Pensions, jobs key sticking points in Jindal’s thyssenkrupp acquisition talks

At the heart of the negotiations is how to manage TKSE’s pension liabilities, estimated at around €2-3 billion, and a possible workforce restructuring plan that could include significant redundancies. Both problems have long deterred buyers and complicated efforts to offload thyssenkrupp’s loss-making steel unit.

The European steel division accounts for about €2.7 billion, or about half of thyssenkrupp’s total pension liabilities of €5.4 billion, and employs only 28% of the group’s workforce, the first of the two people previously mentioned said. Both spoke on condition of anonymity.

This comes after Jindal led a delegation to Germany last week for talks with thyssenkrupp management and other stakeholders. Mint had previously reported.

“The company and its employees are seeking absolute assurance that these obligations will be fully met,” this person added.

While talks are ongoing, Jindal is also being informally considered for a seat on TKSE’s supervisory board, where he could advise on employee negotiations and pension reforms, this person said.

In particular, under German company law a shareholder position is not required to serve on the board of directors.

Mint was unable to independently verify whether this board membership would be granted.

Naveen Jindal Group is yet to respond to emailed queries. Mint.

Private Jindal Steel International (JSI), part of Naveen Jindal Group, made a non-binding offer to buy thyssenkrupp’s European steel arm in September. The proposal includes assuming some of the pension liabilities and investing in green steel technologies to stimulate activity.

According to ICICI Direct’s report dated September 17, the value of Jindal Steel International’s potential deal is estimated to be in the range of €3-4 billion.

The potential transaction could be one of the biggest overseas bets by an Indian promoter in the European industrial sector. Jindal also pledged new investment of over €2 billion to complete thyssenkrupp’s Direct Reduction Iron (DRI) project in Duisburg and add the electric arc furnace capacity needed to decarbonise steel production.

In an emailed response, thyssenkrupp said its board of directors “will carefully examine this proposal, paying particular attention to its economic sustainability, the continuation of the green transformation and the employment opportunities at our steel mills.” He declined to comment on business details or transaction structure.

German legal framework

According to German law, companies operate with a dual board structure that separates the management and supervisory boards. The latter consists of an equal number of shareholder and employee representatives. Jindal’s appointment, if it goes through, would only require shareholder approval, one of the people cited earlier said.

The Stock Company Act (AktG) and the Joint Determination Act (Mitbestimmungsgesetz) allow members of the supervisory board to be appointed from outside the company, regardless of shareholding status.

Pension obligations and negotiations

It is thought that Jindal, who wrote a letter to union representatives before officially announcing his offer, emphasized the continuity of employment and long-term sustainability in his offer.

Meanwhile, negotiating pension obligations has been a major concern for Indian steelmakers as they seek to gain a foothold in Europe through acquisitions.

For example, in the case of the acquisition of Corus by Tata Steel in 2007, pension liabilities were a major concern and were addressed through the establishment of a special purpose vehicle for the acquisition and the creation of the British Steel Pension Scheme (BSPS). BSPS was created for the purpose of separating pension obligations from the parent company. However, Tata Steel had to take on the pension liabilities of a certain division between 2008 and 2016.

In the Thyssenkrupp case, the company had announced significant layoffs years before Jindal bid for its steel unit. These layoffs were part of a broader, longer-term effort to deal with challenges such as cheaper Asian competition, higher energy costs and a weakening global economy.

In October, thyssenkrupp canceled its joint venture plan with Czech billionaire Daniel Kretinsky’s EP Group (EPG). Before Jindal’s offer, EPG had acquired a 20% stake in TKSE in July, negotiating a deal for an additional 30% for a 50/50 joint venture.

A thyssenkrupp executive, who wished to remain anonymous, said the atmosphere at the company was “positive”.

One of the two people cited above said social security and job protection commitments would be at the heart of any deal approved by the supervisory board.

Analyst opinions

According to Kotak Securities director Sumangal Nevatia, the offer represents a global expansion drive by the promoter group rather than a move by the listed Indian entity.

“With the introduction of CBAM (Carbon Border Adjustment Mechanism) and protectionist policies improving the European steel economy, the promoter group is betting on a structural recovery,” Nevatia said. “However, the success of the deal depends on Jindal’s ability to provide credible commitments on pensions, employment and green transformation.”

Analysts at ICICI Direct said if the deal goes through, it could be among the largest in the global steel industry, given the scale of TKSE, which is Germany’s largest steelmaker and Europe’s second-largest flat steel producer with an annual capacity of 10.3 million tonnes.

In JP Morgan’s note dated October 2, it was stated that the steel division had a negative equity value after accounting for pension liabilities of 3 billion euros. “Our neutral recommendation reflects a high degree of uncertainty regarding the key elements of Thyssenkrupp’s restructuring,” the statement said.