The European Union on Tuesday launched an "in-depth investigation" to assess if Tata Steel's proposed joint venture with German steel giant ThyssenKrupp would breach the bloc's merger regulations and reduce competition.
Tata Steel and ThyssenKrupp are major integrated producers of flat carbon steel and electrical steel, with significant production facilities in the European Economic Area (EEA), in particular in Germany, the Netherlands and the UK.
In June, India-headquartered Tata Steel had confirmed that it has agreed on the terms of a 50-50 joint venture with ThyssenKrupp to create Europe's second-largest steel company after Lakshmi Mittal's ArcelorMittal.
"The European Commission has opened an in-depth investigation to assess the proposed creation of a joint venture by Tata Steel and ThyssenKrupp," the European Commission, the executive arm of the 28-member economic bloc, said in a statement.
At this stage, the Commission said it is concerned that the merger between the two steel majors may reduce competition in the supply of various high-end steels.
"Steel is a crucial input for many of the goods we use in our everyday life, and competitive steel prices are vital for the European economy," said Margrethe Vestager, Commissioner in charge of the EU's competition policy.
"Industries dependent on steel employ over 30 million people in Europe and we must be able to compete in global markets. This is why we will carefully investigate the impact of the planned combination of Tata Steel's and ThyssenKrupp's steel businesses on effective competition in the steel markets," the Danish politician said.
The European Commission said its initial market investigation raised several issues, relating in particular to combining both companies' offer of certain speciality flat carbon steel and electrical steel products.
The specific categories it highlighted as areas of concern include steel for automotive applications, which concerns various types of steel, predominantly galvanised, that are used to produce cars and car parts; metallic coated steel for packaging, which is used to produce various packaging solutions, such as food and aerosol cans; and grain-oriented electrical steel, which is used to produce a variety of engineering products such as transformers.
The Commission said it is concerned that, following the transaction, customers would face a reduced choice in suppliers, as well as higher prices. "These customers include various European companies, ranging from major corporations to numerous small and medium-sized enterprises (SMEs). Many compete with imported products in the EEA, or export their products outside Europe and compete globally," the Commission said in a statement. The Tata-ThyssenKrupp transaction was notified to the European Commission on September 25 and both companies chose not to submit commitments during the initial investigation to address the Commission's preliminary concerns.
The Commission now has 90 working days, until March 19 next year, to take a decision.
"The opening of an in-depth investigation does not prejudge the outcome of the investigation," its statement clarified.
Under EU rules, the Commission has a duty to assess mergers and acquisitions involving companies with a turnover above certain thresholds and to prevent concentrations that would significantly impede effective competition in the EEA or any substantial part of it.
The proposed JV firm called ThyssenKrupp Tata Steel, which had been under discussions since September 2017, will have a total workforce of 48,000 employees spread across 34 sites, producing about 21 million tons of steel a year with revenues of around EUROS 15 billion.
"The joint venture will create a strong pan-European steel company that is structurally robust and competitive," Tata Steel chairman N Chandrasekaran had said at the time of the announcement.
(With inputs from agencies.)