The exit of Tata Steel Ltd. from the British Steel Pension Scheme is in line with expectations, said brokerages as they retained a ‘Buy’ rating on the shares of the steelmaker.
The deal, which paves the way for the company’s potential merger with Germany’s Thyssenkrup AG, would be positive in the medium term given the overall cost reduction and improved pricing in Europe, they said.
Under the terms of the pension separation, the steelmaker has paid 550 million pounds ($725 million) and a 33 percent equity to the trustee of BSPS. The impact of the move will reflect in the company’s financials for the quarter ending September 30. Tata Steel’s UK operations will now sponsor a new scheme that would have lower annual increases for pensioners and deferred members.
Tata Steel’s potential deal with Thyssenkrup, however, faces a hurdle. Activist Cevian Capital, which has the representation on ThyssenKrupp’s supervisory board and is the second-largest shareholders with a 15 percent stake, is opposed to the plan, according to Bloomberg. Cevian doubts if the merger would yield synergies, it said.
Citi On Tata Steel
- Maintains ‘Buy’ rating
- The separation is in line with expectations, already indicated in the first quarter.
- Rising steel price spreads (peak since 2010), pension separation, restructuring augur well.
- Tata Steel trades almost on a par with its global peers.
- Maintains ‘Overweight’ with target price of Rs 741 (current price Rs 683).
- De-risking of pension issue; focus will now shift to potential joint venture.
- Deal valuations, potential synergies and modalities will be the key.
- JV to be positive in medium term given overall cost reductions and improved pricing in Europe.
- Maintain “Buy” rating with target price of Rs 750 (current price Rs 683).
- Merger with Thyssenkrup would aid consolidation in the European steel industry further.
- Merger would realise annual synergies of 400-600-million euros.
- Expect a recovery in domestic steel demand and improvement in profitability of European operations.