Tag Archives: Sale / Merger

The Latest (Part 3)


I have not had much inside feedback on how things are in Port Talbot, but I do keep an eye out for any news that might be of relevance for my situation and that of the pension scheme.

First of all, I heard from an inside source that Strip Products UK has been making a (small?) profit, more or less since the Brexit referendum. Whether it amounts to much I cannot tell.

Also, Cyrus Mistri has been sacked as chairman of Tata Sons, but for the time being at least remains in place as chairman for Tata Steel. There seems to be a lot of bad feeling about Ratan Tata interfering with the running of the business, and I wonder whether he had anything to do with the change of heart when it came to selling off the South Wales part of Tata Steel.

On top of that, there’s the deficit of the British Steel Pension Scheme that (due to the drop in the value of the pound) saw its shortfall reduced from £700 million to £50 million – how, I’m not able to say, but rather puzzling nonetheless. Still, what can drop so fast for no apparent reason could equally mushroom for no apparent reason.

And then there’s the very latest, where the discussions with Thyssen Krupp would first lead to Port Talbot becoming a one-furnace operation, something that appears to be under discussion with the unions. It might well mean that the price for keeping both blast furnaces would be the closure of whatever is left of the defined benefits scheme.

Will there be any knock-on effect on people who have actually retired ? Will a merger with Thyssen Krupp mean that an arrangement will be made with the Pension Protection Fund ? That’s still up in the air. Only time will tell.

All that appears to be clear is that any future investment (apart from modernising the power plant) will depend on making fairly substantial profits. Will the deal with the unions (if it comes to an agreement) mean a long-term future for its blast furnaces ? Again, if the plant remains profitable then there’s probably not an immediate issue.

But can a period of solid profits be maintained in years to come ? That, I suppose, is the million dollar question.

A Marriage Made in Heaven ?


That’s how the merger of British Steel and Hoogovens to form Corus was sold to us prior to the fact. To say that the reality differed substantially from the promise is clearly somewhat of an understatement. Because this topic is potentially litigious, I’ve deviated from my usual practice of blogging from memory alone, and I’ve consulted a few online resources to make sure that my personal account of events doesn’t contradict the public record – some of these resources are listed below.

Anyhow, what I remember of the run-up to the merger was how the cultures of the two companies were said to be very similar indeed, and how synergies could be gained from joining the two companies. Only later did we hear that the capitalisation of British Steel versus Hoogovens was such that the former had to shed some capital which we were told was by paying off Hoogoven’s debt (who were short of cash after an overambitious investment programme), and giving the shareholders a handsome dividend. At least that was the word doing the rounds, but I haven’t been able to see this confirmed in the resources I’ve checked, so not sure how much truth the rumours contained.

What I do know is that the word “synergy” started to get a bad name when in short succession (and I’m restricting myself to South Wales only) it resulted in the closure of Welsh Labs, Ebbw Vale and the heavy end in Llanwern. Words like “unfair” started being used, since we didn’t see the Dutch side of the company make any similar sacrifices, all under the banner of “We [i.e. IJmuiden] are making a profit and you are not”. We also took a dim view when the Dutch side blocked the sell-off of the aluminium part of the business to Pechiney in what was widely seen to be blackmail that could easily have brought the company to its knees, rather than just reducing the share price to a low of 6 pence. At the same time there was a definite move for a demerger, no more so than when Usmanov used the low share price to buy up shares and then demand a presence on the board for a director with just such a view.

We were only vaguely aware of how the Dutch must have seen the bruiser style of management favoured by Brian Moffat (and which at the time was still prevalent in the UK side of the business), and the British habit of shooting from the hip rather than come to a considered consensus. What we were very much aware of, being on the receiving end of this behaviour, was what we perceived as arrogance and selfishness. In fact, looking back on things, we couldn’t understand how the side who seemed to get all the benefits of the merger and very few of the drawbacks could try to lead the company to a bloody civil war. In the end, the arrival of Philippe Varin as a peacemaker did calm things down, but (again seen from the perspective of the UK side of the business) at the cost of transferring more and more of the central business activities (like R&D or IT) to IJmuiden, leaving the UK side of the business with the sole task of producing for the UK market. The head office may still have been in London, but the centre of gravity for the business clearly moved to IJmuiden.

The outcome of it all ? What started off looking like a near-takeover of Hoogovens by British Steel has now been completely reversed. In the end British Steel’s cash was not the futureproofing which proper investment in modern assets could have given. Throughout the later Corus years most of the investment went to IJmuiden, again covered by the same banner “We [i.e. IJmuiden] are making a profit and you are not”, a situation only partly reversed when Tata Steel came on the scene. But as covered in an earlier blog, it all was a bit too little too late, and the investment engine finally spluttered to a halt when it proved how much damage had been done by decades of underinvestment, and how much would have to be spent to make up for those lost decades.


  1. Corus: The merger that got things wrong (European Leadership Platform)
  2. Corus Group plc – Company Profile, Information, Business Description, History, Background Information on Corus Group plc (Reference for Business)
  3. Where the Corus marriage went wrong (Daily Telegraph)
  4. Corus falls into open disharmony (The Scotsman)
  5. Corus rebuffs Usmanov’s attempt to gain boardroom representation (The Guardian)

The Latest (Part 2)


A few days ago I met Sam Gilroy (who used to be my boss for a while in Llanwern) on our South Wales GA trip to Goodrich Castle, and managed to have a short conversation in passing. Basically me asking and him confirming that he was still “there”, and him adding “what else can you do?” His final words were “You managed to get out while you could”, implying that there has not been a better time to get out since.

Mind you, I have noticed that many of those who were not bound by long service to stay have moved on: I’ve seen a number now showing new places of work on their LinkedIn accounts, such as IBM, Swansea University, Celsa and retraining as a teacher. I have not had any communication with anyone else in the workplace, but I can only assume that it is with trepidation that they await further developments.

We have only known of two potential buyers (Liberty and Excalibur) although it was claimed that the list was longer. That is, until the Brexit vote to leave the EU, when it was only the known candidates that remained, followed by Tata Steel placing the selling process on hold.

Very little happened throughout July and August, although rumours started to appear that Tata was in talks with Thyssen-Krupp about a possible merger. Funny that: Hans Fischer, who took over from Karl Köhler when the latter resigned as CEO, had joined Tata Steel from Thyssen-Krupp. Now I wouldn’t have minded being a fly on the wall during the discussions leading up to that decision.

Then came yesterday, when the local news reported that unofficial reports (read in this that there had been a quarterly review for the employees, and the unions immediately spilled the beans) quoted a monthly PROFIT of 5 million pounds for the month of June, and a profit of 12 million for the (first?) quarter. A sign that Tata had been too hasty, and that they thought the ongoing turnaround project was one of many false dawns ? Mind you, it still could be that this is a flash in the pan – after all, if the foot on the pedal slips, it’s all too easy to return to a loss-making situation.

What must this mean for those who still work in Port Talbot and Llanwern ? Basically it must be an uncertain situation, and a possible merger with Thyssen-Krupp could well imply an even more uncertain future for the UK side of the business. On the other hand, the Brexit vote has reduced the value of the pound, which could potentially mean an easier ride selling our products in Europe – that is, until we really leave the EU, when trade barriers could well go up, and we have to try and sell our steel in the world market instead.

In the meantime, my pension has now been arriving in my bank account for a few months, and the more I look at it, I should be OK even if the pension scheme moves to the Pension Protection Fund. We had a letter from the British Steel Pension Scheme claiming that they could to a better job than the PPF, which could mean that future increases might not be capped to the same extent as they would be under that scheme. In this matter I’m in exactly the same position as those who still work in the UK part of Tata Steel: I’ll have to wait and see.

Closures


When I arrived in the UK in 1989, there were 11 major steel making or steel processing plants in Wales, all in the recent past part of the recently privatised British Steel Corporation. Some were under threat, some of them had slimmed down, and some still appeared in robust health. Now there’s only five left, all of them under threat: Port Talbot (the only one with blast furnaces and steel making facilities), Llanwern (mostly still in existence because of its Zodiac galvanising line), Orb (high silicon steel, on which China has recently slapped import duties, just as a warning shot), Trostre (totally dependent on Port Talbot for its supply of hot rolled coil) and Shotton (currently being the only that does relatively well, but also dependent for its coil supply on Port Talbot and Llanwern).

Here’s the list of casualties since my time in the UK (btw, it’s amazing how hard it is to find an overview of closures in the UK steel industry; a Google search either picks up on the latest events, or some historic events from the British Steel (Corporation) days, but rarely what exactly happened when. This is my attempt to compile what I could find out about Welsh sites.

1989 – Velindre

Unlike many other sites, a fairly recent addition from the 1950s, but why you would want to have three tinplate works in close proximity doesn’t appear to make sense – maybe it did in the 1950s. For a long time all that was left was a cooling tower with the British Steel logo on it which you could clearly see when you passed that part of the M4 motorway. It was pulled down when of the directors saw it as an unwelcome reminder of the site’s closure.

1990 – Brymbo

Don’t know too much about this site, apart from the fact that some people I got to know in Ebbw Vale, Llanwern and Port Talbot had been working there before the site closed.

2001 – Ebbw Vale

The one where I experienced the closure first-hand. Closure had always hung in the air, ever since steel making and hot rolling had gone elsewhere in the 1970s, but even then, when it came it came as a shock to many who had hoped that closure was a prospect for the distant future. At the time I was sharing an office with someone who had already been displaced by the closure of steel making in Panteg, so presumably for many it may not have been the first taste of looming redundancy.

2004 – Panteg

At the time of closure, Panteg had already changed hands, first to Avesta (an offshoot of British Steel Stainless) and later Outokumpu. As with Ebbw Vale, closure of the steel making facilities in 1996 only was a foretaste of the final event.

?2009 – Pontardulais

This was the site of Corus Colors where aluminised products were being produced. Despite its niche part of the steel market (or maybe because of it), it must have suffered from the 2008 crash, and was a prime candidate for when Tata Steel tried to get rid of small satellites.

2012 – Tafarnaubach

Another site that was kept open for political expediency and keeping employment in what otherwise would be an unemployment hotspot. Also part of Corus Colors and its successor under Tata Steel and specialising in white goods (which presumably made sense as long as the Hoover factory in nearby Merthyr Tydfil was still operating). Another victim of the drive to get rid of small satellite sites under the pressure of economic necessity, but presumably something that should have happened in the 1970s rather than 40 years later.

All this goes to show is that the original British Steel Corporation plan of concentrating steel production in a small number of super sites got stuck in the quicksand of political expediency which placed current employment over economic necessity, and that way placed a heavy burden of historical balast around the neck of Welsh steel making.

When Tata Bought Corus


We’re in 2006 and Philippe Varin had finally managed to achieve his ambition to find a buyer for Corus. In fact there were two, one a Brazilian company called Companhia Siderúrgica Nacional (CSN), the other one being the Indian company Tata Steel, part of the large Tata conglomerate. The timing for a sale seemed to be good, since Corus appeared to have recovered from a rough patch where the share price had tumbled to a low of 8p (during a short period of investor’s panic when the markets thought Corus could go under). What followed was a bidding between CSN and Tata, one that led the latter to one, but only by paying a premium of more than £4 per share.

At this stage I must admit that this was the only occasion where I benefited financially from market fluctuations. I had been part of of a share-save scheme where I bought up £50 worth of shares per month which was automatically deducted from my pay packet. When the scheme started we were promised a pay-out price of about 120p, so anything that was bought at a lower price was profit – which it was for most of the period that I was in the share-saving scheme. Hence Tata paying more than £4 a share was quite a handsome return to my investment.

So when Tata finally won, that was one reason to be satisfied. There was, however, also the feeling that Tata really wanted to invest in plant equipment in the hope of getting a good return on their investment. Something that was not expected to happen should CSN have won the battle. For them the expectation was that in the end all the iron & steelmaking facilities would exist in Brazil, they would ship slabs to Europe, and we would be just a set of rolling mills for them close to the European markets.

So that was the situation in 2007 : we had a new set of owners who really seemed to interested in making us work and grow into a profitable outlet for their steel. Maybe longer term plans would have meant more liquid steel production in India and less in Europe, but for the medium term it would mean a boost for the steelmaking facilities in South Wales. But then the bank crash of 2008 happened, and that changed the whole picture : since then the UK part of Tata Steel has not made a profit, and the losses, despite moves to minimise them, appeared to grow. At the same time, the pension scheme continued on its downward trend and needed more money pumped in to keep it cash-neutral. And then the Chinese economy started to slow down, and its exports to mushroom, and we all know what the outcome of that development was : losses which until this point proved manageable started to look in an alarming way like haemorrhaging, so that less than 10 years of ownership had turned into a financial nightmare.

It clearly was something that in hindsight has proven to be an unwise investment, and even at the time the markets were dubious about what seemed to be an overpriced acquisition. But could anyone really say at this time that it would become such a monster of a financial hole ? Even a year ago it only just started to become apparent that we were on a slippery slope when we had made the £50 million annual plan loss in the matter of 3 instead of 12 months. For a hindsight analysis that is worth a read, there’s this on from the Daily Telegraph : The deal that hamstrung Tata Steel.