The Anonymous Widower

Network Rail Bids For Part Of British Steel

The title of this post, is the same as that of this article on the BBC.

This is the first paragraph.

Network Rail is looking to buy part of British Steel, as bidders have until the end of Sunday to put in offers for all or part of the troubled firm.

Many would say, why does the nationalised industry Network Rail, which let’s face it, has had its troubles in recent years, want to get involved with a bankrupt company?

You have to remember, how big companies work.

  • They need to manage their cash flow.
  • They need quality supplies, that will do what it says on the specification.
  • They want supplies to be delivered as and where they need it.

But above all they need to be properly financed.

Making And Delivering Rails

This paragraph in the BBC article says a lot.

Network Rail owns and operates the UK’s railway network, including 20,000 miles of track, and buys 100,000 tonnes of rails from British Steel each year.

Suppose, you want to lay new rails urgently between Inverness and the Far North of Scotland. Getting it there will be a logistics problem, which will be made worse, if the source is halfway around the world.

And suppose, when it arrives in the UK, it fails the quality test! You can’t just give it back to the postman.

So for a reliable railway, Network Rail also needs a reliable supplier making rails, close enough for product to be delivered by special train.

From what I have read in the railway press, British Steel are good at the following.

  • Manufacturing quality rail.
  • Developing special products for rail companies.
  • Delivering it on special trains.

To illustrate this, read British Steel Secures Major Contract From Deutsche Bahn.

I also think, that in addition to the Germans, British Steel sell rail to the Belgians, French and the Dutch, to name but three.

So certainly, British Steel seem to be on the ball with making and delivering rails.

But they appear to be seriously underfunded.

Acquiring British Steel

If I was a financier, thinking about taking over British Steel, one of the most important things would be to secure the sales and the resulting cash flow for the company.

I would be on the train to all of the major rail infrastructure companies, that could be reached by British Steel’s special trains from Scunthorpe.

Network Rail have already put a marker down, that they would buy British Steel’s Rail Products Division, but are other rail infrastructure companies also looking at securing quality product, by either buying the division themselves or pledging support alongside Network Rail.

Network Rail are also aware that their predecessor Railtrack, was brought down by the Hatfield Rail Crash, so they are probably and rightly so, paranoid about safety.

The very fact that Network Rail have put in a bid, suggests to me that they know their power in the negotiations to follow, as any purchaser, who doesn’t have the major customers onside, is probably doomed to fail.

On the other hand, if British Steel was bought by someone, that would increase the risk of dodgy product, Network Rail would go elsewhere.

But would they be able to get the same quality and service?

Conclusion

I am sure, that Network Rail, Deutsche Bahn and all the other rail infrastructure companies will play a large park in the fate of British Steel.

 

July 1, 2019 - Posted by | Finance, Transport | , ,

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