Port Talbot buyout seeks tax break for investors

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The Welsh entrepreneurs looking to put together a management buyout for the Port Talbot steelworks are seeking a major tax break from the UK government, according to people familiar with the situation.

Those behind the possible MBO are urging ministers to amend the finance bill to allow buyouts in certain “strategic” sectors to take advantage of the Enterprise Investment Scheme, a series of tax reliefs designed to encourage investment in small unquoted companies.

They hope that this would reassure thousands of steelworkers and British Steel pensioners — of which there are 130,000 — to invest in the rescue bid for Tata’s British steel factories without fearing the loss of their savings.

Roger Maggs, a former Alcan executive who now chairs the Port Talbot enterprise zone, is trying to piece together an MBO against the tightening timeframe set by Tata.

The businessman has close links to Sir Terry Matthews, the technology billionaire who was born in Wales but is now based in Canada. Together the pair set up Welsh investment firm Celtic House.

Sir Terry, who chairs the Swansea Bay City Region Board, is understood to be involved in the talks although he is not expected to make a personal investment in any deal.

The tentative MBO would need £300m, of which £70m to £90m could come from thousands of small investors, expected to be chiefly existing Tata Steel workers. In theory they could each contribute £7,000 to £10,000, depending on how many people took part.

The UK government has already indicated that it could lend a further £200m to credible bidders at a low interest rate.

But attempts to get the MBO off the ground are still at an early stage and the group has not yet had detailed conversations with potential City investors.

Persuading ministers to change the Enterprise Investment Scheme could be the key to the bid’s success. Under the scheme, investors can get income tax relief of 30 per cent of their investment, capital gains exemption on profits and loss relief if the company fails.

Any such concession would be a significant giveaway by the government and could prompt demands from other sectors for similar tax treatment. But figures behind the MBO believe that ministers need to consider radical ideas in order to save the 40,000 jobs — including those in the supply chain — which depend on the survival of Tata Steel UK.

Its Indian owner’s decision last month to withdraw from Britain after years of heavy losses cast doubt over the future of the country’s heritage of steelmaking.

The clock is ticking down on desperate attempts to patch together a rescue deal to secure the business, which has a workforce of 11,000 and is losing £1m a day. Only one potential investor, Liberty House, the commodities trader, has so far publicly declared an interest.

It emerged on Tuesday that Stuart Wilkie, managing director of Tata’s UK strip products division based in south Wales, is leading the potential MBO.

Following a meeting of public and private sector figures on Monday, Mr Wilkie said in a statement: “It was clear from a lengthy discussion that there is confidence in the future of primary steel making in Port Talbot and across Wales.

“We are now working with partners to fully develop proposals which we believe offer very real prospects of sustainable future success.”

However, trade unions said they had not yet received any contact from management regarding the possible bid.

There is scepticism about whether a joint management and employee buyout could summon the financial firepower required to overhaul Tata’s UK operations.

“This is happening on the hoof. Around a month ago it was totally ruled out because of the quantum of funding,” said one person familiar with senior management.

Tata’s board last month rejected a turnround plan for the Port Talbot plant, devised by Mr Wilkie’s team and requiring a £100m cash injection, on the basis that it was unaffordable, highly uncertain and based on risky assumptions. The company estimates that Port Talbot alone needs £2bn of investment.

There are also questions about how realistic it is for employees to contribute. Production shift workers at Port Talbot earn about £30,000 a year on average, though the starting basic pay for back-office jobs is £21,000.

Last week Tata said it had agreed to sell its Scunthorpe-based long products division to Greybull Capital, an investment fund.

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