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German newspaper reports confirmed: Outokumpu is to buy ThyssenKrupp’s stainless steel business

Selling price is said to be EUR 2.7 billion


German newspaper reports confirmed: Outokumpu is to buy ThyssenKrupp’s stainless steel business
Confirmation came today, Tuesday, of reports in the German newspaper Die Welt that the German steel giant ThyssenKrupp AG has been negotiating the sale of Inoxum, the company’s stainless steel business, to the Finnish steel producer Outokumpu.
      The transaction agreement values Inoxum at an enterprise value of approximately EUR 2.7 billion. The paper stated that the information was based on anonymous sources close to the company.
     
Last week, the German media reported on the negotiations between Outokumpu and ThyssenKrupp, and Outokumpu confirmed the information.
      In its press release on January 27th, Outokumpu announced that the supervisory board of ThyssenKrupp AG was to deal with the transaction between Inoxum and Outokumpu at a meeting this week.
     
In its press release, ThyssenKrupp confirms today that an agreement in principle has been reached over the combining of Outokumpu and Inoxum. The Management Board of ThyssenKrupp AG has already generally approved the transaction, the press release notes.
      ”In addition to that, an agreement was reached between the negotiating partners and the employee representatives this morning”, the press release reports.
      Under the agreement, ThyssenKrupp would obtain a minority stake of 29.9 % in the new company for its transfer of Inoxum. In addition, the consideration would include a significant cash payment from Outokumpu to repay ThyssenKrupp’s financial receivables towards Inoxum as well as the assumption of third-party financial liabilities and pension liabilities of Inoxum by Outokumpu.
     
According to the information gathered by another German newspaper, Handelsblatt, ThyssenKrupp has demanded that Outokumpu give them certain concessions as a condition of the divestment of Inoxum. The company would insist for example that the production sites have to remain in Germany.
      According to ThyssenKrupp’s press release, the agreement includes rules for site and employment protection.
      On the other hand, the employees should yield to the demands to close down either the melt shop in Krefeld or the one in Bochum, as the production process in these cities requires a lot of energy, which according to Handelsblatt is considerably less expensive in Finland than in Germany.
      The suggested closure would lead to the loss of almost 500 jobs.
     
According to today’s press release, the melt shop in Krefeld will be gradually shut down by the end of 2013. The melt shop in Bochum will be preserved until the end of 2016, while all German production sites of Inoxum will be preserved without restrictions at least until 2015.
      Inoxum manufactures stainless steel in Germany, Italy, the United States, China, and Mexico. In Europe the steel markets have been troubled of late by substantial over-capacity.
      Other than the board ratification, the planned combination will be subject to a number of conditions, including regulatory approval.
     
Further information about the Inoxum arrangement is likely to be forthcoming on Wednesday, when Outokumpu is to release its Q4/2011 and full-year 2011 results.
      The merging of Inoxum and Outokumpu would establish a European stainless steel industry leader with a roughly 50% market share, a Nomura Holdings market analyst noted last week.
      European stainless steel producers have long battled with with overcapacity, dwindling profit margins, and spiralling costs, while failing to agree on consolidation measures.
     
Investors responded in starkly contrasting fashion to Tuesday's news.
      The Outokumpu stock slid sharply in Helsinki on Tuesday morning, shedding around 8% before trading was halted at 10 a.m. at Outokumpu's request. When business resumed an hour and a half later, the stock continued to tumble, and was off 15% at one point before recovering somewhat.
      The decline resumed in mid-afternoon, and Outokumpu closed 14.82% down on the day at EUR 6.27.
      ThyssenKrupp, meanwhile, saw a healthy advance in Frankfurt, putting on 5% at one stage in early trading.


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