Tata Steel strikes £550m deal to solve pensions riddle

Steel crisis: Nine weeks to save 11,000 jobs?

13 April

Tata Steel could close down its remaining UK operations as soon as 28 May if a viable deal to sell the assets is not concluded, claims the Financial Times.

The paper cites "people familiar with the situation" as saying the deadline has been set by the firm's Indian parent. A "goodwill" concession could see an extension to mid-June if an agreement is close and requires fine-tuning. Even at this more generous timeline, that would give nine weeks to get a takeover done - and save around 11,000 jobs. In comparison, the recent sale of Tata's Scunthorpe plant and related businesses, which employ 4,000 staff, came nine months after a previous prospective buyer pulled out and years after "for sale" signs first went up.In a heated three-hour debate in the Commons yesterday, shadow business secretary Angela Eagle cited her own sources' claims that a deal would need to be done in 16 weeks, warning even this may not be enough."It took nine months for the Scunthorpe deal to be developed, yet Tata has indicated that it wishes to exit the UK in four months," she said, reports The Guardian."What is the business secretary doing to reassure the existing customer base that their current and future contracts will be fulfilled during this period of uncertainty?"Labour has called for the government to nationalise the UK arm of Tata Steel to secure jobs in the short term and give time for a sustainable deal to be negotiated. Business Secretary Sajid Javid has ruled this option out, but has hinted at government support for a buyout, including potentially using public money to provide loans to a buyer and to help finance investment to turnaround the loss-making business. "The key point is that any co-investment would have to be on commercial terms, investment can take a variety of forms, for example, it could be debt," Javid said yesterday, reports the BBC. The government has also previously indicated it could help plug a £2bn pension scheme deficit and offer further support on energy bills and by offering procurement contracts on its infrastructure projects.

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One buyer, Liberty House, has so far come forward publicly, although there is no certainty an offer will follow. Owner Sanjeev Gupta is known to want to repurpose Tata's blast furnace at Port Talbot, which would be unpopular with unions.

Steel crisis: Tata sell-off kicks off as Scunthorpe sale confirmed

11 April

Indian conglomerate Tata Steel formally put its UK-based businesses up for sale today, with the company "inviting interested bidders to submit their offers", the BBC reports.

"So far, the only company to have publicly expressed an interest is Liberty Steel, owned by Sanjeev Gupta," the broadcaster adds. However, this would involve some hefty investment and would probably require some sizeable government support, so an approach is by no means certain.

Gupta told the Sunday Telegraph he was passionate about the deal but "not married" to it.

There have also been rumours of a rival bid backing the company's management to implement a turnaround plan previously proposed to Tata, which is thought to be in the process of lining up financial backers.

After talks with Tata's board in India last week, Business Secretary Sajid Javid said he expected other interested parties to come forward once the formal sale process had begun. The company had told him it would allow a "reasonable amount of time" for the sale process.

The Independent notes that the biggest obstacle to the Liberty Steel offer is the fate of the blast furnace at Port Talbot in Wales, which employs 4,000 of Tata's staff in the UK. Gupta would like to turn this into an arc furnace, which uses renewable energy to melt locally sourced scrap.

"We export ten million tonnes of scrap and we consume ten million tonnes [of processed steel]. That does not make sense," he has said.

Some worry, though, that if the blast furnace is closed, it would devalue the Port Talbot offering and threaten the sustainability of jobs in the longer term. The management's offer could therefore win more popular support, although it has the challenge of trying to turn around a business making a £1m a day loss without major changes in the business model.

Elsewhere, a separate offer from management, backed to the tune of £400m by turnaround investor Greybull Capital, has been accepted for the Tata plant in Scunthorpe, saving more than 4,000 jobs in the wider area.

The Telegraph notes that staff have been asked to "accept pay cuts and less generous pension arrangements" under the terms of the deal.

Would Port Talbot closure cause 20 years of unemployment?

08 April

A complete collapse of Britain's steel industry would cause as much damage to local economies as the end of coal mining in the 1980s, new research says.

The Institute for Public Policy Research (IPPR) has warned that the closure of Tata Steel's Port Talbot plant would "leave a scar on the employment community that would last for decades", the Daily Telegraph reports. If no buyer is found for Tata's UK businesses, which represent the bulk of Britain's steel industry, unemployment could rise for at least the next 20 years, it adds.

"A similar model is the closure of the coalfields, where 23 years later only 60 per cent of the jobs lost when the pits closed have been recreated," IPPR said.

The left-leaning think-tank also warned that if Tata's 15,000 employees were made redundant, the government could face a £4.6bn bill in lost VAT receipts and income tax, as well as increases in benefit payments to unemployed workers. The arguments will boost the case of those advocating for a bailout of British steel if no suitable buyer can be found.

But some, such as Allister Heath in the Telegraph and Tony McDonough in the Liverpool Echo, say the plants' fate should be left to market forces and that the government should seek to invest in new industries instead of propping up a sector in which Britain has not been competitive for years.

There is some evidence that supporting new businesses and employment can work, based on the case of the closure of the Redcar steel works in October last year, which triggered the current focus on the steel crisis in the UK.

By the end of January, more than half of the 2,200 plant workers made redundant - and even more among the 1,000 supply chain workers who also lost their jobs - were still looking for work and claiming benefits. But by last month, only around a quarter were still unemployed, the Northern Echo reports.

A £50m fund provided by the government helped create 724 jobs, while the 51 apprentices have moved on to other training or full-time work and almost 250 people have been given advice on setting up their own firm. The Huffington Post notes government figures show the number of unemployed people in Redcar was up year-on-year by 382 people in February.

As for the hopes of finding a buyer for the stricken Tata Steel assets, progress is being made on the sale of the long products plant in Scunthorpe, incorporating a number of businesses in the wider region, with the BBC suggesting a management buyout backed by turnaround investor Greybull Capital could be signed as soon as Monday.

Less encouragingly, the Telegraph reports that the Serious Fraud Office has launched an investigation into Tata's Yorkshire-based operations after an internal company audit found evidence staff may have falsified certificates on the composition of products sold to the likes of BAE and Rolls Royce.

Steel crisis: Tata will allow time for 'responsible' sale

07 April

Sajid Javid yesterday sought to calm fears of a fire sale of Tate Steel assets that would fail to secure a sustainable future for 15,000 UK jobs, after meeting the company's Indian parent's board in Mumbai.

The Business Secretary had flown to India after being fiercely criticised for a sluggish response to the steel crisis – and after admitting he had been on the hop by the company's announcement that it was exiting the UK, which came as he was flying to Australia for a trade visit and holiday.

The government said it would press Tata to be a "responsible" seller, said the Daily Telegraph.

Javid confirmed he has received assurances that the company will be just that and that it will allow time for a sustainable rescue deal. "What they have said is that they will allow a reasonable amount of time for this process to be completed," he said, reports The Guardian.

Sanjeev Gupta, the chief executive of the Liberty House commodities group, which is so far the only potential bidder to have been publicly identified, agreed that waiting to secure a deal and not simply closing the plants is very much in Tata's interest.

"The cost would be far, far, far greater [than finding a buyer]," he said. "If you talk about the pension liabilities, if you talk about the environmental liabilities, the redundancies – the costs would be enormous, it would be billions and billions."

A formal sales process will begin on Monday, Javid confirmed, claiming that several prospective buyers, including Liberty, had come forward already and that he hoped "many, many more" would do so.

The Telegraph says one bid from the regional management of the Port Talbot site has already "secured the backing of an as yet unknown financial backer", echoing a similar offer being made by management of a sister plant in Scunthorpe. Unlike the Liberty deal, this would include keeping the blast furnace operating as now and could, therefore, garner wider support.

Javid reiterated pledges for government support in areas such as infrastructure project procurement, funding for plant conversion or further energy bill concessions. The Conservative administration has also indicated it would be prepared to take on Tata's pension deficit liabilities, which experts believe runs to around £2bn, and perhaps even provide buyout financing on a commercial basis.

Steel crisis: What might a Tata Steel rescue deal look like?

06 April

Once accused of doing nothing, government ministers are now running around "in headless-chicken mode" to find a buyer for stricken Tata Steel, writes Larry Elliot in The Guardian.

Favourite to buy the operation is international metals group Liberty House, whose chief executive, Sanjeev Gupta, held talks with the Business Secretary Sajid Javid yesterday, the BBC notes.

Liberty, which has a global turnover of £3.5bn, already owns a steel plant in Newport and is taking over the two Tata Steel mills in Scotland that have been taken into temporary ownership by the Scottish government.

Gupta has stressed that he is serious about a deal to buy the remaining Tata Steel operations in the UK without inflicting mass redundancies on its 15,000 workforce. But what would a rescue deal look like?

Government assistance

Well, the first thing to note is that the government would need to provide some assistance. Gupta told the BBC the proposed takeover would be "a complicated deal, with a lot of components to it, from pensions to other liabilities". This echoes the comments from Javid that the government could step in to lessen the burden of huge pension-scheme deficits as well as other support.

Experts reckon a full bailout of the final-salaries pension funds could cost the taxpayer up to £2bn. The schemes would also almost certainly be closed to new members and contributions and replaced with money purchase alternatives.

Other financial support could include buyout loans at generously low rates, more waivers on energy costs and, perhaps more crucially, direct funding to help pay for what the BBC euphemistically describes as "big changes" to the way the Port Talbot blast furnace works.

In short: it will be shut down and repurposed.

"[We] would look to transition from blast furnaces to arc furnaces, from imported raw material to domestically available scrap, from making carbon steel to making what we call green steel - melting and recycling scrap using renewable energy," explained Gupta.

"These blast furnaces were constructed when some of the raw material was available domestically in the UK and also when there was demand in world market In this excess capacity world, plants based on domestic iron ore or coal are going to be more competitive than plants like Port Talbot," he added.

Around 700 blast furnace staff would need to be retrained and the transition would take around a year to 18 months.

"Conservatorship"

Not everyone is supportive of the proposal, however. The Guardian's Elliot notes that trade unions "are rightly deeply sceptical about a takeover by Sanjeev Gupta's Liberty House… since it would involve the closure of the blast furnace at Port Talbot, with long-term implications for the UK steel industry".

Instead he advocates the "nationalisation-lite" proposal made by David Bailey, of Aston Business School and Paul Forrest, of Birmingham City University, based around "conservatorship", the model used in the US to rescue strategically-important businesses that have "run into short-term difficulties but are seen as having long-term viability".

This would involve the taxpayer taking the liability for the billions of pounds of debt and responsibility for losses running at £1m a day, while the company is run in much the same way by the same people until it is better placed for a buyout.