend or suspend the deadline again, in our view. EU regulators set a new statutory deadline of June 17 after the merger deadline was extended for the second time on April 25. Deadline extensions and suspensions are common in complex deals such as this. The companies and the regulators would still have enough time to tweak the remedy package if it’s necessary after the market test
