tk-Tata merger failure surprises many but not all

Friday’s news that thyssenkrupp and Tata Steel have seen their steel merger fail due to the European Commission’s continued objections came as a surprise to many, but not to everyone.

In their statements (see related article), the companies note that they have offered a comprehensive package of remedies covering all the areas of concern highlighted by the Commission. ”However, the feedback from the Commission based on the market test it has undertaken suggests that it is unlikely to clear the proposal in spite of the significant remedies offered,” one statement reads.

“I’m not sure whether the Commission’s decision has my sympathy,” says analyst Christian Obst of Baader Bank, with an eye on the recent acquisition activity by ArcelorMittal in Europe. “Take a look at the market power of ArcelorMittal, and still they let them buy Ilva – and then AM announces plans to revive capacities there,” he says. And generally, he struggles to follow the logic of the competition commissioner because “… there is rather too much than too little competition in steel in Europe,” he says.

Some points in favour of the Commission’s objections are raised by Roland Döhrn, an economist of RWI Essen institute, and a regular speaker at Kallanish events. The merger would have brought definitely more market power to a combined group, on the purchasing as well as the selling side. And it is the selling side that the Commission is more concerned about, he thinks. “After all, both companies are relatively strong in processing and distribution, too, so I guess many steel consumers were not happy with the merger idea,” he says.

There is however a more general problem within the European steel industry which the merger would not necessarily have remedied. “The main problem is the overcapacities, and the merger would not have solved that, but initially strengthened it,” he says, indicating the long-term concession given by the companies to the workforce to maintain sites in Germany.

Given the somewhat unexpected and very sudden outcome, Döhrn suggests that the surprises may not be over. After all, he says, the companies’ press statements do not clearly state that they are ‘aborting’ the merger, but rather that “… the partners assume with deep disappointment that the European Commission ‘will not approve’ the joint venture.”

This leaves room for the interpretation that “… maybe they just want to exert pressure on the Commission to think again,” he says.