Tata Steel Shares Surge as Pension Deal Clears Europe JV Hurdle

  • Company to pay 550 million pounds into fund if accord reached
  • Deal would involve combining European plants with Thyssenkrupp

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

The stock climbed as much as 5.1 percent to 479.95 rupees ($7.5) in Mumbai on Wednesday, the biggest intraday gain since November, before trading at 477 rupees at 10:10 a.m. for an advance this year of more than 20 percent.

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 ($711 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 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.

Potential Deal

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 surged 4.1 percent on Tuesday, the biggest advance since February, to 22.49 euros. Tata 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.

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