ThyssenKrupp “We are Not in Fire Sale Mode”

Media reports – including the article published by the Wall Street Journal late yesterday afternoon and in today’s print edition – are reporting that negotiations between CSN and the German mill are concentrating on the Brazilian asset – especially since the #2 blast furnace went down in May for a number of weeks. In the company press release made earlier today ThyssenKrupp addressed some of the issues which are complicating the transaction:

ThyssenKrupp is engaged in very advanced negotiations with a leading bidder on the sale of the two Steel Americas plants. The negotiations include shareholder partner Vale, the Brazilian development bank BNDES and Brazilian government agencies. The aim remains to sign a deal promptly. In addition, the Group is also in talks with other interested parties.

Dr. Heinrich Hiesinger, Executive Board Chairman of ThyssenKrupp AG: “The sale process for Steel Americas is taking longer than originally expected. That’s understandable because the bidders expect a full ramp-up of blast furnace 2 in Brazil. This has been hampered by process instabilities from May this year. In addition, the negotiations are highly complex and are further complicated by the contract structures chosen years ago. We too would have liked to reach a deal more quickly; but the interests of the company and diligence are our top priorities. For this reason we will not make our decisions dependent on reporting deadlines.”

The contract structures mentioned by Hiesinger are believed to be related to supply agreements made with Vale which owns 27 percent of the CSA operation. The Wall Street Journal article quotes Vale’s CEO as saying the company has no interest in increasing its stake in the CSA mill.

Analysts peppered ThyssenKrupp management with questions about the Steel Americas negotiations and if the company would consider not selling one or both of the assets. Hiesinger responded that the company is not in negotiations “with just one guy” and that they would not put a deadline on the conclusion of the negotiations. “As long as we see progress we are willing to invest time,” is what he told the analysts this afternoon.

It has been suggested that the Calvert, Alabama operation could be sold separate from the CSA operation and a slab supply agreement for 5 or 6 years could be the answer to resolve the issue. Our understanding is CSN is willing to take 3,000,000 metric tons of slabs per year off the CSA mill. Approximately 2.5 million tons would go to Alabama and the balance to their Brazilian facilities. It is believe that Vale is opposed to that agreement.

So far ThyssenKrupp has written down the value of the Steel Americas facilities by $10.7 billion. The book value of the two mills currently sits at $4.5 billion. It is believed that ArcelorMittal is offering approximately $2 billion and CSN $1.6 billion for the Alabama facility alone. 

The original intention of ThyssenKrupp AG was to have the two mills sold and off their books by the end of their fiscal year which ends at the conclusion of September 2013.