Outokumpu to Buy ThyssenKrupp Stainless Unit

Outokumpu Oyj (OUT1V) agreed to buy ThyssenKrupp AG (TKA)’s Inoxum stainless steel division in a deal valuing the unit at about 2.7 billion euros ($3.6 billion), to create Europe’s largest producer of the alloy.

ThyssenKrupp will retain a minority stake in the business, receive a “significant” cash payment and transfer financial and pension liabilities for Inoxum to Finland’s Outokumpu, the Essen, Germany-based steelmaker said in a statement today.

“It’s a very good deal for ThyssenKrupp, the 2.7 billion euros is a better valuation than we expected,” Ingo-Martin Schachel, an analyst at Commerzbank AG in Frankfurt, said by phone. “This much-awaited consolidation will be positive for the entire market.”

ThyssenKrupp is divesting a unit that cost 800 million euros in writedowns in 2011 and contributed to its annual loss. Outokumpu will more than double stainless-steel capacity to 5.5 million metric tons, Neil Sampat, an analyst at Nomura Holdings Inc., estimates. The combined business would have about 18,000 workers and sales exceeding 10 billion euros, Die Welt reported.

ThyssenKrupp, Germany’s largest steelmaker, rose as much as 5.1 percent to 22.19 euros in Frankfurt trading, and was at 21.61 euros as of 10:43 a.m. Outokumpu, Finland’s biggest stainless steelmaker, slid as much as 9.5 percent to 6.66 euros in Helsinki, the most in four months, before trading was halted at the company’s request. It last traded at 7.19 euros.

Global Deals

Global steel-industry deals totaled $38.8 billion in the past 12 months, up from $20.9 billion a year earlier, according to data compiled by Bloomberg. The largest transaction was Nippon Steel Corp. (5401)’s $9 billion all-share purchase of Sumitomo Metal Industries Ltd., to create the world’s second-biggest steelmaker.

Combining Inoxum and Outokumpu would establish a European stainless-steel industry leader with about 50 percent market share, Nomura's Sampat said last week. European producers have struggled for years with overcapacity, sliding profit and rising costs, while failing to agree on mergers.

“The hope has long been that much-needed consolidation will lead to the creation of a market leader, rationalization of capacity and improving utilization rates and margins” in Europe, Sampat said from London.

Italy, Germany

Outokumpu would gain better access to central Europe’s main markets in Germany and Italy, Michael Broeker, an analyst at Steubing AG who also covers ThyssenKrupp, said by phone Jan. 23.

ThyssenKrupp, whose stainless-steel panels were used in the construction of the Chrysler Building in 1929 and the Empire State Building in 1931, on Dec. 2 posted a fiscal full-year loss because of 2.9 billion euros in impairment charges, mainly on project delays and cost overruns at its Steel Americas unit.

The two companies and employee representatives reached an agreement this morning that includes rules for site and employment protection after talks that started Jan. 27, ThyssenKrupp said.

The steelmakers agreed to exclude compulsory redundancies and to preserve all German production sites until at least 2015. The melt shop at its Krefeld plant will be gradually shut down until the end of next year, while the facility at Bochum will be preserved until the end of 2016, ThyssenKrupp said.

The merger requires board and regulatory approvals, it said. The company’s supervisory board meets later today to decide on the transaction.

To contact the reporter on this story: Stefan Nicola in Berlin at snicola2@bloomberg.net

To contact the editors responsible for this story: John Viljoen at jviljoen@bloomberg.net; Reed Landberg at landberg@bloomberg.net

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