The UK Ministry of Defence (MoD) is to acquire UK steel forgings company Sheffield Forgemasters for GBP 2.56 million ($3.55 million) to support "a substantial recapitalization of the company's defense-critical plant and equipment over the next 10 years," the forging company stated July 28. The purchase represents a nationalization of a UK steel asset in an industry that has been in private hands since the 1980s.
Receive daily email alerts, subscriber notes & personalize your experience.Register Now
The investment will secure Sheffield Forgemasters' role as a critical supplier to the next generation of UK defense programs, while continuing independent commercial activities, including exploiting opportunities arising from the government's net zero carbon agenda, in markets like civil nuclear, oil & gas, power generation and renewables including offshore wind and steel processing, according to the company statement.
The transaction, supported by major shareholders, is subject to a three-week offer period and due to be completed August 19.
The transaction will involve injection of up to GBP 400 million of new investment over the next 10 years into Sheffield Forgemasters' defense-critical assets to modernize its plant and equipment to support its role as a long-term supplier to UK defense, including plans for a new heavy forge line and building, a flood alleviation scheme, major machine tool replacements and a site-wide upgrade, the company said. This is expected to retain and create new highly skilled manufacturing jobs within the Sheffield City region.
"Sheffield Forgemasters and its shareholders are not able to fund an investment of this size and so this transaction marks the completion of a process started two years ago by the Board to develop a strategy for the business that enables it to be a reliable and secure supplier to defense for the long-term. The investment plan will be funded by direct equity from MoD," the company stated.
Government support for steel
The UK government's Department for Business, Energy & Industrial Strategy (BEIS) has said several times this year that it continues to engage closely with the broader UK steel industry and trade unions as the sector adapts to the post-Brexit phase and to challenges arising from the COVID-19 pandemic and from the decarbonization process.
A BEIS spokesperson said in March that the government has supported the steel sector extensively, providing GBP 500million in recent years to help with the costs of energy.
BEIS told S&P Global Platts at the time that: "If approached for support, the government looks at the case for each company on its merits, to ensure that any decisions taken are in the best interests of the taxpayer. The government is working with the sector, the unions and devolved administrations to support the UK steel sector to develop a long-term viable solution for the UK steel industry."
News of the MoD's purchase has rekindled media speculation that the UK government may reconsider support for the troubled specialty steel assets of Liberty Steel Group, also located in the north of the UK. Liberty put up its Stocksbridge specialty steel works for sale in June after the March collapse of Greensill Capital, the main financier of Liberty's parent GFG Alliance. The specialty steel plant has traditionally supplied the aerospace industry, where orders slumped by an estimated 60% during the 2020 COVID-19-related market downturn. However, the UK government rejected Liberty Steel's request for financial support of GBP 170 million earlier this year.
Sheffield Forgemasters dates back to the 1750s when it was set up as a small blacksmith's forge, becoming a steel producer in 1805. The company says it is now capable of producing the largest and most technically challenging cast and forged steel components in the world. It has an on-site steel melt shop with an 105 mt electric arc furnace, a steel foundry with steel casting up to 630 mt in a single pour and a steel forge steel forge with a 10,000 mt press capable of forging up to 300 mt, and a 4,500 mt press capable of forging up to 40 mt.
The MoD will acquire 100% ownership of Sheffield Forgemasters International Limited (SFIL), the parent company of the Sheffield Forgemasters Group. There will be no change to the corporate structure of the group and all subsidiary companies, including Sheffield Forgemasters Engineering Ltd and Sheffield Forgemasters Steel Ltd, will remain wholly owned by SFIL. Existing contracts will be honored, the company said.
The transaction also involves a refinancing of the company's credit facilities with a new working capital facility to be provided by MoD. As a result, the financial guarantees provided by Rolls-Royce, BAE Systems and Babcock will fall away upon completion of the transaction, it said.
Sheffield Forgemasters will operate under the leadership of the existing executive directors and senior management, supplemented by the appointment of two further non-executive directors, including one from the UK government, the company said.