June 27, 2018 / 12:14 PM / in 5 months

Exclusive: Thyssenkrupp nears JV compromise deal with Tata Steel - sources

DUESSELDORF/FRANKFURT/LONDON (Reuters) - Thyssenkrupp and Tata Steel are nearing a 15 billion euro ($17.4 billion) deal this week to combine their European assets into a global steel giant, sources familiar with the talks told Reuters.

FILE PHOTO: A logo of ThyssenKrupp AG is pictured outside the ThyssenKrupp headquarters in Essen, November 23, 2017. REUTERS/Thilo Schmuelgen/File Photo

Talks to hammer out the final details are progressing well and a compromise has been reached on closing a valuation gap between the businesses, three of the people said.

The combination of Thyssenkrupp’s and Tata Steel’s European steel assets, first announced in September, would create the continent’s second-largest steelmaker after ArcelorMittal with 15 billion euros in combined sales.

Sources told Reuters this month that the compromise options included a cash payment to Thyssenkrupp, changing the 50-50 ownership structure of the venture, lowering the debt to be transferred to it, or limiting dividend payments to Tata Steel for a number of years.

“Talks are very constructive, they are on the final stretches,” one of the people said.

Negotiations are ongoing and could still be delayed or collapse at the last moment, the people said, adding that both companies had a great interest in getting a deal done.

Thyssenkrupp and Tata Steel both declined to comment.

TIMETABLE SLIPPAGE

Shares in Thyssenkrupp extended gains and were up 3.1 percent at 1250 GMT, topping Frankfurt’s blue-chip index.

The joint venture was originally planned to be signed in early 2018 but was delayed after Thyssenkrupp’s steel business performed much better than Tata Steel’s, requiring a reassessment of the deal.

Signing is now planned by the end of June, but due to disagreement over the size of the valuation gap — with estimates ranging from 500 million to 3 billion euros — that timeline, too, has been called into question.

While giving Thyssenkrupp boss Heinrich Hiesinger more leverage in negotiations, the gap has also enabled activist fund Elliott, who disclosed a stake in the steel-to-submarines group last month, to put more pressure on the CEO to deliver.

German labor unions, which control half of the seats on Thyssenkrupp’s supervisory board, have expressed general support for the deal, saying last week they would be prepared to let talks run longer if it results in a better outcome.

Tata Steel Europe’s labor representatives are also close to approving the deal, two people familiar with the matter said.

Reporting by Tom Kaeckenhoff, Arno Schuetze, Christoph Steitz and Maytaal Angel; Additional reporting by Promit Mukherjee in Mumbai; Editing by Maria Sheahan and Alexander Smith

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