FRANKFURT AM MAIN: German heavy industry giant ThyssenKrupp and Indian group Tata agreed on Wednesday (Sep 20) to merge their steel operations in Europe, sending governments and unions scrambling to ward off job cuts.
Once the deal is finalised in 2018, the two groups aim for efficiency savings of between €400 and €600 million (US$480-US$720 million) per year - and are likely to shed 4,000 jobs in production and administration.
The combination would create Europe's second-largest steel manufacturer after ArcelorMittal, expected to produce around 21 million tonnes of steel per year for sales of €15 billion.
The two sides plan a 50-50 joint venture, named "ThyssenKrupp Tata Steel", as a holding company in the Netherlands with joint management that will employ some 48,000 people across 34 sites.
"We have found a European solution for a European industry," ThyssenKrupp chief executive Heinrich Hiesinger told reporters.
He said the planned job cuts would be shared evenly with Tata, with ThyssenKrupp shedding a thousand jobs in production and another thousand in administration.
"This is not a pretty number, and it would not have been any better if we had stayed on our own," Hiesinger said.
The merger comes as Europe and the United States have long complained of massive gluts in the world steel market caused by overproduction in China, with Washington launching investigations into the national security implications of Chinese competition.
"The steel industry has faced massive challenges in Europe for many years," ThyssenKrupp, a industrial conglomerate whose products range from lifts to car parts and submarines, said in a statement.
"Steel demand is characterised by a lack of dynamic. There is structural overcapacity in supply and constantly high import pressure," it said, which has led to various stages in the value chain operating well below capacity.
Tata Steel chairman N Chandrasekaran said the partnership agreement was a "momentous occasion" for two firms who "share similar culture and values".
The "declaration of intent" signed by both sides must still be approved by competition authorities.
Investors welcomed the news, with ThyssenKrupp shares the top performer on the DAX index of blue-chip German stocks as they added 3.7 per cent to trade at €26.19 at 1310 GMT.
Worker representatives in Germany, where ThyssenKrupp employs some 27,000 people in its steel division, were quick to voice fears over the planned tie-up.
"The board has bet everything on a single card in the face of all the warnings," works council chief Guenter Back told news agency DPA, adding that "significantly more" job cuts would likely follow those announced on Wednesday.
Trade unions at ThyssenKrupp have for months been fearing news of job losses, using the pressure of Germany's general election campaign to enlist support from Berlin.
"There should not be a merger at any cost" between Tata and ThyssenKrupp, Labour Minister Andrea Nahles said of the deal.
The jobs tussle is set to intensify at the weekend, as ThyssenKrupp must submit the plan to its supervisory board - where worker representatives hold half the seats - for approval.
"There has to be consensus with worker representatives on important strategic decisions of this kind," said Economy Minister Brigitte Zypries. "That is not yet the case."
IG Metall plans a demonstration by "thousands" of workers in the western German city of Bochum on Friday, a spokesman told AFP.
Protestors will call for "transparency" in the merger process and "security for jobs, for workplaces, the preservation of the German model of employee participation," union spokesman Mike Schuerg told AFP.
More upbeat than Germany's Gabriel, British economy minister Greg Clark hailed an "important step" for the island nation's steel industry.
London hopes the deal will secure the future of Tata's 4,000-strong site at Port Talbot in Wales, which sits at the heart of the local economy.
"As always, the devil will be in the detail and we are seeking further assurances on jobs, investment and future production" in the UK, said trade union representative Roy Rickhuss, while adding that workers "recognise the industrial logic of such a partnership".