(Bloomberg) -- A Turkish group managing military pensions entered exclusive talks 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 U.K.’s No. 2 steelmaker was put into liquidation in May, just three years after being acquired by private equity firm Greybull Capital LLP for 1 pound. In addition to contracting demand, surging costs and cheap imports, British steelmakers face uncertainty around Brexit, with some European Union customers concerned that tariffs could be imposed on shipments from the U.K.
Oyak Group, with assets of more than $19 billion, will review British Steel over the next two months, while talking to the company’s customers, suppliers, employees and labor unions. Oyak’s Ataer Holdings unit, which co-owns steelmakers in Turkey, is the preferred buyer after making an “acceptable” offer, the U.K.’s Insolvency Service said.
The threat to British Steel would leave the U.K.’s steelmaking industry, which once supplied almost half the world, with just one primary site, where giant blast furnaces swallow iron ore and coking coal. The company’s collapse has highlighted the risk to jobs as Brexit uncertainty threatens to cripple key British industries.
The Guardian reported last week that Oyak offered 60 million to 70 million pounds ($73 million to $85 million) for British Steel, while the U.K. government considered a financial support package worth as much as 300 million pounds.
“Government support will undoubtedly be critical to taking the process forward from here,” Gareth Stace, director general of U.K. Steel, the industry’s main lobby group, said in a statement. “The government must recognize the need to address the business environment in the U.K. which currently undermines our competitiveness.”
In its Victorian heyday, Britain produced about 40% of the world’s steel. It was overtaken by the U.S. and Germany before World War I. In the 1970s and 1980s, inefficient and outdated plants led to production falling 64% to less than 10 million tons.
The U.K.’s other prime steelmaking site -- Tata Steel Ltd.’s Port Talbot plant -- is more secure, though its long-term viability is also in doubt after the collapse of merger talks with Thyssenkrupp AG.
Earlier this week, the Guardian said Oyak might invest 900 million pounds to double production at British Steel’s key facility in Scunthorpe, England, which made it the frontrunner in the talks with the state.
The deal complements our “regional growth ambitions in the steel industry,” Oyak said in a statement on Friday. “The acquisition of British Steel under the Ataer umbrella is the first step.”
Ataer 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 co-owns smaller maker Iskenderun Demir ve Celik AS.
Oyak said earlier this year that it plans to spend about $1 billion on expanding its steelmaking capacity in Turkey.
(Adds history of U.K. steelmaking in seventh paragraph.)
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