Tata Steel last fortnight announced it has initiated talks with Geneva-based Klesch Group to sell its European long products business. The assets include Scunthorpe steelworks, an engineering workshop and a design consultancy in the United Kingdom, as well as some units in France and Germany. Primary among these is Scunthorpe which accounts for roughly 26 per cent of Tata Steel Europe''s production capacity. The sale, if it happens, will help Tata Steel exit a business that is haemorrhaging and has an uncertain future, and give it some cash to deleverage its balance sheet. The question is, how much is Klesch, which has operations in 17 countries and is a turnaround specialist, willing to pay?

With the risk of deflation looming large over Europe, many fear it might become a distress sale for Tata Steel. This could pinch it hard. After all, it has spent large sums of money in Europe. In 2007, when Tata Steel acquired Anglo-Dutch steel maker Corus (now Tata Steel Europe) in a $13-billion deal, it was the biggest foreign acquisition by an Indian company. Tata Steel subsequently invested another ￡1.2 billion in the UK operations. Still, the company has struggled for most of the seven-and-a-half years since then. Tata Steel did not respond to a questionnaire seeking comment.

"A final sale irrespective of the price will be positive for Tata Steel in the long-term. Tata Steel has not been able to bring this asset up to the mark despite investment and restructuring. Perhaps, Klesch will do better as it has a better track record of turning around assets," a Motilal Oswal report says. To begin with, the sale could reduce Tata Steel''s European workforce by over 20 per cent: out of the 30,500 people on the rolls of Tata Steel Europe, around 6,500 are employed in the units up for sale.
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