Tata, on July 8, 2016 announced developments to further progress the strategy of its European business. After its announcement in March 2016 to explore strategic alternatives for its UK business, Tata shortlisted and engaged with seven companies, who later bid for the business.
Tata considered the bid, inter-alia, in light of uncertainties after the UK referendum and decided to look at the alternatives and more sustainable portfolio solutions for its European business. As per media reports, while Tata was already in talks with Thyssenkrupp, a Tata official announced that it had entered into strategic discussions with the company on July 8.
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Tata Steel Europe (TSE) reported negative EBITDA of c$ 90 million in FY16 but clarity on the breakdown of EBITDA between the European and UK businesses, and within the UK, for the now sold Scunthorpe operations, is not available.
Any strategic transaction that allows Tata to reduce losses at TSE is a step in the right direction. As of March 2016, Tata’s consolidated net debt to EBITDA stood at c10X, high given the cyclical nature of Tata’s business.
An ideal solution to us would involve moving some part of the debt into the new entity, thereby making the current balance sheet more robust.