Tata Steel is looking to sell its long products division in Europe and is talking to the Klesch Group, a Swiss conglomerate, as a potential acquirer, the company said in a statement on Wednesday.
Tata Steel Europe announced the signing of a memorandum of understanding with the Klesch Group ? with interests ranging from mining, oil and gas, and metals to power and chemicals ? under which the latter would conduct due diligence of assets associated with Tata Steel?s long products business. These include steel making facilities in Scunthorpe and Teesside (UK), Dalzell and Clydebridge (Scotland), an engineering workshop in Workington, a rail consultancy in York and other operations in France and Germany.
Tata Steel Europe?s long products business employs 6,500 people, about a fifth of its total employee strength in Europe.
Explaining the rationale behind looking to divest the long products division, Karl Koehler, chief executive of Tata Steel Europe, stated that the company needed ?capital and expertise? to accelerate the pace of innovation on advanced steel solutions through which it wanted to become a premium customer-centred steel company.
?We have therefore decided to concentrate our resources mainly on our strip products activities, where we have greater cross-European production and technological synergies,? Koehler said.
A senior Tata Steel executive, who spoke on conditions of anonymity, stated that it was too early to comment on the potential valuation that the long products business could fetch or how the consideration received from a potential sale would be utilised.
Analysts hailed Tata Steel?s decision to try and sell the long products business, stating that the particular division wasn?t doing too well.
?This is good news as far as Tata Steel is concerned,? said Rakesh Arora, managing director and head of research at Macquarie Capital Securities (India). ?The move was expected as the long products business wasn?t even earning enough to service the debt obligation associated with the business. But there was no buyer for the business earlier.?
Hiving off the long products business would also help Tata Steel pare its debt burden. The consolidated net debt of the company stood at R67,728 crore as on June 30. As on March 31, Tata Steel?s consolidated net debt stood at R70,237 crore, out of which only R24,584 crore was on account of the standalone operations in India, according to the firm?s 2013-14 annual report. Rest of the debt was on account of international operations, situated mostly in Europe.
Tata Steel Europe, Europe?s second-largest steel producer, came into existence after Tata Steel acquired Anglo-Dutch steelmaker Corus Group in 2007 for $7.6 billion. The business ran into rough weather soon thereafter, first with the Lehman Brothers? subprime mortgage crisis taking a toll on the global economy and a subsequent recession in the euro zone.
In 2010, Tata Steel mothballed a cast steel products unit in Teesside, the UK, which resulted in the loss of over 1,000 jobs.
?The European steel industry is emerging from one of the most challenging economic periods in its history,? Tata Steel?s statement said, adding that since acquiring Corus, the company had invested ?1.2 million in the UK operations.
Tata Steel Europe?s turnover increased 12.5% year-on-year at R20,741 crore for the quarter ended June 30 while operating profit from the business grew 28% in the same period and stood at R995 crore. In FY14, Tata Steel Europe posted an operating profit of R3,008 crore on revenues of R84,666 crore.