“We had to look at the basic problem, and that is overcapacity,” Mr. Hiesinger said. “That can only be done by achieving consolidation with other companies.”
The two companies plan to combine operations and cut 4,000 jobs from a total of 48,000, resulting in planned annual savings of up to 600 million euros, or $720 million. Each company would own half of the new business, which would be based in Amsterdam. It would be Europe’s second-largest steel company after ArcelorMittal, the Luxembourg-based global leader.
Analysts said the long-anticipated deal was likely to benefit both companies, allowing them to save money by integrating activities like logistics, sales, and research and development.
“Over all, this is a good deal,” said Dalton Dwyer, managing director of Industry Corporate Finance, a London-based firm that advises on steel mergers.
Mr. Dwyer said that the deal would allow ThyssenKrupp’s German steel making operations to work with Tata’s well-regarded plant in the Netherlands. But he said “question marks” remained over Tata Steel’s British plants, which the company has wanted to exit.
The deal would also reduce the number of competitors in the European market, possibly leading to higher prices and expanded margins, analysts say.
The big question, though, is whether it will be concluded in its current form. The most important obstacle is likely to be the potential for opposition from German unions. Employee representatives hold half of ThyssenKrupp’s supervisory board seats, and may resist any job cuts or plant shutdowns.
By announcing the deal in the run-up to German federal elections on Sunday, ThyssenKrupp also risks making it a political issue. It has already attracted criticism from Germany’s labor minister, Andrea M. Nahles.
“There must not be a merger at any price,” she said in a statement, according to Reuters. “The sites in Germany must be maintained and compulsory redundancies must be ruled out.”
Both companies have been trying for years to find solutions for their struggling steel businesses. ThyssenKrupp has already unloaded units in the United States and Brazil that had helped plunge it into deep losses, ushering in a new management team led by Mr. Hiesinger in 2011.
Tata Steel, meanwhile, had been looking for a way to turn around or escape the European business — including its struggling British plants — which it bought in 2007 for 6.2 billion pounds,…