FRANKFURT, Germany -- German steelmaker Thyssenkrupp said Friday it will cancel a planned merger with India's Tata Steel due to the expectation that the European Union will not approve a deal that would create a virtual duopoly in the common market.
Thyssenkrupp first agreed in September 2017 to consolidate its steel business with Tata Steel's European operations, and the pair formally inked a deal to form a 50-50 joint venture last June. The partners had aimed to float the new entity on the stock market.
But Thyssenkrupp and Tata Steel are the second- and third-largest steelmakers in Europe respectively, after Luxembourg-based ArcelorMittal. The European Commission worries that the formation of two major players, down from three, would undercut competition and lead to higher steel prices.
The two partners pitched alternative proposals to the European Commission, but the body felt those plans were insufficient, and requested that more units be jettisoned. The companies feared that any more concessions "would adversely affect the intended synergies" and that the economic logic of the merger "would no longer be valid."
Thyssenkrupp and Tata were pummeled by a steel market that cooled around 2015, due in large part to Chinese overcapacity. Even now, the European market is suffering from weak demand, as well as a resurgent inflow of externally-sourced products.
The duo sought to combine their businesses to recoup profitability and competitive advantage, but they will be forced to turn to other solutions now that the deal has been abandoned. Thyssenkrupp CEO Guido Kerkhoff indicated plans to cut 6,000 jobs worldwide, including 2,000 positions in the steel segment. Kerkhoff said during a conference call that he regrets the decision by the European Commission.
Tata Steel Europe, rebranded from Anglo-Dutch steelmaker Corus Group after it was bought out in 2007, has continuously been swimming in red ink. Tata Steel's European unit had sought to sell off loss-making British assets before pivoting to a merger with Thyssenkrupp.
The Tata Steel group has been busy divesting and merging operations in Europe, Southeast Asia and other areas, with the apparent focus on developing its growing domestic business. Tata Steel's stock sank 6% in Mumbai trading Friday to 487 rupees ($6.95).
Meanwhile, Thyssenkrupp will halt plans to break up the company into two entities -- one for making elevators and automobile components, and the other overseeing materials trading and submarine building. Now the group plans to list the elevator unit, which enjoys a high profit margin.