Tata Steel, Liberty House Group set to begin talks for UK assets sale

Tata Steel is seeking an enterprise value of £100 million for its UK speciality steels business


Tata’s Port Talbot steel-making facility in Wales is among the steel plants that is up for sale to Liberty House Group. The deal is expected to be concluded in the first quarter of  2017. Photo: Reuters
Tata’s Port Talbot steel-making facility in Wales is among the steel plants that is up for sale to Liberty House Group. The deal is expected to be concluded in the first quarter of 2017. Photo: Reuters

Mumbai: Tata Steel UK Ltd is set to begin exclusive talks with the Liberty House Group for a potential sale of its UK speciality steels business at an enterprise value of £100 million (about Rs851 crore).

The talks come seven months after Tata Steel Ltd shortlisted Liberty House Group, led by India-origin businessman Sanjeev Gupta, and six other companies for a potential sale of its UK assets. In a statement to the stock exchanges, Tata Steel Ltd said it had signed a letter of intent with Liberty House to begin talks for the sale, subject to due diligence and corporate approvals.

On 30 March, Tata Steel said it plans to sell its UK steel assets— including the Port Talbot steel-making facility in Wales—that it acquired through its $12.9 billion purchase of Corus Group Plc in 2007. The decision, intended to cut losses which mounted following a crash of steel prices and competition from cheap imports, put 15,000 jobs at risk.

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Subsequently, the firm started seeking bidders for these assets.

The negotiations with Liberty House Group cover UK assets including electric arc steelworks in Rotherham, a steel purifying facility in Stockbridge, a mill in Brinsworth, and service centres in Bolton and Wednesbury, and assets in China.

The announcement, said Bimlendra Jha, chief executive of Tata Steel UK, is in line with the company’s plan to restructure its UK portfolio. The agreement with the Liberty House Group doesn’t include the pan-European strip products supply chain of Tata Steel, said Jha.

Tata Steel had put the sale of its UK assets temporarily on hold following Britain’s 23 June referendum to exit the European Union.

The company has also been in talks with Germany’s Thyssenkrupp AG for a potential European joint venture.

Macquarie Capital (Europe) Ltd is acting as the financial adviser to Liberty House, and the deal is expected to be concluded in the first quarter of 2017, Liberty House Group said in a separate statement.

These steel plants specialize in manufacturing carbon, alloy and stainless steel for highly demanding applications, with all of the output derived from recycled steel, melted in electric arc furnaces. This business also has distribution facilities in China.

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“The potential buyout is a strategic fit for Liberty House and will increase the throughput substantially,” said Gupta, executive chairman of the Liberty House Group, in a phone interview.

Gupta is not worried about the structural issues facing the steel industry globally because the company is not dependent on international suppliers for raw materials.

“Our business model is fool-proof and based on UK scrap,” he said. This not only checks the cost of production, but also produces steel in a more energy-efficient way, he said.

Liberty House Group does not plan to make any radical changes to the management of the company, he said, adding it will shortly begin talks with the workers’ union to get employees on board.

Tata Steel’s agreement with Liberty House to start exclusive talks comes at a time when the Tata group is engaged in a bitter spat with Cyrus Mistry, who was ousted as chairman of the holding company Tata Sons Ltd on 24 October.

Among other things, Tata Steel’s European operations have become ammunition for Mistry’s broadside against Ratan Tata, who became interim chairman following the former’s ouster.

In a letter to Tata Sons Ltd board members on 27 October, Mistry warned of a Rs1.18 trillion write-down, over time, from five unprofitable businesses. Tata Steel’s Europe business, he said in the letter, faced potential impairments in excess of $10 billion, only some of which has been taken as of now.

A day after, Tata Steel management assured investors of its commitment to restructure European operations and said the sale of its UK specialty steel business was on track. India’s largest steel maker has taken an impairment charge of Rs35,000 crore till date from acquiring the Corus steel assets in 2007. Other than the India business, Tata Steel has debt of about Rs50,000 crore.

The agreement with Liberty to start exclusive talks is “a step in the right direction,” said Goutam Chakraborty, an analyst at Emkay Global Financial Services Ltd, adding that it also signals that it is business as usual despite the Mistry-Tata tussle.

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