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4-Traders Homepage  >  Equities  >  Xetra  >  ThyssenKrupp AG    TKA   DE0007500001

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ThyssenKrupp Prefers Cash for Americas Steel Plants; To Sign Deal in May

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02/12/2013 | 06:26pm CEST

By Alex MacDonald

Germany's largest steel maker ThyssenKrupp AG (>> ThyssenKrupp AG) prefers offers based on cash rather than shares when reviewing bids for its two Americas steel plants, senior executives said Tuesday.

ThyssenKrupp put its two new steel mills in Brazil and the U.S. after suffering massive cost overruns and writedowns there.

"We have a clear preference for cash [in the sale process] and I think that everyone [the bidders] has understood that message" said ThyssenKrupp's Chief Financial Officer Guido Kerkhoff in a conference call with analysts.

The Wall Street Journal reported last month that the world's largest steelmaker by output ArcelorMittal (>> ArcelorMittal) submitted a $1.5 billion bid for the Alabama plant while Brazil's Cia. Siderurgica Nacional (>> Companhia Siderurgica Nacional) submitted a $3.8 billion bid for that plant and a majority stake in the Brazilian mill, citing people familiar with the matter.

U.S. steelmaker Nucor Corp. (>> Nucor Corporation) also bid $1.5 billion for the Alabama facility, those people said, but is considered less likely to succeed because it lacks the same degree of balance-sheet flexibility and the supply of high-quality slabs.

Mr. Kerkhoff declined to comment on how many bidders were in the running.

Thyssen's CEO Heinrich Hiesinger reaffirmed he expects to sign off on the sale in May and hopes to close the deal by the end of September.

"We have always said that we would put all efforts to come to a solution in May," he said, adding that while choosing a buyer was within the company's control, the administrative process of closing the deal wasn't; this suggests the deal could be closed after the end of the company's financial year, which ends Sept. 30.

The Alabama steel plant is operating at about 70% of its full capacity while the one in Brazil is operating at below that rate, Mr. Kerkhoff said.

ThyssenKrupp invested $11.8 billion in the plants in effort to link steel production on two continents to take advantage of low labor and energy costs in Brazil and the higher-value end market in the U.S. Unfinished steel slabs are made at the plant in Brazil and shipped to the plant in Alabama, where they are processed into high-grade sheets for auto makers located in the southern U.S.

Economic volatility upended the company's plans, however. Brazil's booming economy triggered wage increases and increased the value of the Brazilian currency, which ate up the planned cost advantages. Meanwhile, the slow U.S. economic recovery eroded steel demand and prices.

Mr. Hiesinger also said the company is looking to dispose of more than half of its electrical steel production capacity, which amounts to about 700,000 to 800,000 metric tons of annual steel output. The majority of that capacity was "grade-oriented," he said, where competition was stiff, whereas the non-grade-oriented production was still attractive.

The company is reviewing its long-term plans for the steel business, he said, which could take at least six months to complete.

Mr. Kerkhoff reaffirmed the company is on track to meet its full-year target of adjusted earnings before interest and taxes of 1 billion euros ($1.4 billion), although it will have to be more profitable in the second half of the year compared to the first to meet that target.

He also said that with $7.4 billion cash and equivalents on hand, the company has more than enough cash to meet its debt obligations over the next two years.

(Jan Hromadko in Frankfurt contributed to this article.)

Write to Alex MacDonald at alex.macdonald@dowjones.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

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Financials (€)
Sales 2016 40 687 M
EBIT 2016 1 496 M
Net income 2016 437 M
Debt 2016 4 386 M
Yield 2016 1,01%
P/E ratio 2016 23,20
P/E ratio 2017 12,70
EV / Sales 2016 0,38x
EV / Sales 2017 0,36x
Capitalization 11 039 M
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Mean consensus OUTPERFORM
Number of Analysts 27
Average target price 22,1 €
Spread / Average Target 13%
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Managers
NameTitle
Heinrich Hiesinger Chief Executive Officer
Ulrich Lehner Chairman-Supervisory Board
Guido Kerkhoff Chief Financial Officer
Martin Holz Chief Information Officer
Bernhard Pellens Independent Member-Supervisory Board
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