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Steel News December 08, 2023 02:50:13 PM

Thyssenkrupp May Have to Pay Up to Forge Steel Business Deal

Paul Ploumis
ScrapMonster Author
For the past decade efforts to merge the division with, or sell it to, a rival, or list the business or spin it off have all failed.
Thyssenkrupp May Have to Pay Up to Forge Steel Business Deal

SEATTLE (Scrap Monster): Thyssenkrupp (TKAG.DE) may need to hand over cash or keep hold of some pension liabilities to win over Czech billionaire Daniel Kretinsky as a co-owner of its steel business, two people familiar with the matter said.

Thyssenkrupp has been in talks with Kretinsky's EPH, the energy division of his investment empire, on a 50:50 joint venture (JV) to finally rid the German industrial conglomerate of a business that dates back more than 200 years and has become tied to Germany's economic identity.

For the past decade efforts to merge the division with, or sell it to, a rival, or list the business or spin it off have all failed.

Kretinsky remains the last serious contender in Thyssenkrupp's latest divestment efforts, giving him an advantage in ongoing talks over timing and conditions, the people said.

The company wants a deal partly because of the challenging prospects facing the steel industry, including cost inflation, Asian competition and the capital-intensive nature of the business.

Thyssenkrupp Steel Europe has made operating losses in four of the past five years, but at 3.2 billion euros ($3.5 billion), or 39% of total group investments, it swallowed most of its parent's capital expenditure.

"It hinges on a financial commitment," a person familiar with the discussions said, adding that Thyssenkrupp Steel Europe could have a negative equity value without a cash injection from its parent, meaning its liabilities would be bigger than its assets. The sources did not quantify any potential financial contribution.

Shares in Thyssenkrupp fell as much as 4.8% on the news and still traded 3.6% down by 1104 GMT. A trader said that even though a financial contribution had to be expected it could scare off some investors.

Part of the problem is 2.6 billion euros in steel-related pension liabilities, which Jens Muenstermann, senior investment analyst at LBBW, reckons are a hurdle in talks with EPH.

The pension liabilities, which relate to the steel business pension scheme, have also played a role in why past efforts to divest the business, including a planned JV with the European unit of India's Tata Steel (TISC.NS), have failed.

Thyssenkrupp's net financial assets are 4.3 billion euros, but bolstering the steel arm's balance sheet would still be a stretch given the company's other capital-intensive divisions, the people said, including submarines and car parts.

Another problem is Germany's budget crisis, the result of a landmark court ruling in November, which could threaten future investments in hydrogen fuel, a key element in efforts to cut CO2 in steel production, a separate source said.

Courtesy: www.reuters.com

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