Joint Ventures

A Tata-Thyssen tie-up would fit the Zeitgeist

A Tata Steel plant in South Wales. Image: Tata. 

A Tata Steel plant in South Wales. Image: Tata. 

Cold, hard economics might be behind the Tata family's decision to pull out of its UK steel operations. But a mooted joint venture with another powerful family is also a factor, and is very much of the moment. 

What is behind the decision of family-controlled Tata to pull out of the British steel industry? This week the Indian company announced that it was no longer willing to sustain the losses at its Port Talbot steel plant, which it says have reached £1m a day

The economic arguments are strong: the UK cannot compete with cheap Chinese steel, and the industry is lumbered with crippling pension liabilities - even if it walks away entirely, Tata might still be forced to help pay the 130,000 pensioners in the company scheme.

But another factor in the decision to dump Port Talbot is the mooted tie-up between Tata’s European operations, which are based in the Netherlands, and German steel-maker ThyssenKrupp. German newspaper Rheinische Post said that discussions have been taking place for over a year.

Analysts think that a Tata-ThyssenKrupp joint venture could create €300m of savings a year and would be Europe’s second-largest steel producer by capacity.

Culture club

Economics make the JV a good bet. Another reason it could work well is culture. Although one is Indian and the other German, both Tata and ThyssenKrupp have strong family influence. Tata is controlled by the founding family through a series of foundations and cross-holdings.

The Krupp family, through their foundation, controlled ThyssenKrupp until 2013 when its percentage of the voting shares fell just below the 25% that under law gave it veto power over board decisions. Although it is no longer so powerful, the family still has considerable influence - and is still the largest shareholder.

If the two families do link up, it would be the biggest example of a growing trend for business families to favour working together. At a recent conference one senior family business member was scathing about the idea of expanding using bank debt, or issuing shares. “Families should be looking to build businesses by working with other families,” he said.

There was a lot of nodding. Many families remain sceptical of banks and wary of markets, but dedicated to building “real” businesses with like-minded, long-termist families.

www.deals.com

That the idea is fashionable is evidenced by the mini-explosion of websites aiming to facilitate wealthy families doing deals with each other. Recently we wrote about Owners Place, launched by Polish second-gen Jan Olszewski.

Another which recently launched is London Opportunity Network, founded by Italian family business next-gen Brian Pallas. There are several older platforms such as one run by publisher Euromoney, and in the past week news reached Business Family of at least two others preparing to launch in London.

Whether so many businesses offering a similar service can all survive remains to be seen, but there is no doubt that the idea is good and there are many examples of this working well. For example, Swedish investment house Kinnevik is controlled by its three founding families, the Stenbecks, Klingspors and Horns.

In the UK building firm Willmot Dixon, a company with a turnover of £1.2bn in 2015, is 60% owned by the founding Willmotts, and 20% by the Dixons, who have been involved in the management of the company for decades.

The Grant and Gordon families, who own whisky-maker Grant & Sons, have a joint venture with fellow Scots the Robertson family, whose company Edrington has been in the whisky business since the 1800s. In 1999 the two families bought Highland Distillers, which makes well-known tipples like Famous Grouse and The Macallan.

And Tata’s CEO is Cyrus Mistry, whose family has owned Tata shares since the 1930s and is the biggest non-founding family shareholder.

Competition plays a big role in business, as Britain’s ever-increasing army of former steel-workers will tell you, but you should not underestimate the power of another force: the desire for collaboration.

© Business Family 2016