ThyssenKrupp AG Says Deal for Steel Americas to be Signed by May

ThyssenKrupp AG officials declined to talk about the Steel Americas sale during their 1st Quarter 2013 earnings conference call, but CFO Guido Kerkhoff said he can say that the company has a “clear preference for cash” and that the bidders understand that message. The company hopes to sign a deal by May, and will do everything it can to complete the transaction in its fiscal year which ends at the end of September 2013, but said they will not have full control over the timing between signing and closing.

Since November 2012, selected bidders have been analyzing the plants in Brazil and the United States and submitting non-binding purchase offers. In December, ThyssenKrupp wrote down the value of Steel Americas to €3.9 billion ($5.22 billion).

Sources from Reuters report the deadline for binding bids is February 28, 2013. SMU sources are telling us the bids may actually be due by the end of that week (March 1).

Bidders have been teaming up to meet ThyssenKrupp’s bid requirements. So far it has been reported that joint bids are planned by U.S. Steel and Japan’s JFE Steel Corp for the Calvert, Alabama facility. This makes sense as Steel Market Update understands that U.S. Steel has excess slab supply in North America and would not necessarily need the slabs from the CSA mill in Brazil to make the deal work.

A second partnership was reported to be ArcelorMittal and Nippon. Our sources advised us ArcelorMittal originally submitted a non-binding bid of approximately $1.6 billion for the Calvert, Alabama facility and did not bid on the CSA mill in Brazil. ArcelorMittal has excess slab rolling capabilities in Latin America already and Bloomberg reported that is one of the reasons why Nippon is in the joint venture with AM as they wish to have access to AM Latin American slab rolling capabilities.

A third partnership vying for the Steel Americas is the Brazilian steel producer Companhia Siderurgica Nacional (CSN) who is working with Vale and the Brazilian state development bank BNDES and is attempting to purchase all of the Steel Americas assets (CSA and Calvert, Alabama). CSN is reported to have originally submitted a non-binding bid of $3.8 billion for the two plants (Vale own 27 percent of the CSA facility in Brazil). CSN owns a small mill in the United States (CSN, LLC in Terre Haute, Indiana – a cold rolled and galvanized conversion mill). For many years, CSN has been attempting to purchase larger mills in the U.S. and has been thwarted by either being over-bid or snubbed by the USW unions.

The only other mill being mentioned for the CSA slab mill in Brazil is Ternium. They are not believed to be a contender for the Calvert, Alabama operation.

Also believed to be in the bidding process for the Calvert, Alabama facility (not CSA) is Nucor and potentially Posco out of Korea.

ThyssenKrupp AG has written down the value of the Steel Americas plants to $5.22 billion and they are expecting to receive something close to that amount when the sale is completed.

Discussions Steel Market Update has had with analysts, consultants and others within the industry expect the Calvert, Alabama facility to sell closer to $2 billion and the CSA operation will most likely sell for less than the Calvert facility due to issues related to the original construction of the plant.

Since this is not a bankruptcy sale – the process after binding bids are received by ThyssenKrupp is not completely known. We could see companies teaming up or dropping out…who knows.

ThyssenKrupp 1Q Earnings

ThyssenKrupp says its earnings are on target for the first quarter of 2012/2013 fiscal year (October-December 31, 2012), passing its €200 million goal ($269 million). Adjusted EBIT for the quarter was €229 million ($308 million) as compared to €372 million ($500 million) in the same quarter 2011. ThyssenKrupp reported all of the continuing businesses showed positive earnings for the quarter.

The costs of discontinued operations were offset in the first quarter by cash inflows from the successful closing of the Inoxum stainless steel transaction. ThyssenKrupp lowered its net debt by €600 million ($807 million) quarter-on-quarter to €5,205 million ($7,000 million).

In its outlook for fiscal year 2012/2013, ThyssenKrupp projects sales from continuing operations to remain around €40 billion ($53.8 billion), provided the raw materials market remains relatively stable. An EBIT of €1 billion ($1.34 billion) is expected for the fiscal year.

ThyssenKrupp has combined Plant Engineering and Marine Systems, and with the sale of the stainless steel business and the Steel Americas, the company will have five business areas left from the previous eight.

Capital expenditures are not expected to exceed €1.4 billion ($1.88 billion) for the fiscal year, and most of that spending will be directed to the capital goods business rather than to the material business.

TK Steel Europe

The restructuring of Steel Europe, with its divestment of sites, equipment and workforce is designed to regain profitability in a still challenging European market. The target is to save €500 million ($672 million) over the next three years. The cost related to restructuring of Steel Europe is expected to be the “lower three-digit million area,” said Heinrich Hiesinger, Chairman of the Executive Board.

Guido Kerkhoff, of the Executive Board, said the restructuring concerns eight percent of the employees of Steel Europe and that not every employee of the 2000 will necessarily be laid off—some may go to part-time, some may be transferred and others may take early retirement.