Germany’s ThyssenKrupp to Sell Brazilian Steel Plant to Ternium
Latest step in German company’s unsuccessful investment push into the Americas
FRANKFURT—German engineering giant Thyssenkrupp AG is in talks with Ternium SA to sell its large steel plant in Brazil, a step that would finish unwinding the German company’s unsuccessful investment push in the Americas, according to people familiar with the matter.
The discussions are at an advanced stage and could be concluded by year-end, those people said, adding there is no guarantee a deal will take place. One significant potential stumbling block is the fact that Ternium would likely want to pay less than the plant’s current book value of roughly €2 billion ($2.17 billion).
Any deal below that value would hit ThyssenKrupp’s equity cushion, which is already thin, according to analysts. It was unclear whether other bidders are also eyeing the steel-slab plant, which cost Thyssenkrupp roughly $6.8 billion to build when finished in 2010. In 2013, Thyssenkrupp sold its U.S. steel plant to ArcelorMittal and Nippon Steel & Sumitomo Metal Corp. for $1.55 billion.
Thyssenkrupp said in an emailed statement that the company is seeking to dispose of Companhia Siderúrgica do Atlântico, or CSA, adding it was a normal course of business to hold talks with potential buyers.
A Ternium investor-relations official declined to speak with The Wall Street Journal. The company’s press office didn’t immediately respond to an email.
Ternium is a Luxembourg-based producer of flat and long steel products with a strong presence in Latin America.
CSA has an annual production capacity of 5 million tons. The plant swing to a €39 million operating profit in the third quarter of the fiscal year ending Sept. 30, up from a €25 million loss in the same quarter last year.
Selling the Brazilian steel unit would help ThyssenKrupp Chief Executive Heinrich Hiesinger’s effort to shift the company away from steel operations.
Steel prices in Europe have come under pressure in recent years, due to anemic steel demand growth and a sudden flood of steel shipments from China, where shrinking demand led to a glut in steel production. Large steel producers in Europe such as ThyssenKrupp, ArcelorMittal and Tata Steel Ltd have responded to the supply glut over the years by shutting loss-making production capacity, laying off thousands of workers and/or disposing assets.
ThyssenKrupp, whose roots trace back more than 200 years and at some point gained notoriety for its weapons including the giant World War I-era howitzer known as Big Bertha, has also said it is in talks to transfer its European steel operations into a joint venture with Tata Steel Ltd.
The talks with Tata appeared to have been cast into doubt on Monday, however, when India-based conglomerate Tata Group, the founder and owner of Tata Steel, ousted its group chairman Cyrus Mistry in a surprise move.
Mr. Mistry, also chairman of Tata Steel, was a key supporter of talks to combine Tata’s remaining European steel operations with those of ThyssenKrupp. Analysts at Kepler Chevreux said it was still too early to draw conclusions but “we think the risks for a JV between Tata Steel Europe and Thyssenkrupp Steel Europe have increased.”
They added the joint venture might be delayed by at least six months “at the very least” given growing risk of resistance to the deal from Thyssen’s union and works council.
Additionally, the shape such a joint venture would take is currently also unclear. While ThyssenKrupp’s management prefers to tie-up its German steel plants with Tata’s large mill in the Dutch city of Ijmuiden, Tata appears willing to include its U.K. plant called Port Talbot into the joint venture, people familiar with the matter said.
That could be an unattractive alternative for ThyssenKrupp because Port Talbot has suffered hefty losses over the years and has substantial pension liabilities.