Photographer: James MacDonald/Bloomberg

Tata Steel's Pension Deal Clears Hurdle for Thyssenkrupp Tie-Up

  • Company to pay 550 million pounds to BSPS if agreement reached
  • Tata says raw-material price volatility is a concern

Tata Steel Ltd. has struck a deal to solve its long-running U.K. pension standoff, bringing the company a step closer to a possible joint venture for its European operations with Thyssenkrupp AG.

Tata Steel and the British Steel Pension Scheme trustees have agreed on key terms of a regulated apportionment arrangement, according to a statement Tuesday. If an agreement is reached, the company will pay a settlement of 550 million pounds ($710 million) to the British Steel Pension Scheme and will sponsor a new closed pension plan, the company said.

Tata Steel has been in talks with Thyssenkrupp AG and others for a joint venture in Europe since last year as part of its strategy to trim losses amid a global glut of steel. Thyssenkrupp Chief Executive Officer Heinrich Hiesinger had identified the pension liabilities as a major stumbling block to a deal.

Resolving the pension issues is the “first priority” for the company, Executive Director for Finance and Corporate Koushik Chatterjee told reporters on Tuesday.

The agreement is good news for a potential deal that has faced growing obstacles in recent months with opposition from Germany’s largest labor union and politicians fearing job cuts. A deal would involve combining Tata’s plants in the Netherlands and U.K. with Thyssenkrupp’s German plants to create the region’s no. 2 producer and a rival to industry leader ArcelorMitttal.

Thyssenkrupp Shares

Thyssenkrupp rose 4.1 percent, the biggest advance since February, to 22.49 euros.

Tata made the announcement at the same time as full-year results. It reported a surprise fourth-quarter loss after the company recorded a 36 billion rupee ($560 million) charge relating to the closure of its British pension plan.

It reported a loss of 7.25 billion rupees in the three months through March, compared with a 27 billion-rupee loss a year earlier. The average of 12 analysts’ estimates was for a 9.88-billion rupee profit. Revenue rose 22 percent compared with a year earlier, to 354.6 billion rupees.

Raw-material costs rose by more than half, to 99.6 billion rupees in the fourth quarter, and the price volatility is a concern, Chatterjee said. The company has budgeted capital expenditure of 70 billion rupees this financial year, he said.

    Before it's here, it's on the Bloomberg Terminal.