Out of the frying pan and in to the furnace?

This last week has been a tumultuous one for the management and employees of Tata Steel UK, with the announcement on Tuesday that its Indian parent company, Tata Steel, had taken the decision that it could no longer sustain the loss making UK steel producer and was “exploring its options” for the company. Add in to the mix talk of possible private equity buyers and British government rescue packages via a temporary nationalisation and you have nearly all the possible M&A permutations covered.

The whole sorry situation has been laid firmly at the door of cheap Chinese steel exports, but I think you have to look a little further back in time to be able to take a more objective view. Tata Steel paid just over GBP 6.2bn for Corus (as Tata Steel was previously known) back in April 2007, with the final price agreed being a little over GBP 2bn more than their initial offer and valuations. This deal saddled Tata Steel with debt and almost immediately after completion, Tata’s investors reflected their concerns about the deal, with Tata shares dropping 11% per cent. Corus was just one of a number of deals carried out at that time by Tata’s ambitious CEO, Ratan Tata. So I think this is more a case of overpaying for an asset, combined with the completely unforeseen downturn in the price of steel due to the emergence of China’s steel industry.

Yesterday saw a story break that Tata Steel UK’s Port Talbot steel works may be rescued by another Indian tycoon, Sanjeev Gupta, founder of Liberty House, the steel plants operator. Here’s hoping for the sake of the 4,000 or so British workers employed at the Port Talbot steel works that this time it’s not going to be a case of out of the frying pan and into the fire.