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Courage to change

Over the past few months we have conducted intensive talks with Tata over a possible joint way forward.
As a listed company we were unwilling and unable to comment in detail on speculation about this.
But we promised to give you more information as soon as we could. We are pleased that this is now the case and we can provide all parties with more clarity: thyssenkrupp and Tata have signed a memorandum of understanding to combine their European steel operations in a 50/50 joint venture.
That means we intend to establish a new company in which thyssenkrupp and Tata hold equal interests.
We will contribute thyssenkrupp Steel Europe with all its sites and employees to this joint venture.
In addition we also intend to transfer thyssenkrupp MillServices & Systems, currently part of the Materials Services business area, to the joint venture. The name of the company will be thyssenkrupp Tata Steel.

On this page we aim to provide you, our employees, investors and the media, with a wide range of information. Who is Tata and why do we see Tata Steel Europe as the ideal partner for our steel business? What does this mean for our employees? What happens next? How does this decision fit in with thyssenkrupp’s Strategic Way Forward?
You will find the answers to these questions and much more besides here.

Dr. Heinrich Hiesinger

CEO, thyssenkrupp AG

Questions & Answers

1. What is an MoU (Memorandum of Understanding)?

MoU

"MoU” stands for “Memorandum of Understanding”, which is generally a joint declaration by two partners of their intention to work together.

In the case of thyssenkrupp and Tata, this basic agreement sets out the desire of both companies to combine their European steel operations in a 50/50 joint venture with the aim of creating one of Europe’s leading flat steel suppliers.

2. What is a joint venture?

Joint Venture

A joint venture is a subsidiary established and managed by two mutually independent companies. In this form of cooperation the companies each contribute capital and expertise.

In the case of thyssenkrupp and Tata, the two companies have reached a basic agreement to combine their European steel activities in a 50/50 joint venture. That means we want to establish a new company – thyssenkrupp Tata Steel – in which thyssenkrupp and Tata will hold equal interests. thyssenkrupp would contribute its Steel Europe business area to the joint venture. It is also intended to transfer thyssenkrupp MillServices & Systems to the joint venture. Tata would contribute all its European flat steel operations.

This would create a powerful new number 2 in the European flat steel market.

3. What has been agreed so far?

The memorandum of understanding includes the following: thyssenkrupp would contribute its Steel Europe business area with all sites and employees to the joint venture.

It is also intended to transfer thyssenkrupp MillServices & Systems GmbH, which provides steel mill services and is currently part of the Materials Services business area, to the joint venture. Tata would contribute all its European flat steel operations. This would create a powerful new number 2 in the European flat steel market. The company is to be called thyssenkrupp Tata Steel. It will be managed by a lean holding company based in the Netherlands. A two-tier management structure is planned with a Management Board and a Supervisory Board. Both boards will be filled by equal numbers of representatives from thyssenkrupp and Tata.

The codetermination structures in Germany, the Netherlands and the UK will be retained.

4. Who is Tata?

Like thyssenkrupp, Tata is a diversified industrial group. It is headquartered in Mumbai, India and employs roughly 695,000 people at more than 100 independent companies in over 100 countries. The Tata Group has revenue of more than 100 bn USD. The CEO of the group, which was established in 1868, is Natarajan Chandrasekaran.

Tata Steel Europe is part of the Tata Group and one of Europe’s biggest steel producers, with production sites in the UK and the Netherlands and processing plants throughout Europe. Tata Steel Europe employs around 21,000 people.

5. Why is Tata Steel Europe the ideal partner for our steel business?

There are five good reasons for this:

1) Economies of scale: We are combining the number 2 and number 3 in Europa and creating a leading European flat steel supplier – a powerful new number 2! A combination with a German steel company would not have resulted in anything on this scale.

2) Complementarity: Our businesses and those of Tata complement each other well. thyssenkrupp is stronger in the automotive sector, Tata with industrial customers. The headquarters in Duisburg, IJmuiden and Port Talbot all have good logistical links and supply customers in different, economically strong regions. Overall that makes it possible to cover a significantly broader range of customer sectors throughout Europe.

3) Performance orientation: thyssenkrupp and Tata’s sites are among the most efficient in Europe. In recent years both partners have launched successful programs to improve operating performance.

4) Innovation: Both partners target quality and technology leadership in the European steel industry and continuously develop innovative products and solutions for their customers.

5) Culture and capabilities: We are not the only ones with highly skilled and dedicated employees, Tata has them too. The workforces of both identify very strongly with their respective companies. That’s partly because active responsibility to employees and society play a major role at both companies. And that is not least the reason why both have strong shareholders in a foundation structure who are continuing the ideas and values of the original owners. Yet despite this strong sense of tradition, a willingness to change is part of the DNA at both thyssenkrupp and Tata.

6. Why are we taking this step?

The European steel industry is still facing major challenges: Demand for flat steel is growing very slowly, there are significant overcapacities with corresponding underutilization of facilities.

All steel companies are countering this with restructuring programs, but their effects are only short-lived and are quickly eroded by the market, creating a downward spiral that makes it necessary to carry out restructurings every three to four years. To break out of this cycle the Executive Board of thyssenkrupp has decided to combine our European steel activities with Tata. This would give our steel business competitive advantages that we will not be able to achieve on our own.

7. Who will manage the new company?

thyssenkrupp Tata Steel is to be managed via a lean holding company based in the Netherlands.

A two-tier management structure is planned with a Management Board and a Supervisory Board. Both boards will be filled by equal numbers of representatives from thyssenkrupp and Tata. The codetermination structures in Germany, the Netherlands and the UK will be retained.

8. What impact will a joint venture have on jobs?

thyssenkrupp would contribute thyssenkrupp Steel Europe with all sites and employees to the new company. It is also intended to transfer thyssenkrupp MillServices & Systems GmbH, currently part of the Materials Services business area, to the joint venture.

But even with the joint venture it will not be possible to avoid job cuts. In the joint venture as a whole it is expected that up to 2,000 administrative jobs and possibly up to 2,000 jobs in production will have to be cut in the coming years.

These cuts would be shared roughly evenly between thyssenkrupp and Tata. So overall around 2,000 jobs at thyssenkrupp could be affected. One thing is clear: No measures will be taken that would not also have had to be implemented by the company on its own – without a partnership. On the contrary:

Through the joint venture the burdens for each partner would be lower than would be the case for each company acting alone.

9. What will a joint venture in the steel business mean for the thyssenkrupp Group?

With the joint venture, a viable solution has been found for our steel business which will make a start on addressing the structural issues in the European steel industry.

The partnership would of course also have an effect on the rest of the Group. The joint venture would be a further milestone on thyssenkrupp’s Strategic Way Forward to a strong industrial group which it embarked on in 2011.

One of its aims from the outset was to further reduce the Group’s dependency on the highly volatile steel market. If the joint venture were to come into effect, key balance sheet ratios for the Group would improve significantly.

We would also create more scope for our capital goods businesses to grasp the growth opportunities that come about as a result for example of urbanization, digitization and e-mobility.

10. What does a combination mean for the balance sheet of thyssenkrupp AG?

Upon signing, thyssenkrupp Steel Europe would be reported in the balance sheet as a discontinued operation.

After the closing the 50 percent interest in the joint venture would be accounted for using the equity method.

That means that key balance sheet ratios for the Group would improve significantly when the joint venture came into effect, in particular the equity ratio and gearing (ratio of net financial debt to equity).

11. What happens next?

On the basis of the memorandum of understanding in the coming months we will carry out due diligence, a process in which the negotiating partners thyssenkrupp and Tata allow each other to inspect confidential business documents, so far as this is allowed between competitors.

On this basis and on the basis of the talks with the Supervisory Board we are aiming to sign an agreement in early 2018. Closing could then take place following the approval of the merger control authorities at the end of 2018.

12. What impact will a joint venture with Tata have on worker codetermination?

None.

The codetermination structures in Germany, the Netherlands and the UK will remain.

The signing of the memorandum of understanding means that the responsible codetermination bodies can be involved much more closely in the further process from now on.

13. What would have been the alternative to a joint venture?

Before deciding on a joint venture the thyssenkrupp Executive Board examined and worked out all the available options: A tie-up with a German partner, a spin-off, an IPO, the sale of the steel business and even a break-up of the entire company.
The joint venture with Tata is the only option that gives our steel business a viable long-term future.

There are three main reasons: First, no other option addresses the structural overcapacities in the European steel industry. This problem would be put off unsolved and the uncertainty for the employees would remain. Second, no other plan creates fundamental value above and beyond the existing business plan through clear synergies. And third: in a joint venture with Tata we solve a strategic problem in a way that corresponds with our corporate culture.

The joint venture with Tata Steel Europe is a way forward that not only promises value growth for shareholders but also creates clarity for our employees and safeguards tens of thousands of jobs over the long term.
At the same time the joint venture will enable us as a group to remain involved in the steel business. Our roots are in steel.

14. More about Tata

15. What will happen with apprentices?

We have always provided training beyond our own needs. On the one hand this ensures that we get the very best apprentices for our workforce. On the other hand we see it as our duty to give young people at our locations and surrounding areas a good and qualified start to their professional lives. Our values are important to us, and they include training our own young professionals.

16. Will investments still be made?

We will continue to do our best, we will go ahead with processes such as daproh Steel, and we will continue to invest in our equipment and projects. Our business is not coming to a stop. However, we will also be reviewing our major investment projects, to ensure capital expenditure are put to the best use in our partnership.

What happens next?

Preliminary investigation phase
Both companies hold intensive talks to examine whether a partnership is fundamentally possible.
Memorandum of Understanding (MoU)
If there is interest in an agreement, a non-binding memorandum of understanding is signed. thyssenkrupp and Tata have signed the MoU on September 20th 2017
Phase of Due Dilligence and discussions in joint working group with co-determination
Now the negotiating partners allow each other, through an independent third party, to inspect confidential business documents so far as this is allowed between competitors. In addition, initial concrete contract negotiations take place.

We have also agreed to establish a joint working group. This working group will consist of Members of the Executive Board of thyssenkrupp AG, the Executive Board of thyssenkrupp Steel Europe AG, Representatives of thyssenkrupp AG’s works councils and the works councils of the steel sites. The joint working group will be headed by Markus Grolms, Deputy Chairman of the Supervisory Board of thyssenkrupp AG and by Oliver Burkhard, member of the Executive Board of thyssenkrupp AG and CHRO of the group.

Signing
After completion of the negotiations the joint agreement is signed.
Regulatory examination phase
The checks by the merger control authorities, who have to approve the planned joint venture, can now begin.
Closing
Following successful review the closing takes place and the agreement comes into force. The combination is now consummated and the new company established.
Integration phase
The step-by-step integration of the companies can now begin.

We want to engage in an open dialogue: Let us talk!

Employees of thyssenkrupp can find further information in our internal media.

Ask questions on “we.direct to”!

Log on to the intranet with your personal details.
If you have technical questions, please contact your local IT support.

Information for investors can be found here.

https://www.thyssenkrupp.com/en/investors/

Disclaimer

Statements in this press release describing the Company’s performance may be “forward looking statements” within the meaning of applicable securities laws and regulations. Actual results may differ materially from those directly or indirectly expressed, inferred or implied. Important factors that could make a difference to the Company’s operations include, among others, economic conditions affecting demand/ supply and price conditions in the domestic and overseas markets in which the Company operates, changes in or due to the environment, Government regulations, laws, statutes, judicial pronouncements and/ or other incidental factors.

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