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Steel sells BSF for pounds 74.5m in strategic U-turn

British Steel yesterday appeared to make a strategic U-turn with a pounds 74.5m deal to sell its forgings business, British Steel Forgings, which makes a wide range of products for the engineering industry.

It comes just two years after British Steel bought out its partner in the division, the car parts group GKN, arguing that the engineering steel business was now a "core activity". British Steel Forgings (BSF) was previously part of a series of Government-sponsored "Phoenix" companies created in the 1980s to rationalise an industry dogged by huge overcapacity.

The latest deal involves selling BSF to a newly formed business, United Engineering Forgings, created and funded by the venture capital group Prudential Venture Managers. British Steel will receive pounds 74.5m in cash, while Prudential has raised a total of pounds 92m to fund the management buy- in and pay for future investment.

Prudential said the existing management of BSF would stay in place, but it had appointed Bob Bates as new chief executive. Mr Bates was previously managing director of a subsidiary of T&N, the automotive components group. BSF's current chief executive, John Dawson, will return to British Steel.

BSF is a key player in the market for forged products used in the car and aerospace industries, with around half of the UK's forged steel manufacturing capacity. It has 2,100 employees at six plants and made a trading profit of pounds 10m in the year to 31 March 1996 with sales of pounds 157m.

Prudential said it wanted to concentrate on increasing export business, despite admitting concerns over the recent surge in the value of the pound. It said the buy-in should secure jobs, though it could give the workforce "no guarantees".

In another apparent shift in direction, British Steel yesterday said it decided to sell off the company because "as a stand-alone downstream business" it was "somewhat removed" from its core steelmaking and rolling activities. However, the pounds 93m agreement in 1995 to buy out GKN's 34 per cent stake in BSF's parent, United Engineering Steels, was viewed at the time as a move by British Steel into higher value-added products.

Like other "Phoenix" companies, United Engineering Steels was hit by fierce competition and declining demand during the recession, leaving GKN with losses of pounds 60m on its original investment made in 1986.