European steel – to find the point of fusion

3rd October 2017

Olivier Aeschlimann, Senior Financial Analyst, Fund Manager

Thyssenkrupp AG and Tata Steel Ltd have announced the merger of their European steel mills in order to create a company owned 50/50 by the two companies. The aim is to create a group with worldwide scope, while reducing overcapacities, which penalise the sector. The new company, with a capacity of 21 million tons, will be number 2 on the European market, behind Arcelormittal (60 million tonnes). Important synergies are expected: the merger should generate EUR 600 million in economies per year, through the reduction of 4000 jobs, but mainly through realisation of economies of scale. From a strategic viewpoint, this operation will allow Thyssenkrupp to move away from the steel sector, which penalises the valorisation of the group. The new co-company will not be consolidated and can in future be listed on the stock exchange. So the know-how of Thyssenkrup in capital goods, like elevators, should finally be appreciated to its true value.