Turkey’s Oyak Wants British Steel’s Supply Contracts Revised

(Bloomberg) -- A Turkish group’s acquisition of British Steel depends on lowering the cost of contracts the U.K.’s No. 2 steelmaker holds with its suppliers, according to a person familiar with the matter.

Oyak Group, which manages military pensions, entered exclusive talks in August to buy British Steel, the first step in a rescue that could save about 5,000 jobs in the U.K.’s manufacturing heartland. The due diligence undertaken by Oyak’s Ataer Holding unit over the past two months found that some supply deals were uncompetitive and wants them to be revised, the person said, asking not to be identified as the process was private.

Despite obstacles, Oyak still wants to acquire British steel, another person familiar with the matter said. The Turkish group, with assets of more than $19 billion, said on Aug. 16 that it would conduct a financial, legal and operational review of British Steel, and talk to the company’s customers, suppliers, employees and labor unions.

British Steel was put into liquidation in May, just three years after being acquired by private equity firm Greybull Capital LLP for 1 pound.

The U.K. steel industry has long struggled to be profitable in the face of high energy and labor costs. British Steel was also hit by the fallout from Brexit, with some European customers concerned about possible tariffs on their orders. At the same time, the weak pound made importing ingredients, such as iron ore, more expensive.

Oyak, which owns steelmakers in Turkey, was the preferred buyer after making an “acceptable” offer, the U.K.’s Insolvency Service said in August.

Talks with Oyak are continuing, a spokesman for the U.K. Insolvency Service said by phone on Monday, without giving further details. When the exclusivity period for negotiations ends this week, the Insolvency Service will be able to talk to other interested parties, he said.

China’s Jingye Group expressed interest in acquiring British Steel, Sky News reported earlier this month.

Oyak’s Ataer unit is the biggest shareholder of Turkey’s top steelmaker Eregli Demir ve Celik Fabrikalari TAS, known as Erdemir, a key exporter to the EU. The group also owns smaller steelmaker Iskenderun Demir ve Celik AS, known as Isdemir.

Erdemir shares were trading about 1% lower as of 11:20 a.m. in Istanbul, while Isdemir shares were 1.3% higher.

--With assistance from Elena Mazneva.

To contact the reporter on this story: Kerim Karakaya in Istanbul at kkarakaya2@bloomberg.net

To contact the editors responsible for this story: Onur Ant at oant@bloomberg.net, Dylan Griffiths, Lynn Thomasson

©2019 Bloomberg L.P.