Due diligence on the deal will now take place, with the aim of signing the final contract in the early part of 2018.
In a statement Heinrich Hiesinger, CEO of thyssenkrupp AG said: "Under the planned joint venture, we are giving the European steel activities of thyssenkrupp and Tata a lasting future".
The deal creates a strong and clean balance sheet, coupled with strong products and research and development capabilities to grow, Mr. Chandrasekaran said.
Roy Rickhuss, the chairman of the steel coordinating committee representing UK unions Unite, GMB and Community, said the unions recognise the industrial logic of the deal, but will still press Tata to confirm it will invest in the relining of Port Talbot's blast furnace No 5.
The two companies have been in talks to combine their European operations since Tata abandoned plans to sell its United Kingdom steel business previous year, safeguarding the immediate future of the Port Talbot steelworks in south Wales.
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The joint venture would focus on quality and technology leadership and will supply premium and differentiated products to customers with an annual shipment of about 21 million tonnes of flat steel products, said the press release. If it does go ahead, the combined venture will be owned equally by both companies and be based in or near Amsterdam. "We are tackling the structural challenges of the European steel industry and creating a strong No 2".
Tata Steel Europe has been a strain on the parent company Tata Steel for the past 10 years, causing it to burn cash at a rate of about US$1bn a year.
In addition to this, Thyssenkrupp Tata Steel would seek to improve capacity utilisation of the network across the three hubs of IJmuiden (the Netherlands), Duisburg (Germany) and Port Talbot (Wales, UK) and their related downstream facilities.
"As always, the devil will be in the detail and we are seeking further assurances on jobs, investment and future production across the United Kingdom operations", Roy Rickhuss, chair of the committee, told the BBC.
They have been in negotiations since previous year when Tata withdrew from a sales process to sell its entire United Kingdom operations, including Port Talbot - the largest steel works in the UK.
Thyssenkrupp in its statement flagged potential additional synergy savings beyond 2020 from upstream steel capacity adjustments and Jefferies Rosenfeld said he believes these "are most likely at Port Talbot".
The deal is subject to approval from Thyssenkrupp's supervisory board and Tata Steel's board of directors, and alongside that of the European Commission.