Tata Steel makes a deal to stay in Britain

Agreement to save as many as 11,000 jobs

LONDON: Tata Steel Ltd said on Wednesday that it had reached an agreement with trade unions to provide at least a temporary reprieve for the largest steelworks in Britain.

In the deal, which still needs to be approved by employees, Tata, a subsidiary of Tata Group, the Indian conglomerate, would keep the giant steel plant at Port Talbot in South Wales and other parts of its steel business going in Britain until 2021, preserving as many as 11,000 jobs. Tata had been trying unsuccessfully to extricate itself from making steel in Britain.

In return, the unions have made substantial concessions including an agreement in principle to close their generous pension plan and replace it with a new one that would require employees to pay more for their future retirement.

The deal comes as a relief for Prime Minister Theresa May of Britain. Tata’s highly publicised troubles with high costs and cheaper imports have put many thousands of jobs at risk at a time when Britain’s plans to leave the European Union are creating doubts about the future of the country’s economy.

“The agreement marks an important step forward in the journey to develop a sustainable future for our U.K. steel business,” Koushik Chatterjee, the group executive director of Tata Steel, said in a statement.

Wednesday’s announcement marks a major shift for Tata. Earlier this year, before Britain’s vote in June to leave the bloc, the company had said that it would explore all options for its struggling British business, which it acquired along with other European operations for what now seems an exorbitant £6.2 billion in 2007, about $12.2 billion at the time.

For months, Tata has been sounding out potential buyers, while at the same time negotiating with the unions. Those efforts evidently did not find an attractive price, leading Tata to reconsider.

“They risked being embarrassed twice,” said Dalton Dwyer, managing director of Industry Corporate Finance, a Londonbased firm that advises industrial companies on mergers. “They bought at the top of the market, and they didn’t want to bail out at the bottom of the market.”

But Tata’s threat of closure does seem to have forced the unions into substantial concessions.

Loss of steel-making at the Port Talbot plant, which has two blast furnaces for making raw steel, would have been devastating to the economy of South Wales, a once-thriving industrial hub that has seen many high-paying jobs disappear in recent decades.

Union officials say the deal will still need to be approved by their members.

In addition, Tata’s approach appeared to have changed after Cyrus Mistry, the parent group’s chairman, was ousted earlier this fall and replaced with his predecessor, Ratan Tata.

Tata had acquired the company’s European assets, then called Corus Group Plc, in 2007.

Tata says it continues to talk to ThyssenKrupp AG, a German steel-making company, about combining the two companies’ steel operations in a joint venture.

Analysts say that ThyssenKrupp is more interested in working with Tata’s Dutch operations than with their British counterparts.

As part of Wednesday’s announcement, Tata also said it would invest in plant upgrades, automation and other initiatives. The company declined to say how much money it would spend.

Dwyer and other analysts say that there is reason for Tata executives to figure the fortunes of their British subsidiary might improve. British and European steelmakers have been hammered in recent years by a weak demand for their products and competition from imports from China and other countries.

The European Union has slapped higher tariffs on some imported steel products, while Britain’s plans to bolster spending on infrastructure, like a new runway for London’s Heathrow Airport and a nuclear power station at Hinkley Point in Southwest England, would stoke demand for steel.

As by far Britain’s largest steel producer, Tata could be well positioned.

Still, despite Wednesday’s reprieve at Tata, large-scale steelmaking in Britain and elsewhere in the West seems likely to remain threatened by competition from cheaper or subsidised producers in China, Russia and elsewhere. Environmental regulations and relatively high energy costs also create headwinds for European heavy industries like steel.

In his statement Chatterjee of Tata said that “global economic uncertainty, slow manufacturing growth and currency volatility” all presented “significant challenges to the business.”