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TK Americas deal seen unlikely soon

Keywords: Tags  ThyssenKrupp, Charles Bradford, Michelle Applebaum, Bridget Freas, John Anton, Nicholas Tolerico, Nucor, U.S. Steel ArcelorMittal


TORONTO — ThyssenKrupp AG might have to take a big haircut on its Steel Americas operations if it hopes to find a buyer in the near term, analysts and industry observers said.

While a host of potential buyers—both abroad and in the United States—might be interested in either the German steelmaker’s rerolling facility in Alabama or its slab making operations in Brazil, only a few are possible candidates for both, they said.

In the United States, analysts pointed to such potential buyers as U.S. Steel Corp., Pittsburgh; Nucor Corp., Charlotte, N.C.; California Steel Industries Inc. (CSI), Fontana, Calif.; and private equity firms. Overseas, the list included Posco Ltd., Pohang, South Korea; Dongkuk Steel Group, Seoul, South Korea; Baosteel Group Corp. Ltd., Shanghai, China; ArcelorMittal SA and Ternium SA, both in Luxembourg; and Cia. Siderúrgica Nacional (CSN) and Vale SA, both based in Rio de Janeiro, Brazil.

Most of the companies, including ThyssenKrupp, did not respond to requests for comment, and a U.S. Steel spokeswoman told AMM the company doesn’t comment on "rumor or speculation."

ThyssenKrupp has said it is mulling its "strategic options" for the Steel Americas operations (AMM, May 16).

But most sources agreed that now is a bad time for a deal due to global economic uncertainty, a weak steel market and potential difficultly finding financing.

Concerns centered around potential flat-rolled overcapacity in the United States and the crisis in the eurozone, which could complicate financing and make companies hesitant to make a big buy.

"It’s not going to be an easy task," according to Bridget Freas, a senior analyst at Chicago-based Morningstar Inc. "I also think this is something that is not going to happen right away even though the body language from the company (ThyssenKrupp) seems to indicate ‘OK, we’re moving forward on this.’ "

ThyssenKrupp might have to wait for the facilities to better establish themselves in the market to garner what it might consider an acceptable price, she said.

"It would help to have a little bit of a better consumption environment as well," Freas said. She suggested U.S. Steel as a potential buyer for the Alabama operations because the steelmaker has excess slab capacity and could, in theory, provide the facility with slab from its other North American operations. But she doubted U.S. Steel would be interested unless it could be obtained at a "fire sale" price.

"The recurring theme is that this really isn’t good timing for anybody," Freas said, predicting that any deal might be as far as one to two years away, and even then it’s a "50-50" chance.

Nucor might be the best fit for ThyssenKrupp’s U.S. facilities, which could allow the Charlotte, N.C.-based company to gain a bigger presence in auto body steel applications, Michelle Applebaum, managing partner at Chicago-based Steel Market Intelligence, said in a recent note. "With the DRI (direct-reduced iron) expansion in Louisiana, Nucor would be very well positioned to take on building the first mini-mill to feed into the exposed automotive industry," she said.

ArcelorMittal might be the most likely buyer of both facilities, assuming a deal takes place, Charles Bradford, president of New York-based Bradford Research Inc., said. But he warned that questions remain about how much ArcelorMittal—or any buyer—might be willing to pay.

Even though ThyssenKrupp has written down the value of the operations by billions of dollars, any deal would still require a company with deep pockets, Bradford said. And it’s not clear to what extent ThyssenKrupp might be willing to take a lowball price on facilities in which it invested $10 billion to $11 billion. "Would they be willing to take a haircut?" he asked.

Baosteel, Posco or Dongkuk might be interested in slab capacity in Brazil, Bradford said, but a shaky economy there and an appreciating real could make the facilities unattractive.

Nicholas Tolerico, an independent steel industry analyst and retired ThyssenKrupp executive, suggested that Vale, which already owns part of the slab facility in Brazil, might consider buying a controlling stake in that operation. He also pointed to CSI as a potential candidate for the Alabama mill.

But the current steel market marks a terrible time to sell, Tolerico said. "I’m sure (ThyssenKrupp) will gulp real hard when they see the prices they might come up with," he added.

Other analysts say Vale isn’t looking to increase its exposure to steel, and CSI’s owners—Vale and Tokyo-based JFE Steel Corp.—will unlikely go for a big deal.

John Anton, director of steel services at Englewood, Colo.-based IHS Global Insight Inc., dismissed concerns about commercial credit availability. "It’s a concern, but it shouldn’t be a deal breaker unless conditions deteriorate," he said.


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