Calcutta: Tata Steel has wrested a 50 per cent stake in the European steel joint venture with Thyssenkrupp AG despite pressure from activist shareholders of the German major calling for a bigger pie of the business.

Two partners will have equal representation in the management of the new company, Thyssenkrupp Tata Steel BV, which will become the second largest steel player in Europe after ArcelorMittal, with Euro 17 billion in sales and 21 million tonnes in shipments.

Even as the initial memorandum of understanding signed between two parties in September 2017 had envisioned an equal JV, deteriorating performance of the Tata Steel Europe (TSE) and improving operation of Thyssenkrupp, had prompted some of the shareholders of the German company asking the management to seek a bigger share of the proposed joint venture.

The transaction addressed the concern by conceding a higher share from the proceeds of an IPO for Thyssenkrupp when the JV decides to tap the capital market.

Warrants will be issued to the German company which will be converted to shares before the IPO, ensuring it gets 55 per cent of the proceeds compared with Tata. Moreover, Thyssenkrupp will also have the right to exclusively decide on the timing of the IPO.

Synergy benefit up to Euro 400-500 million is expected from the consolidation that may take two to three years to materialise, Tata Steel management said in a conference call post the deal.

T.V. Narendran, managing director of Tata Steel, said a third of the benefit would come from procurement and one-fifth from network optimisation. Moreover, 4,000 jobs will be shed from either side.

The definitive agreement signed on Saturday morning to merge European steel operations of the two groups will come to fruition once the transaction passes merger control clearance from European Union and in several other jurisdictions. Until deal closure, expected by end of 2018, Thyssenkrupp and TSE would compete in the market place.

Commenting on the deal, Natarajan Chandrasekaran, chairman of Tata Steel, said: "The joint venture will create a strong pan-European steel company that is structurally robust and competitive. This is a significant milestone for Tata Steel and we remain fully committed to the long-term interest of the joint venture company."

Heinrich Hiesinger, CEO of Thyssenkrupp AG, said: "We will create a highly competitive European steel player - based on a strong industrial logic and strategic rationale."

Balance sheet

Tata Steel will transfer Euro 2.5 billion (Rs 20,000 crore) debt to the JV, thereby reducing consolidated gross debt on the balance sheet from Rs 92,147 crore (as on March 31, 2018).

The company had to bear a finance cost of Rs 5,501.79 crore to service the debt. Much of the debt was raised by Tata Steel to acquire TSE (formerly Corus) in 2007 at $11.3 billion. Since then it has done a series of asset sales and loan refinancing to survive the loss making European business.

Koushik Chatterjee, executive director and chief financial officer of the company, said some of the debt at the holding company level (of the European business) would remain with Tata Steel Group and be serviced from the dividend income from the JV.

"Tata Steel's scale of operation will not reduce because of the restructuring of the European operations, since Bhushan Steel's plant will ramp up production in Odisha in India. A higher share of Indian business would help the company, since margins are expected to be higher in India even without the benefit of captive raw materials for Bhushan plant," Jayanta Roy, group head and senior vice president, corporate sector ratings of ICRA, said.