For Class Discussion Prof. Nidhi S.

Bisht

Tata Steel Europe: Stakeholders Concern

When Tata Steel Ltd won a dramatic bidding contest in 2007, its centennial year, to buy Anglo-
Dutch steel maker Corus Group Plc for £6.7 billion, it was celebrated as the coming of age of
corporate India, an emerging powerhouse out to put its imprint on the world. After paying £6.7
billion to buy Anglo-Dutch steel maker Corus, in what some analysts and investors saw as an
overvalued acquisition, Tata Steel wanted to sell its UK assets and exit the country. In the last
few years, Tata Steel had taken an impairment charge of more than £2 billion, owing to the UK
operations, after making the biggest acquisition by an Indian company. On top of that, it invested
about £2 billion as working capital and capital expenditure combined in its UK business.

In 2016, Tata Steel, Britain's largest steelmaker had put its entire UK business up for sale to stem
heavy losses, a move that would draw a line under its almost decade-long foray into Britain's
declining steel industry. Blaming high manufacturing costs, domestic market weakness and
increased imports into Europe from countries like China, Tata saw little change in the
competitive position of its UK operations, which employed about 15,000 people and include Port
Talbot, Britain's largest steel plant. As a result, Tata said in a statement given in March 2016 that
its European arm would "explore all options for portfolio restructuring, including the potential
divestment of Tata Steel UK, in whole or in parts". “Given the severity of the funding
requirement in the foreseeable future, the Tata Steel Europe Board will be advised to evaluate
and implement the most feasible option in a time-bound manner,” it added.

Ever since Tata Steel bought Corus it had struggled to turn the giant around. The company said it
remained in talks with the UK government, which expressed concern about job losses in the
industry. Port Talbot, though far from its 1960s peak, still employed about 4,000 people, and
Tata was one of the most significant private companies in Wales. Unions welcomed the decision
not to shutter the plants but called on Tata to be a “responsible seller” and on the government to
play its role. “We don't want just want more warm words, we want a detailed plan of action to
find buyers and build confidence in potential investors in UK steel,” Roy Rickhuss, general
secretary of steelworkers' trade union Community, said. The opposition Labour party called on
the government to save an industry it described as “the cornerstone of our manufacturing sector".
Labour leader, Jeremy Corbyn suggested a part nationalisation of the steel industry, if necessary.
The government said it was ready to work with Tata. Most steel companies, including top
producer ArcelorMittal , had been hit by plunging prices due to overcapacity in China, the
world's biggest market for the alloy, making Tata's task of finding a buyer all the more difficult.

Tata Steel was the second-largest steel producer in Europe with a diversified presence across the
continent.Two of its three main units, Port Talbot and Scunthorpe, were in Britain, with the
remaining operations in the Netherlands. Unions were seeking "cast iron" safeguards to the
British Steel Pension Fund to save Tata's UK plants do not lead to employers "dodging" their
responsibilities. Three unions issued a joint statement warning that if the scheme had to go into
the Government's Pension Protection Fund, it would be an "unmitigated disaster", with workers
and pensioners taking a cut in benefits.

The Government launched a consultation on changes to pension law, including cutting the
British Steel Pension Fund (BSPS) long-term liabilities by benchmarking it to the consumer
price index (CPI) rather than the higher retail price index (RPI), in a move that could save £2.5
billion. Mr Webb, director of policy at pensions firm Royal London, said: "The desire to save
steel jobs is entirely understandable, but there are huge risks if a quick fix for this problem were
to undermine the carefully constructed pension protection framework.” The pensions of millions
of workers and pensioners depend on employers honouring the pension promises that they have
made. "A deal on Tata must not create a precedent or a loophole which could be exploited by
firms keen to walk away from their pension liabilities. Ministers must tread with extreme caution
in this area." Allan Johnston, chairman of the Board of Trustees of the British Steel Pension
Scheme, said: "The trustees welcome the Government's decision to consult on changes to the law
applying to the scheme.”

After many rounds of negotiation, in February 2017, thousands of workers at Tata Steel’s sites in
Wales, Scotland, South Yorkshire and Teeside in the UK overwhelmingly accepted the
company’s offer to move from a “final salary pension” to a less generous scheme, potentially
saving their jobs and assuring the future of its plants. Tata had offered a package in December to
retain its steel business in Britain instead of selling it, and the generous financial commitment in
the pension scheme was seen as a major hurdle. Three unions—Unite, Community and GMB—
balloted their members on the package offered, and the result was 72% in favour. Tata Steel,
which signed a definitive agreement to sell its UK specialty steels business to Liberty House
Group for £100 million on 9 February, 2017 was also in talks to merge its European assets with
Germany’s Thyssenkrupp. Following the pension deal, the talks were expected to pick up pace
since the German company had been averse to taking on Tata’s UK pension liabilities in the
event of a tie-up. Finally in 2017, Tata announced an agreement to merge its European steel
business with ThyssenKrupp to form a joint venture named "ThyssenKrupp Tata Steel" that
would be headquartered in Amsterdam.

Talks had been ongoing for more than a year. Tata Steel's Netherlands operations were profitable
while steel making units in UK were losing money. N Chandrasekaran, Chairman of Tata Steel,
said that the merged entity will ensure that the production sites are intact and have a “sound and
sustainable future”. The deal, designed to cope better with the structural challenges facing the
European steel industry, was expected to be closed by December 2018 after receiving the
requisite approvals from competition authorities. Germany’s Thyssenkrupp and India’s Tata
Steel signed a final agreement in June 2018, to establish a long-expected steel joint venture, the
European steel industry’s biggest shake-up in more than a decade. In May 2019, however, the
European Commission blocked the proposed joint venture (JV) with Thyssenkrupp.

Source: http://www.livemint.com/Companies/aLXK85O2wjyxe0WNJLBlkL/Tata-Steel-Europe-winners-curse.html;
http://www.thehindu.com/business/Industry/tata-steel-puts-uk-operations-up-for-sale/article8413320.ece ;
http://www.dailymail.co.uk/wires/pa/article-3610206/Ministers-warned-changing-pensions-law-save-Tata-UK-steel-business.html;
http://economictimes.indiatimes.com/industry/indl-goods/svs/steel/tata-steel-thyssenkrupp-may-combine-european-steel-
business/articleshow/51645326.cms; https://uk.reuters.com/article/uk-thyssenkrupp-tata-steel-jointventure/thyssenkrupp-tata-steel-seal-landmark-
steel-joint-venture-deal-idUKKBN1JP1LV