Tata Steel rises 3% after deal with ThyssenKrupp, but erases gains later

By: | Published: July 3, 2018 3:00 AM

Shares of Tata Steel rose by 3.3% intraday on Monday as the company signed joint venture (JV) agreement with Thyssenkrupp to create new steel company in Europe.

tata, tata steelTata Steel and Thyssenkrupp signed definitive agreements to combine their European steel businesses in a 50:50 joint venture in a new company on Saturday.

Shares of Tata Steel rose by 3.3% intraday on Monday as the company signed joint venture (JV) agreement with Thyssenkrupp to create new steel company in Europe. However, the stock could not hold on to the initial gains and fell by 1.22% to end the session at Rs 560.95.

Tata Steel and Thyssenkrupp signed definitive agreements to combine their European steel businesses in a 50:50 joint venture in a new company on Saturday.

The move would lead to the formation of a new player in the second position in the European steel market, having a combined turnover of 17 billion euro per annum and around 48,000 workers.
The proposed joint venture will also result in significant de-leveraging exercise for Tata Steel as it will transfer 2.5 billion euros to the joint venture company.

Thyssenkrupp on its part gets to transfer about 3.6 billion euro of its pension liabilities to the JV. The transaction is subject to merger control clearance in several jurisdictions, including the European Union.

In a note to investors on the deal, Kotak Institutional Equities said though Tata had to settle for a lower economic stake in the JV, it is overall positive for company’s financials as it can now transfer 2.5 billion euros of debt to the JV, especially after an increase in the company’s leverage post acquisition of Bhushan Steel.

Edelweiss, in its note on the deal, said the transaction is value accretive for Tata and Thyssenkrupp as it will result in sustainable steel business operations with a robust capital structure. From the beginning of 2018, Tata Steel’s stock fell by 18.8% against Sensex’s gain of 3.5%.

Analysts are bullish on the stock. Out of 29 analysts who track the stock on Bloomberg, 25 have a ‘buy’ rating; One has a ‘sell’ rating, and three have a ‘hold.’

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