Thyssen's U.S. deal fails to fix wider losses, stock sinks

FRANKFURT Mon Dec 2, 2013 3:29pm GMT

The headquarters of ThyssenKrupp Steel Europe AG are seen in Duisburg November 29, 2013. REUTERS/Ina Fassbender

The headquarters of ThyssenKrupp Steel Europe AG are seen in Duisburg November 29, 2013.

Credit: Reuters/Ina Fassbender

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FRANKFURT (Reuters) - ThyssenKrupp shares collapsed on Monday after the steelmaker's announcement of a buyer for only part of its loss-making Steel Americas unit left investors worried how much it still must do to extract itself from a business that is costing it billions.

ThyssenKrupp (TKAG.DE) has been trying since May 2012 to find a buyer for its Steel Americas unit, comprised of a steel slab mill in Brazil and a U.S. finishing plant. Its plan to produce cheap slabs in the former and ship them to the latter for conversion into products for carmakers fell apart when Brazil's currency appreciated, hiking labour and production costs, and demand for cars slowed with the global economy.

Steel Americas has cost Thyssen almost 13 billion euros (10.8 billion pounds) in investment and losses there over six years.

The steelmaker, Germany's largest, said on Friday it had managed to sell only the U.S. plant in Calvert, Alabama - to ArcelorMittal (ISPA.AS) and Nippon Steel & Sumitomo Metal Corp (5401.T) - for $1.55 billion, the bottom end of an expected deal price, leaving its Brazilian problem unresolved.

"It is good that ThyssenKrupp has done something, but I don't have a lot of faith in the development of the mill in Brazil," said Joerg Schneider, a fund manager at Union Investment, which owns shares in ThyssenKrupp.

Adding to the pain, Thyssen also announced it had been forced to take back an Italian steel plant and an alloy unit sold to Outokumpu (OUT1V.HE) last year, after the Finnish steelmaker - needing to overhaul its own finances - returned them in exchange for cancelling a 1.25 billion euro loan that Thyssen gave it to finance a wider deal.

The businesses will require investment - the Terni plant is loss-making and needs to be restructured while the alloy unit, while profitable, is declining, analysts say - adding to the drain on ThyssenKrupp's finances. They are also likely to be tough to divest given that Outokumpu failed to find a buyer.

By 1358 GMT, shares in ThyssenKrupp were down 8.6 percent at 17.605 euros, its biggest one-day drop in over two years, making them the biggest decliners on the FTSEurofirst 300 .FTEU3 and wiping about 850 million euros from the company's market capitalisation of 9.9 billion euros.

Schneider said he thought Chief Executive Heinrich Hiesinger had underestimated the size of the task he faced in fixing ThyssenKrupp.

Appointed in 2011, Heisinger has been trying to change the company from a low-margin steel producer into a maker of higher-margin products like elevators, submarines and factory components.

Amid the steady deterioration in the company's finances and a general downturn in the global market for steel, Hiesinger has also had to cope with a Federal Cartel Office investigation that found Thyssen guilty of fixing prices and dividing the rail-steel market, which makes rails, points and sleepers.

"I suspect that Hiesinger was too ambitious at first. He wanted to quickly turn things around, and it just didn't work," Union's Schneider said.

MUCH-NEEDED FUNDS

ThyssenKrupp also announced plans over the weekend to increase its capital by as much as 10 percent in a sale of new shares to shore up funds. The steelmaker recently had to ask banks to waive loan covenants to avoid losing a major credit line, and posted a third straight annual loss for its financial year that ended in September.

At Friday's closing price, the capital increase could raise close to 1 billion euros. Exane BNP Paribas estimated 730 million euros would be enough to lower ThyssenKrupp's gearing - the ratio of its net debt to equity - to less than 100 percent from the 200.6 percent it announced at the end of September.

That compares with only 34 percent at ArcelorMittal, the world's biggest steelmaker.

The capital increase, which analysts think may come by the end of the year, could lead to significant changes in ThyssenKrupp's shareholder structure. ThyssenKrupp's management has declined to say when the capital increase might come.

Its biggest shareholder, the Krupp Foundation, has seen its finances affected by the steelmaker's difficulties. If it cannot afford to buy a quarter of the new shares issued it could see the dilution of its 25.3 percent holding and the loss of its blocking minority. It declined to comment on whether it would participate in the capital increase.

Meanwhile, Sweden-based fund Cevian, which holds just over 5 percent of ThyssenKrupp shares, could use the opportunity to buy shares and gain more influence. Though for now Cevian has said it backs Hiesinger's strategy, the fund is known for its activist approach and could step in if it gets impatient with the pace of change.

A spokeswoman for Cevian said on Monday it would not rule out participating in the capital increase.

($1 = 0.7345 euros)

(Additional reporting by Tom Kaeckenhoff; Editing by Sophie Walker)

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