Tata Steel`s European works council said it is unconvinced by a planned joint venture with Thyssenkrupp, raising the chances that the deal will be delayed or even fail in its current form.
The remarks deal a fresh blow to Thyssenkrupp boss Heinrich Hiesinger, at the helm of the German steel-to-submarine group for more than seven years, whose plan to sharpen the company`s focus on technology largely depends on the steel transaction.
They are also in line with growing criticism from investors, including U.S. activist fund Elliott, who have pointed out the diverging fortunes of the two groups since the venture was first announced last year and have asked Thyssenkrupp to seek better terms.
Tata Steel`s European Works Council (EWC) said on Monday that numerous details of the deal still needed to be hammered out before they could endorse a deal. The comments make it less likely that a planned end of June deadline could be met.
"The EWC acknowledges there is an industrial rationale for pursuing this JV, but with the matters outstanding the EWC remains unconvinced that this partnership with Thyssenkrupp would be in the best interests of Tata Steel Europe`s operations and the employees we represent," it said in a statement.
The planned transaction would combine Thyssenkrupp`s and Tata Steel`s European steel operations to create the continent`s second-largest steelmaker, behind ArcelorMittal, with sales of 15 billion euros ($18 billion).
The EWC, however, said that it still had significant knowledge gaps with regard to the financial structure and the business strategy of the planned 50-50 joint venture, adding Thyssenkrupp was unwilling to lay out plans for the partnership.
"This situation is deeply regrettable," the EWC said in its statement.
It said its support for the joint venture depended on factors like a moratorium on job cuts until 2022 and no Tata Steel site closures before 2026. It also wants the sale of Tata`s electrical steel subsidiary Cogent to be put on hold.
Since the deal was announced in September, core earnings (EBITDA) at Thyssenkrupp Steel Europe rose by about a third on a 12-month basis, while those at Tata Steel Europe declined by about a fifth, according to Reuters calculations.
Some shareholders say this has created a valuation gap of up to 3 billion euros, which Thyssenkrupp`s management needs to address in the final negotiations, possibly by transferring more debt to the venture than initially planned.
This will likely form one of the topics to be discussed when Thyssenkrupp`s supervisory board meets on Wednesday, two people familiar with the matter told Reuters.
Thyssenkrupp was not immediately available for comment.
A Tata Steel spokesman said: "We will continue to engage in constructive dialogue with our employee representatives throughout the process of creating the proposed joint venture."
He said Tata Steel was committed to delivering the joint venture without the need for compulsory redundancies.
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