EY to advise on Tata sell-off as bidders eye potential break-up
The government is set to appoint EY (formerly Ernst and Young) to advise it on the sale of Tata Steel, as business secretary Sajid Javid spent another afternoon locked in meetings with Port Talbot executives and union representatives.
The sales document outlining Tata’s UK Steel business is expected to be sent to turnaround specialists like Endless LLP which has invested in 50 companies over the last decade, and Rutland Partners who have owned Maplin and Pizza Hut.
But financial experts won’t be the only buyers targeted for the rescue deal.
While most steel companies face the same global headwinds as Tata, there are some players who could emerge as buyers for specific divisions.
Liberty House, run by Sajeev Gupta, has already met with the government to discuss what financial support the Government would need to provide to help make Port Talbot attractive.
The environmental clean-up costs in the area could amount to £1bn, while converting the two from blast furnaces to arc furnaces would be hugely capital intensive – but could be paid for by the government through various funding methods.
In January Tata already trimmed the workforce by 1,050 jobs across the strip products business and the steel mills in Troste, Corby and Hartlepool.
But of Tata’s 15,000 remaining workforce, 4,000 are in Port Talbot.
While Mr Gupta has pledged not to make redundancies he has stressed that the workforce would have to be more flexible, possibly moving from full time work to shift work only when needed.
In Scunthorpe, there is already a process underway with Greybull Capital, which is likely to be backed by a £100m taxpayer loan. The division sends steel to a mill in northern France that supplies rail operator SNCF.
But one of the biggest issues for any buyer will be how to deal with Tata’s £15bn pension scheme, which was inherited from British Steel.
It covers 130,000 current and former steelworkers. And while Tata has pared back the deficit from a high of £2bn, it still currently stands at £485m by last March accounts. The Indian conglomerate has committed to putting £125m into the fund over the next two years, but is unlikely to want to provide a bigger dowry.
A solution which could be on the cards is a deal with the Pension Protection Fund and the regulator.
This would require the PPF and the regulator to agree that the business would go into administration unless the pension scheme is separated. This would require a New Co. to be set up with the scheme inside, which would then go into administration and trigger the insurance protection of the PPF.
In the first nine months of Tata Steel’s 2015-16 financial year, the European operations reported a loss before interest and tax of $317m.
EY along with PwC and KPMG declined to comment.
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