Tata Steel faces more pain before it can heal in Europe. German rival ThyssenKrupp has outperformed the Indian group since last September, when the two agreed a 50-50 joint venture to create Europe’s second-largest steelmaker. The resulting valuation gap will be expensive for Tata to fill. But walking away from the deal and its hefty synergies would be even more painful.
In other words, the gap between the two companies’ EBITDA has widened by 470 million euros since initial terms were agreed. On a multiple of six times – similar to listed steelmaker ArcelorMittal – the differential is worth almost 3 billion euros.
That’s equivalent to roughly the entire capitalised value of expected cost savings from the deal. Though Tata’s greater exposure to spot steel prices makes its earnings more volatile, it’s not clear that this justifies the sharp divergence.
Little wonder then that activist investors in ThyssenKrupp, including Elliott Management, are leaning on Chief Executive Heinrich Hiesinger to reshape a deal seen as one of his big achievements. Read More
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