Tata Steel agrees UK pensions deal, stock jumps 8% on possible talks with Thyssenkrupp
Tata Steel UK’s pension scheme was a major stumbling block in talks to merge Tata Steel’s British and European steel assets with those of Thyssenkrupp, because the German company was opposed to taking on Tata’s 15 billion pounds in UK pension liabilities.business Updated: May 17, 2017 12:31 IST
Paving the way for a merger talk with German conglomerate Thyssenkrupp, Tata Steel has agreed to a 550-million pounds deal for its UK unit to cut benefits and improve the funding position of its British pension scheme.
Tata Steel stocks were up as much as 8% to touch Rs 497 at the Bombay Stock Exchange in early trade on Wednesday.
Tatas are selling their ailing British units to cut costs, a decade after its acquisition of Corus for $8.1 billion in 2006.
In November 2016, UK-based businessmen Sanjeev Gupta’s Liberty House signed a letter of intent on the sale of Tata’s speciality steel business in Britain.
A month later, Tata agreed to invest 1 billion pound over ten years into its British operations and keep running the two blast furnaces at Port Talbot for at least five years.
The Indian conglomerate was also weighing option of a merger of its European operations with German firm Thyssenkrupp.
Tata Steel UK’s pension scheme was a major stumbling block in talks to merge Tata Steel’s British and European steel assets with those of Thyssenkrupp, because the German company was opposed to taking on Tata’s 15 billion pounds in UK pension liabilities.
The deal, agreed with the scheme’s trustees, will see Tata plough 550 million pounds into the final salary British Steel Pension Scheme (BSPS). It is subject to formal approval by The Pensions Regulator, but Tata said it expected to get approval shortly.
Tata has also agreed, as part of the deal, to sponsor a new pension scheme, which will have lower benefits than those of the original scheme, and to give the BSPS a 33% equity stake in its UK business.
With benefit cuts in place, the new scheme will pose less of a risk to the company, Tata said.
The British Steel Pension Scheme is one of Britain’s largest final salary schemes with 130,000 members.
The pension scheme’s members who do not agree to move to the new scheme will automatically transfer to the Pension Protection Fund (PPF), which said all the scheme’s members, including those in the new scheme, are guaranteed PPF compensation levels.
The PPF is a lifeboat for pension schemes in Britain that run into trouble.
(With inputs from Reuters)