Tata Steel’s plan to offload Dutch ops hits a roadblock

Tata Steel Ltd’s plan to sell its Netherlands operations to Swedish steelmaker SSAB AB has run into a hurdle with two large SSAB shareholders expressing reservations about the deal, two people aware of the discussions said.

SSAB has told Tata Steel that it may not be able to close the deal within the six-month internal deadline agreed to in November, the people cited above said on condition of anonymity, adding the deal is not off the table yet. The development was first reported by Swedish business daily Dagens Industri last week.

“There are several issues that could potentially stall the deal,” one of the two people cited above said.

“This includes concerns around higher carbon footprint for the Swedish steelmaker, which will come with the acquisition, and this is something a section of SSAB’s shareholders are not comfortable with as things stand.”

In November, Tata Steel said it had begun talks with SSAB Sweden to sell its profitable division in the Netherlands where its IJmuiden plant has about 7.5 million tonnes of annual steel-making capacity.

The Dagens Industri report said two of SSAB’s largest shareholders—mining company LKAB and asset manager Industrivarden—were sceptical about the deal. The two investors together owned 20.9% of SSAB, according to Dagens Industri.

Responding to a query from Mint, a Tata Steel spokesperson said, “Tata Steel confirms that discussions with SSAB are currently ongoing. We will disclose any further update only when it is appropriate to do so.”

“We have no comments around this at the moment and do not comment on any speculations in the media. When we have further information, we will communicate that promptly,” an SSAB spokesperson said in an email response.

Another challenge is securing regulatory clearances from the European Commission, (EC) whose chief concern is to prevent price cartelization.

“In Europe, the steel sector concentration is already on the higher side, with just about half the market with ArcelorMittal. So, the EC will be particularly concerned about a single producer gaining significant market share,” a steel sector analyst said on condition of anonymity.

In 2019, Tata Steel’s proposed merger with German steel giant Thyssenkrupp was called off after conditions set by the European Commission made the deal untenable.

A potential merger between SSAB and Thyssenkrupp also did not go ahead for similar reasons.

“There were a lot of learnings for Tata Steel from that episode which will probably come in handy in closing the deal this time around despite the hurdles,” said the second person cited above.

After a proposed joint venture between Tata Steel Europe and Thyssenkrupp ’s steel unit was blocked by EC in 2019, Tata Steel’s management has been seeking alternative solutions to its European operations, which weigh on the parent’s balance sheet with high operating expenses and over $2 billion in accumulated debt.

If the sale of the profitable Dutch plant goes through, Tata Steel believes it will be able to hammer together a financial rescue deal with the UK on the remaining Port Talbot unit (in southern Wales) to keep it operational.

For investors in Tata Steel, India’s second-largest steel producer, the proposed transaction was seen as a positive development after a weak performance through FY20 and a disastrous first quarter. With the operating metrics for India bouncing back and a solution in sight for recouping losses in the Europe, the company is aiming for a turnaround.