Germany's ThyssenKrupp AG said Tuesday, Jan. 31, it will sell its stainless steel unit Inoxum to Outokumpu Oyj for €2.7 billion ($3.6 billion) in cash and shares after gaining clearance from its labor representatives.
Under the terms of the deal ThyssenKrupp will transfer its unit to Finland's biggest stainless steel producer in return for a 29.9% stake in the merged company and an unspecified cash payment that will be used to repay Inoxum debt on ThyssenKrupp's books. Outokumpu will assume other debts and pension liabilities linked with Inoxum.
The announcement comes just over a week after Essen-based ThyssenKrupp said it was in talks with Outokumpu but was also considering spinning off the stainless steel operation, an initial public offering or an outright sale to a financial investor.
The merger of Inoxum and Outokumpu will create a European stainless steel leader with about €10 billion of annual sales and is expected to trigger further consolidation. ArcelorMittal, the world's largest steelmaker, said in December 2010 that it would spin off its stainless steel unit, a move that analysts have predicted could proceed a merger. ArcelorMittal shareholders cleared the spinoff a year ago, though the timeframe remains unclear.
Moody's Investors Service Inc. said last year that difficulties in valuing European stainless steel operations had put the brakes on mergers.
The deal for Inoxum is part of a larger restructuring of ThyssenKrupp by CEO Heinrich Hiesenger, who wants to reduce the company's exposure to cyclical markets by selling operations accounting for about one fifth of its €49 billion of revenue. Hiesinger said last week that Inoxum's problems made "sustainable profit and continuous growth within ThyssenKrupp impossible."
European stainless steel makers have been suffering from a lack of scale and increasing competition from Chinese manufacturers. This has cut into their market share and led to overcapacity. ThyssenKrupp booked €800 million of writedowns linked to Inoxum for the financial year ending Sept 2010, the last period for which figures are available.
Inoxum had about €6 billion of sales in the 2009 to 2010 fiscal year, making it larger, by that measure, than Outokumpu, which made €4.3 billion of sales in 2010. The combined group will control about 50% of the European stainless steel market. That dominance means that the deal is likely to receive close attention from regulatory authorities, Hiesinger warned last week.
ThyssenKrupp is being advised by Rothschild, Citigroup Inc. and Deutsche Bank AG. Outokumpu turned to J.P. Morgan Chase & Co and Nordea AB.
Shares in ThyssenKrupp traded Tuesday at €27.71, up €0.6, or 2.8%, on their previous close. Outokumpu traded at €6.84 per share, down €0.52, or 7%.
source:deal pipeline