Tata said to avoid deeper writedowns with Thyssenkrupp venture

[MUMBAI] Tata Group's European steel unit may be saved from deeper writedowns if it pursues a tie-up with Thyssenkrupp AG proposed by Cyrus Mistry, the ousted chairman of India's biggest conglomerate, a person with knowledge of the matter said.

Tata Steel Ltd's planned European joint venture with Thyssenkrupp could reduce the need for impairments, according to the person, who asked not to be identified because the information is private.

Mr Mistry recently warned Tata's European steel business faced potential writedowns of more than US$10 billion, only some of which have been booked, according to an Oct 25 e-mail the ousted chief sent to the board of holding company Tata Sons Ltd.

Mr Mistry told Tata Sons directors multiple times of problems in group companies including Tata Steel, Tata Teleservices Ltd and Tata Motors Ltd, the owner of Jaguar and Land Rover, according to the person.

A strategy document presented by Mr Mistry in September gave details of ways to fix the problems in the companies and the key risks to the group, the person said.

The deliberations at the tea-to-software giant help shed light on the power struggle behind India's most dramatic boardroom coup in years. Tata Group replaced Mr Mistry, 48, last month with his 78-year-old predecessor Ratan Tata after the board lost confidence in his leadership.

Defending his record after the ouster, Mr Mistry has said he inherited a debt-laden enterprise saddled with losses after a global acquisition spree.

The Tata Sons board began getting impatient last year that the conglomerate was not exiting the steel operations fast enough, according to the person.

In the strategy document presented to the board, Mr Mistry proposed merging some other group companies and suggested the conglomerate exit certain units that weren't performing, the person said.

The conglomerate also felt that the commodity supercycle was over and was keeping a close eye on developments in China, the person said. Mr Mistry's strategy document wasn't found suitable, as it would have made the group's shareholders heavily dependent on dividends from Tata Consultancy Services Ltd and didn't have adequate return on capital, according to people close to Tata Sons, who asked not to be identified because the matter is private.

Representatives for Tata Steel and MrMistry's office declined to comment.

A spokesman for Thyssenkrupp said the company won't comment on internal Tata dealings.

Mumbai-based Tata said in July it's in talks with companies, including Thyssenkrupp, about a joint venture in Europe. Steelmakers on the continent are struggling with overcapacity, worsened by Chinese exports flooding the market.

Combining forces would enable Tata, Europe's second-biggest steelmaker, and third-ranked Thyssenkrupp to better use their facilities and cut costs.

BLOOMBERG