London, March 5: The Tatas are considering a daring plan to break off a planned merger of its European steelworks with those of its German rival Thyssenkrupp.

The Indian conglomerate, which owns assets ranging from Jaguar Land Rover to Tetley tea, has been edging towards a deal that would form a European steel giant with blast furnaces in Wales, the Netherlands and Germany.

But that deal has dragged as Tata tries to solve the problem of its £15 billion British steel pensions scheme — a legacy from when the industry employed hundreds of thousands of workers. 

Thyssenkrupp, itself a vast conglomerate ranging from escalators to car axles, is reportedly considering an alternative for its steel business should the deal fail — floating it as a standalone company. 

Increasing doubts over the steel deal reflect its complexity. It was due to be structured as a merger of equals, hinging on the Tatas freeing itself of the British pensions, but sources said that German pension liabilities are a threat. Dutch unions representing workers at Tata’s vast Ijmuiden plant have raised concerns over the Thyssenkrupp pensions, which are an unfunded liability and underpinned by cashflow from the steelworks.

Thyssenkrupp is under pressure from activist investor Cevian and recently sold its steel venture in Brazil for euros 1.3 billion (£1.1bn). 

Should the Tatas opt to retain its European steel operations, it would mark a huge reversal from just a year ago when it put its entire British steel business up for sale. At the time Tata had said a turnaround plan for the Port Talbot works in south Wales was “unaffordable” and “highly uncertain” to succeed.

Yet a recovery in the price of steel, helped by the slump in the sterling after the Brexit vote, has returned Port Talbot to profit. 

Upheaval in the Tata’s boardroom, including the removal of chairman Cyrus Mistry and his temporary replacement by former boss Ratan Tata, has also boosted its prospects.

The Tatas is also edging towards a deal with trustees, the Pensions Regulator and the Pension Protection Fund, to slash its British pension liabilities, after unions voted to close its final salary pension scheme in return for pounds £1bn of investment in Port Talbot. 

“Talks are ongoing with Thyssenkrupp and to find a sustainable solution for the UK pension scheme, ” the Tatas said.

Mittal moves

Global steel giant ArcelorMittal has decided to curtail M&A and new investment activities following tough economic and market conditions, reports PTI. 

The world's largest steel maker will now focus on asset optimisation and sale of non-core assets. 

“Due to difficult economic and market conditions, ArcelorMittal has curtailed M&A (Mergers and Acquisitions) and greenfield investment activity,” NRI billionaire Lakshmi Mittal-led company said in its latest annual report. 

ArcelorMittal was created after an over $30-billion merger of Mittal Steel and Arcelor in 2006.

THE SUNDAY TIMES