Tata Steel has received regulatory approval for a deal to cut its UK pension scheme liabilities, it said on Friday, paving the way for a possible merger between its British and European steel businesses and those of Germany’s Thyssenkrupp.
The pensions deal “represents the best possible structural outcome for the members of the British Steel Pension Scheme (BSPS) and for the Tata Steel UK business,” Koushik Chatterjee, group executive director, said. The net impact of the deal would be reflected in Tata Steel’s September-quarter financial results, he said.
The fate of the UK businesses, including the largest steelworks at Port Talbot, Wales, has been uncertain since Tata Steel said more than a year ago it planned to sell the assets following heavy losses. the firm had warned it could face insolvency due to the size of the pension fund’s deficit.
The pension scheme’s £15 billion ($19.37 billion) of liabilities also appeared to be the main obstacle in the merger talks with Thyssenkrupp.
Thyssenkrupp has said it would not rush into any merger decisions. The prospect of a merger has also met with opposition from Thyssenkrupp’s German labour unions.
“Thyssenkrupp had already in the past pointed out that any (pensions) agreement would need to be closely examined,” a spokesman for the steel-to-elevators group said on Friday. “We will now take the time necessary for that examination.”
Under the terms of the deal with the pensions regulator, Tata Steel will pay £550 million ($713 million) into the BSPS and will also give one of Britain’s largest final salary pension schemes a 33 per cent equity stake in Tata Steel UK.
When the deal comes into effect, the UK pension scheme will be separated from Tata Steel UK and a number of affiliates. The deal makes the 130,000 members of the scheme automatically eligible to join the Pension Protection Fund, an industry-funded lifeboat for ailing schemes, which offers lower benefits than the existing terms.
Tata Steel plans to sponsor a new scheme with lower benefits than the old scheme but better ones than the PPF. That scheme could take some months to set up but should not stand in the way of any tie-ups, pension industry sources say.
- Tata Steel UK enters deal to detach the £15-bn British Steel Pension Scheme (BSPS) from UK biz
- Deal to clear the way for the firm’s potential merger with German giant ThyssenKrupp
- Tata Steel UK has offered to pay £550 mn into the BSPS and give it a 33% stake in its UK business
- BSPS members will have the choice to transfer a new pension scheme
- Firm to sponsor a new pension scheme with lower benefits than the old scheme but better ones than the PPF