Outokumpu Returns Terni to ThyssenKrupp to Buoy Finances

Outokumpu Oyj will sell its Terni and VDM assets, acquired as part of ThyssenKrupp AG’s Inoxum unit, back to the German company and unveiled plans to strengthen its balance sheet.

The Finnish steelmaker will sell the Terni steel mill in Italy and the high-performance alloy VDM unit to ThyssenKrupp in exchange for a loan note worth 1.27 billion euros ($1.7 billion) at the end of September, Outokumpu said in a statement to the Helsinki stock exchange today.

Outokumpu said it also seeking to raise 650 million euros through a rights offering and has arranged a three-year syndicated loan facility of 500 million euros. It’s working to amend terms of existing financing arrangements including extending their maturities until 2017. The divestments are conditional on the “successful” completion of refinancing, the Espoo, Finland-based company said.

Outokumpu completed its 2.7 billion-euro purchase of ThyssenKrupp’s Inoxum stainless-steel unit last year. To allay European Commission concerns that the deal might allow the companies to raise prices of cold-rolled steel products, Outokumpu agreed to sell the Terni mill in Italy. It struggled to find a satisfactory deal and the divestment deadline was extended with Outokumpu targeting a sale by year end.

Waning Demand

“ThyssenKrupp’s offer was clearly better than other offers,” Kari Tuutti, vice president for marketing and communications at Outokumpu, said by phone. “Most of the Inoxum acquisition benefits will be realized as planned.”

Waning demand from Europe’s automakers and construction companies has eroded steelmakers’ margins as the euro area suffered its longest recession on record. Outokumpu has racked up net losses of 2.2 billion euros over the past six years. Last month it raised the number of planned job cuts in Europe by 40 percent to 3,500 on overcapacity.

“We will now have the balance-sheet strength that enables us to focus all our efforts to achieve the targets originally set for the Inoxum acquisition,” Chief Executive Officer Mika Seitovirta said in the statement. “Our goal remains firmly to return Outokumpu to profitability and put us in a position to reduce our debt and pay dividends to our shareholders.”

Share Sale

Outokumpu shareholders representing 52.8 percent of all shares have given irrevocable commitments to buy shares in the offer and the remaining 47.2 percent was underwritten by banks, the company said.

ThyssenKrupp is selling its 29.9 percent holding in Outokumpu to a group of institutional investors to appease the European Commission. Solidium Oy, the Finnish state’s equity-investment manager, will increase its holding to 29.9 percent from 21.8 percent and Ahlstroem Capital bought a 5.1 percent stake. Guido Kerkhoff, ThyssenKrupp’s finance chief, steps down from the Outokumpu board of directors today.

Outokumpu will hold a shareholder meeting in the first quarter to decide on the rights offering. Loan “covenants will have headroom that allows us to operate safely,” Chief Financial Officer Reinhard Florey told investors on a conference call without giving details.

Outokumpu’s market share in stainless steel will be as much as 40 percent in Europe and 12 percent globally, the company said. Thanks to the Inoxum assets, its customer base and product range will expand and and it will gain better access to the Americas and Asia, it said.

“These merits are even more important when we see the European market situation has been weaker,” CEO Seitovirta said on the investor call, adding that it’s “going to still be weak.”