BRUSSELS/FRANKFURT - The European Commission has opened a deeper investigation into Thyssenkrupp's planned steel joint venture with Tata Steel over concerns that it could raise prices and harm competition.
The so-called Phase II investigation was widely expected and follows a similar probe into ArcelorMittal's takeover of Italy's Ilva, which was cleared only after the group pledged to sell assets.
Thyssenkrupp and Tata Steel earlier this year unveiled plans to combine their steel activities in Germany, the Netherlands and Britain to become the continent's second-largest steelmaker after ArcelorMittal.
"The Commission is concerned that, following the transaction, customers would face a reduced choice in suppliers, as well as higher prices," the EU executive said in a statement.
"These customers include various European companies, ranging from major corporations to numerous small and medium-size enterprises," it added.
The Commission identified three areas where the combination of both companies' specialty flat carbon steel and electrical steel products could give them a dominant position: steel for the automotive sector, metallic coated steel for packaging and grain oriented electrical steel.
Tata Steel's European unit has already put a number of assets on the block, including Cogent, a manufacturer and processor of electrical steels, and it is unclear whether these divestments would satisfy EU concerns.
The Commission now has 90 working days, until March 19, 2019, to investigate the matter and take a decision.
A spokeswoman for Thyssenkrupp said that the group would continue to work closely with the Commission, adding that the deepened probe was expected and standard for a transaction of this size.
The move is nonetheless fuelling expectations that the deal will require asset disposals to win approval.
Analysts expect few problems regarding crude steel production, where ratings agency Moody's reckons the venture will control just 14 percent of the European market, a distant second to ArcelorMittal's 29 percent, which includes Ilva.
But the new company, to be named Thyssenkrupp Tata Steel, would have a share of about 50 percent of the European packaging steel, or tinplate, market, a person familiar with the industry told Reuters.
Rasselstein, Thyssenkrupp's packaging steel unit, posted sales of 1.16 billion euros ($1.32 billion) in the 2015/2016 fiscal year and employed about 2,400 workers.