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Greybull Capital: Story behind firm that bought British Steel for £1

Sky News logo Sky News 22/05/2019
a view of a city at sunset © Other

British Steel has been placed into compulsory liquidation, putting up to 25,000 jobs at risk.

The move follows a failure by owners Greybull Capital to secure additional funding from the government.

Sky's business presenter Ian King takes a look at the firm, which bought British Steel for just £1.

:: Who is behind Greybull Capital?

Greybull Capital is a private equity firm that was launched in April 2010 to manage the wealth of French-born brothers Nathaniel and Marc Meyohas and their friend Richard Perlhagen.

All are now UK residents and all come from wealthy families.

The brothers were born in Paris and their father, a corporate tax lawyer, sent them to be educated at Clifton College in Bristol.

Mr Perlhagen is the son of the millionaire Swedish pharmaceuticals tycoon Lennert Perlhagen.

a man wearing a suit and tie: Managing partner of Greybull Capital Marc Meyohas © Getty Managing partner of Greybull Capital Marc Meyohas

Nathaniel Meyohas and Mr Perlhagen worked together at Lehman brothers, the US investment bank that collapsed in 2008, while Marc Meyohas, a University of Manchester graduate in economics, previously ran a telecoms business.

Nathaniel's wife is Michaela Nahmad, daughter of the billionaire Lebanese art dealer Ezra Nahmad.

The trio were later joined by a fourth partner, Daniel Goldstein.

Greybull specialises in turnarounds and it only invests the money of its partners.

Nathaniel Meyohas and Mr Perlhagen are no longer directors - leaving the business run by Marc Meyohas and Mr Goldstein.

:: Why did Greybull revive the British Steel name in 2016?

a close up of a flag: The British Steel flag flies at the entrance to the steelworks in Scunthorpe © Sky News Screen Grab The British Steel flag flies at the entrance to the steelworks in Scunthorpe

The original British Steel Corporation was a much larger business that 20 years ago merged with a Dutch rival to form Corus which, in turn, was bought by Tata Steel of India in 2007.

When the UK operations of Tata ran into difficulty in 2015, it sold the European "long products" arm of the business, based in Scunthorpe, to Greybull for £1. Greybull subsequently rechristened the business British Steel.

Some would say it was rather a cynical rebranding exercise.

The British Steel name has certainly guaranteed the company more attention than it would have received otherwise because many people appear to be confusing it with the original - much larger - British Steel.

:: What was in it for Greybull?

a view of a city: British Steel's metal centre in Scunthorpe © Sky News Screen Grab British Steel's metal centre in Scunthorpe

The company spotted an opportunity to revive the fortunes of a business that, at the time it acquired it from Tata Steel, was still enjoying annual revenues of £1.6bn.

It has also been suggested that the turnaround was at relatively little risk - while some £400m was injected into the rechristened British Steel after the takeover, the Financial Times has reported that, of that sum, Greybull put up only £20m of its own capital.

Greybull also charged management fees of £6m to British Steel in its first two years of ownership while it has made a loan to British Steel on which it is charging an interest rate of 9% - netting it £17m per year in interest.

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British Steel has also received grants of between £18m and £44m from the UK government since the start of 2017 under a scheme to support large industrial users of energy.

Greybull's timing of the purchase was also astute in that, after a period in which steel prices had been depressed by a glut of foreign steel imports, the business was ripe for a quick return to profits as steel prices began rising.

Sure enough, the business returned to profit in its first year under Greybull's ownership, but quickly ran into trouble once steel prices began falling again.

:: Why is Greybull facing criticism over its British Steel ownership?

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Because it had no experience in the steel industry previously and because of the fees it has extracted from the business.

The suggestion is that the loans Greybull have made to British Steel have also been secured on company assets - meaning that, if the business had gone into administration, Greybull would have been at the front of the queue to be repaid any money left to creditors after administration.

In other words, Greybull found an opportunity to extract money from a vulnerable business at relatively little risk to itself.

Some would say that, by renaming the business British Steel, it also knew the government would come under pressure to save the business when - as was inevitable - it ran into trouble further along the line.

Many people are now questioning whether Greybull was an appropriate owner of these steel assets.

© Getty

Its previous stewardship of businesses has in the past sometimes left taxpayers picking up the tab.

Monarch's collapse left taxpayers footing the £60m bill to bring home thousands of stranded passengers in the UK's biggest peacetime repatriation scheme. The collapse of Comet, in which Greybull had been an investor, cost taxpayers £45m.

Greybull's stewardship of British Steel has also been questioned for the way in which the company offloaded what it thought were surplus carbon credits that can change hands under the EU's emissions trading scheme.

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British Steel thought it had more allowances than it needed but was caught out when the EU, which issues the permits, suspended new credits being issued to UK companies while Brexit uncertainty persisted.

The Financial Times has reported that the credits sold by British Steel would now be worth £138m.

It was this situation that forced British Steel to ask the government for a £120m loan last month - it needed to buy new carbon credits and stave off the risk of a hefty EU fine.

:: Will the taxpayer get its £120m loan back if British Steel fails?

© Getty

It seems highly unlikely and especially now the business has been tipped into insolvency rather than administration.

That may be the tip of the iceberg, though, as the taxpayer will now face a bill running into hundreds of millions of pounds for the clean-up of the sites currently occupied by the failed steelmaker.

:: Was the government right to deny British Steel more funding?

Secretary of State for Business Greg Clark © Reuters Secretary of State for Business Greg Clark

Absolutely. Giving the company more taxpayer money would have been throwing good money after bad.

A government bail-out would, while protecting steelworkers jobs in the short-term, have merely postponed the inevitable and would have looked to many like a bail-out of Greybull itself.

One of the fundamental rules of capitalism is that businesses must be allowed to fail.

It is why risk-takers are rewarded when they succeed - but those risk-takers should not be rewarded when their efforts, as on this occasion, end in failure.

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