British Steel to return pounds 400m to shareholders

BRITISH STEEL is understood to be drawing up plans to return up to pounds 400m in cash to shareholders, as well as forging a strategic alliance with a European rival.

Analysts believe that British Steel plans to make its strong balance sheet more efficient through a share buyback, or a special or enhanced dividend. Increasing gearing to about 20 per cent would give the company up to pounds 700m to spend on geographical diversification.

The most likely partners for British Steel are understood to be German steelmaker Salzgitter AG or Hoogovens of The Netherlands.

A spokesman for the company said yesterday: "We don't comment on market rumours. We are very cognisant of the fact that we're in our quiet period ahead of our year-end results announcement on 14 June."

Analysts forecast that British Steel will maintain its dividend and that it will report a loss of around pounds 200m.

The company created a precedent for a buy back in July 1997 when it bought back nearly 5 per cent of its shares, returning pounds 93m to shareholders. At the moment it has a cash pile of about pounds 300m.

Brian Moffat, the chairman of British Steel, said last June that the company would "keep share buy-backs in mind".

Analysts believe that British Steel has also identified a strategic ally to help it reduce its reliance on the UK market, which accounts for 45 per cent of its business.

A partnership could involve British Steel taking an equity stake or be based around a joint venture, which would invest in eastern Europe and seek opportunities in the United States.

Despite its strong balance sheet, British Steel's operations have been hampered by the Asian economic crisis, the strong pound and severe pricing pressures. It continues to look for suitable investment opportunities in the US and Europe. Rumours have linked it with a distribution deal in the US and possible acquisitions in Germany, Poland, Holland and Austria.

As well as Salzgitter of Germany and Hoogovens of The Netherlands, analysts have identified VA Stahl of Austria and SSAB of Sweden as possible partners for British Steel.

Its dependence on the UK market was demonstrated this year when Avesta Sheffield, a Swedish registered group where it has a 51 per cent stake, made a loss in the third quarter.

Tight conditions have forced British Steel to continue with a savage cost-cutting programme. It is seeking job cuts of up to 14,000 by 2001.