DealBook: As European Acquisition Struggles, Tata Takes $1.6 Billion Write-Down

Tata Steel, India’s largest steel producer, said on Monday that it would take a $1.6 billion write-down, citing the “weaker macroeconomic and market environment in Europe.”

The trouble stems mainly from Tata’s acquisition of Corus.

Tata made an aggressive push into Europe, buying Corus for 6.2 billion pounds in 2007. But the deal, just before the onset of the financial crisis, was ill timed. Since the acquisition, demand for steel in Europe has fallen by about 30 percent, including about 8 percent in the company’s last fiscal year, which ended in March.

Tata’s European operations, which employed 33,000 people a year ago, are concentrated at IJmuiden in the Netherlands, South Wales and Northeast England. The company has announced restructurings in the past, including the loss of 900 jobs, mainly in Wales, last November.

The problems have taken their toll on earnings. Tata Steel, which is set to report earnings on May 23, said that it lost $78 million in Europe for the quarter ending Dec. 31, before accounting for interest, depreciation and taxes.

Jeff Largey, an analyst at Macquarie Securities in London, said that Tata’s European operations had “been quite challenged in terms of margins and costs.”

Tata is far from alone in struggling in Europe.

ArcelorMittal, the world’s largest steel company, has recently taken steps to close blast furnaces at Florange in France and Liege in Belgium. The company also wrote off $4.8 billion on its European operations in the fourth quarter of 2012.

Lakshmi N. Mittal, the chairman and chief executive of ArcelorMittal, suggested in an interview on Friday that he might also close steel plants in eastern Europe, where four of the company’s blast furnaces were idled. Mr. Mittal said the company was monitoring the environment to see whether further closures were warranted.

In his remarks to analysts, Mr. Mittal was cautiously upbeat on the outlook for steel, saying he expected demand to rise 2 percent to 3 percent this year. Other companies in the industry have been downbeat. Most have either reported disappointing results or warned about the future, according to Mr. Largey.

Like competitors, Tata’s issues go beyond Europe, as demand for steel slumps amid the global economic weakness. The parent company reported a $139 million loss for the last three months of 2012. In the announcement on Monday, Tata said that it was also taking impairment charges on operations in Thailand and South Africa.

Article source: http://dealbook.nytimes.com/2013/05/13/as-european-acquisition-struggles-tata-takes-1-6-billion-write-down/?partner=rss&emc=rss