Shares of Tata Steel surge 1% on MOU with Thyssenkrupp for joint venture

By: | Published: September 20, 2017 11:31 AM

Shares of Tata Steel rose by more than 1% to hit the day’s high of Rs 687.3 after the Indian major signed a Memorandum of Understanding with thyssenkrupp AG for a 50: 50 joint venture for their European assets.

green school project, tata school project for school children, tata steel program for schools, school green project, The Energy and Resources InstituteTata Steel shares were trading at Rs 687.3, up by more than 1% since previous close. (Image: Reuters)

Shares of Tata Steel rose by more than 1% to hit the day’s high of Rs 687.3 after the Indian major signed a Memorandum of Understanding with thyssenkrupp AG for a 50: 50 joint venture for their European assets. Tata Steel said in a company release, “The proposed 50:50 joint venture – thyssenkrupp Tata Steel – would be focused on quality and technology leadership, and the supply of premium and differentiated products to customers, with annual shipments of about 21 million tonnes of flat steel products,” Tata Steel said in a press release.

The joint venture will have a turnover of Rs 1,15,000 crore.The company will be headquartered in Amsterdam, Netherlands. As per the company’s estimates, cost synergies for the company is expected to be in the range of 400-600 million euro per annum. “Cost synergies may be realized through integration of commercial functions, R&D and other supporting activities,” Koushik Chatterjee, Group Executive Director, Tata Steel said.

According to the company’s press release, the proposed combination of businesses would be formed through a non-cash transaction framework, based on fair valuation where both shareholders would contribute debt and liabilities to achieve an equal shareholding in the venture. N Chandrashekaran, the chairman of Tata Sons said, “The strategic logic of the proposed joint venture in Europe is based on very strong fundamentals, and I’m confident that Thyssenkrupp and Tata Steel will have a great future.” According to the veteran, this augurs well for both the players, “This partnership is a momentous occasion for both partners, who will focus on building a strong European steel enterprise.”

Top brokerages including HSBC and Morgan Stanley maintained overweight on the shares of Tata Steel as the brokerage firms believe that a potential Joint Venture with Thyssenkrupp AG bodes well for the company. Morgan Stanley has a buy rating on the stock with a target price of Rs 741. HSBC had said earlier to CNBC TV18 that the Thyssenkrupp joint venture will lead to further consolidation in the European Steel industry. HSBC has a buy on the stock with a target of Rs 750 per share.

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