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
buyersboth abroad and in the United Statesmight be
interested in either the German steelmakers 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
doesnt 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
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.
"Its 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, were 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
"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"
"The recurring theme is that
this really isnt good timing for anybody," Freas said,
predicting that any deal might be as far as one to two years
away, and even then its a "50-50" chance.
Nucor might be the best fit for
ThyssenKrupps 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
ArcelorMittalor any buyermight be willing to
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 its 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
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. "Im sure
(ThyssenKrupp) will gulp real hard when they see the prices
they might come up with," he added.
Other analysts say Vale
isnt looking to increase its exposure to steel, and
CSIs ownersVale 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.
"Its a concern, but it shouldnt be a deal breaker
unless conditions deteriorate," he said.