Chequered journey of Europe steel venture

Much before Tata group's ousted chairman Cyrus Mistry claimed the group might have to write down $18 billion, Tata Steel had said that in the past five years, it had suffered asset impairment of more than £2 billion ($2.4 billion) on account of its UK business.

In fact, going by Mistry's letter, there could be lot more write-downs coming for Tata Steel. In the letter to the Tata Sons board, he says, "The European steel business faced potential impairments in excess of $10 billion, only some of which has been taken as of date."

In March, when the group decided to explore the option of selling the UK business, in whole or in part, it had said that the company had extended substantial financial support to the UK business.

A restructuring and transformation plan for Strip Products UK had been prepared by Tata Steel Europe, but the board felt it was unaffordable and required material funding and the likelihood of its delivery was uncertain. The decision was probably led by a string of failed restructuring exercises since 2007 when Tata Steel acquired Corus in a $12-billion deal in what was the biggest foreign acquisition by an Indian company ever.

Tata Steel paid a premium of 34 per cent to its original offer price of 608 pence a share of Corus to ward off a challenge from Brazilian miner and steelmaker, CSN.

It was the peak of the commodity cycle. Market conditions started deteriorating in the second half of 2008 and the underlying assumptions for the deal went haywire. It seemed that Tata Steel had paid too much to achieve scale.

In the second half of 2008-09, Tata Steel Europe took two major cost-saving initiatives: 'Weathering the Storm' and 'Fit for Future'. The latter entailed some hard decisions such as headcount reduction, asset management and restructuring, including closure of some unprofitable businesses.

Then in March 2011, Teesside Cast Products was sold to Sahaviriya Steel of Thailand for $467 million. But, it could not prevent a $1.6-billion write-down in 2013.

According to a briefing paper of the House of Commons, in 2014, Tata Steel suffered losses of $615 million, which prompted the company to announce 720 job losses at its plants in South Yorkshire and West Midlands in July 2015.

In October 2015, Tata Steel announced significant reduction of workforce at Scunthorpe, Clydebridge and Dalzell. However, by the end of the year, it entered into a memorandum of understanding with Greybull Capital for sale of Tata Steel's European long products business, which was concluded in May 2016.

But, at the beginning of 2016, Tata Steel announced cost-saving measures that would again result in 1,060 job losses at Port Talbot in South Wales. It finally came to terms to consider selling the UK business in March that year, but Brexit prompted it to halt the process and look for more 'sustainable' options that include a joint venture with strategic players such as Thyssenkrupp AG.

THE STORY SO FAR

• 2007: Tata Steel acquires Corus for $12 billion
• 2008-2009: Cost saving initiatives, Weathering the Storm and Fit for Future launched
• 2011: Teeside Cast Products was sold to Sahaviriya Steel of Thailand for $467 million
• 2013: Tata Steel writes down $1.6 billion
• 2015: Job losses announced at South Yorkshire, West Midlands, Scunthorpe, Clydebridge and Dalzell
• 2016: Sells long products Europe to Greybull; initiates sale of UK business and later halts it to explore other options