By Christoph Steitz, Tom Käckenhoff and Arno Schuetze
After two years of at times fraught talks, the two steel firms finally signed a deal on Saturday to create Europe's No.2 steelmaker with 17 billion euros ($20 billion) in sales, marking the sector's biggest tie-up in more than a decade.
Thyssenkrupp boss Heinrich Hiesinger had come under pressure from activist shareholders Cevian and Elliott to seek a better deal, who argued that a recent weakness in Tata Steel's European business meant terms needed to be changed in Thyssen's favour.
That resulting value gap, which had been estimated to be anywhere between half a billion and 3 billion euros, was closed by giving Thyssenkrupp a bigger share of proceeds in a potential listing of the combined entity, reflecting a 55-45 split.
"According to our judgement, the 55-45, which is a valuation including synergies, is a fair representation," Hiesinger told journalists at a joint news conference in Brussels.
"Our supervisory board ... including their advisors came to the same conclusion. And we stick to their judgement."
An initial public offering (IPO) of the steel joint venture is widely expected and will likely take place in 2020 via a capital increase, a source familiar with the deal said.
Thyssenkrupp shares traded 0.7 percent lower at 1424 GMT, as some investors had hoped for better terms. Tata Steel shares closed 1.3 percent lower on Monday.
MODEST DISAPPOINTMENT
"Finally a step in the right direction, but the result of the renegotiation is disappointing," said Ingo Speich, fund manager at Union Investment, which holds about $28.5 million worth of Thyssenkrupp stock.
According to brokerage Jefferies, the 5 percent stake boost in the case of an IPO is worth 210 million euros. Thyssenkrupp itself has put the value gap at a mid-triple digit million euro amount.
"Prior hopes for greater value injection were modestly disappointed," analyst Seth Rosenfeld said in a note.
The deal is also unlikely to satisfy Elliott, which disclosed a stake of less than 3 percent in Thyssenkrupp in May and according to sources has put the valuation gap at 1.9 billion euros.
Focus will now be on Thyssenkrupp's strategy plans, which are likely to be disclosed later this month and could include more cost cuts, a sale of its Materials Services division and a restructuring of its struggling shipbuilding business.
Thyssenkrupp's supervisory board could decide on a divestment of Materials Services, the group's biggest unit by sales, at its next meeting in July, the source told Reuters.
The group has faced repeated calls to simplify its complex structure, which covers everything from elevators to submarines and car parts, and cut down on corporate expenses to get rid of what some investors have labelled a conglomerate discount.
($1 = 0.8600 euros)
(Editing by Tom Sims and Alexander Smith)
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