The combined business would be a 50:50 joint venture and would be Europe’s second largest steel business, behind only ArclorMittal, giving it the scale to compete more evenly in tough international markets.
Headquartered in Amsterdam, the merged business will be named Thyssenkrupp Tata Steel and generate annual revenues estimated at €15bn (£13bn), and ship about 21m tonnes of steel per year.
The companies have been in talks for over a year and a half about a tie-up, after Tata abandoned attempts to sell its British operations in 2015 at the height of the steel crisis and sought other ways to secure its future.
The jobs of 4,000 Tata staff at its giant Port Talbot plant in Wales are expected to be safeguarded by the deal, with management of the two companies saying the merger would seek to improve capacity utilisation of the network across the three main hubs of IJmuiden in the Netherlands, Duisburg in Germany and Port Talbot, along with their related downstream facilities.
Announcing the deal, N Chandrasekaran, chairman of Indian parent Tata Steel, said: “Tata and Thyssenkrupp have a strong heritage in the global steel industry and share similar culture and values.
“This partnership is a momentous occasion for both partners, who will focus on building a strong European steel enterprise. The strategic logic of the proposed joint venture in Europe is based on very strong fundamentals and I am confident that Thyssenkrupp Tata Steel will have a great future.”
Europe’s steel makers have been under intense pressure from cheap imports. China - which produces half of the 1.6bn tonnes of steel made globally each year - has been a particular threat with its state-subsidied plants dumping their output worldwide as domestic demand wanes.
Thousands of jobs in the European steel industry have gone as businesses have collapsed in the face of such competition.
Thyssenkrupp chairman Heinrich Hiesinger said the merger would create “a strong number two and is thus much better positioned to cope with the structural challenges in the European steel industry.”
Andrew Robb, chairman of Tata Steel Europe, called the plans “the latest step in building a future for Tata Steel’s activities in Europe which is sustainable in every sense”.
He added: “The combination of our two businesses would provide the strongest possible foundation for achieving this vision, creating a global leader for the long term.”
Joining forces will create an integrated steel production and distribution network offering more products and better service, something Tata said would give “greater long-term sustainability to workers”.
The merger is expected to generate cost savings of between €400m and €600m a year once the completed, with efficiencies coming through combining administrative and R&D functions.
About 48,000 staff will be employed by the combined businesses when they join but it is thought that up to 4,000 non-production workers could go as overlaps are eliminated.
Industry sources indicated the jobs were expected to be lost mainly in Europe, with UK workers unlikely to be hit.
The path to securing the long-awaited deal was cleared earlier this month when Tata formally agreed a deal freeing it from the huge pension legacy attached to its UK operations, which had proved an insurmountable hurdle to a sale.
The company received formal confirmation from The Pensions Regulator for a deal to separate itself from the £15bn, 130,000-member retirement scheme. Tata had warned that it could no longer afford to fund the scheme in its current and form and without a deal the company would collapse into insolvency.
Under a deal known as a regulated apportionment arrangement, Tata paid £550m to the British Steel Pension Scheme and handed a third of the company in shares to the scheme’s trustees.
Illustrating the importance of the company to UK industry, at the height of the steel crisis when Tata was looking to sell its British business, the UK Government was ready to step in and take a stake in Tata’s British operations alongside a new investor. However, this was abandoned when Tata decided to retain the business.
Greg Clark, Business Secretary, welcomed the merger, calling it “an important next step in establishing their shared ambition for Port Talbot as a world-class steel manufacturer, with a focus on quality, technology and innovation”.
Steel unions gave what they described as a “cautious welcome” to the plan, with Roy Rickhuss, general secretary of steelworkers’ union Community, saying he “recognised the industrial logic of such a partnership to create the second biggest steel business in Europe which could deliver significant benefits for the UK”.
However, he warned the “devil will be in the detail” and said unions were seeking assurances on the future of British jobs and investment in Tata’s UK operations.
As part of the deal to spin of off the pension, Tata pledged to invest £100m a year over the coming decade in its British business to secure its future.
A key part of this is relining a blast furnace at Port Talbot and Mr Rickhuss said unions will “be pressing Tata to demonstrate its long-term commitment to steelmaking in the UK by confirming it will invest in relining Port Talbot’s Blast Furnace No 5.”