By Arno Schuetze and Maria Sheahan
FRANKFURT, Sept 25 ThyssenKrupp,
Germany's biggest steelmaker, is considering wooing suitors for
its loss-making steel mills in Brazil and the United States with
perks, in the expectation that initial bids this week will be
"Thyssen will offer to set up cooperations and to guarantee
purchasing of a certain amount of steel," one banker familiar
with the industry said. Another said Thyssen could agree to
absorb future losses from the mills for a certain time.
ThyssenKrupp said in May it was considering all strategic
options for the two steel mills, including a partnership or a
sale, to halt losses there and refocus the group on its core
Chief Executive Heinrich Hiesinger wants to sell the mills
separately for at least the book value of 7 billion euros ($9.2
And while that is already well below the company's
investment of closer to 12 billion euros, bankers and analysts
expect Thyssen to be disappointed by indicative offers due this
week as dim short-term prospects for the assets limit any
possible buyers' willingness to spend big.
"It's very tough to put a value on a business that is losing
a billion euros per year... It's going to be defined on the
business model that someone can put together for these plants,"
a U.S.-based investment banker said, who asked not to be named.
Several bankers said they saw the assets being worth 3-4
billion euros. UBS analysts were even more pessimistic, saying
they saw the value of Steel Americas at only 3 billion euros, as
they cut their recommendation on Thyssen shares to "sell" from
"neutral" earlier this month.
At an initial stage, Steel Americas attracted the interest
of more than 10 potential bidders, Thyssen has said.
According to several bankers, indicative bids are due on
Sept. 28. Thyssen, which has not given any deadlines or said
with whom it was holding talks, would not confirm that date.
According to bankers involved in the process, potential
bidders include world No.1 steelmaker ArcelorMittal,
U.S. Steel, Korea's Posco, Japan's Nippon
Steel, China's Baosteel.
Other names mentioned by bankers include Japan's JFE
, Nucor and AK Steel, and Brazilian
rivals like CSN or Usiminas.
It is unlikely any one of these companies will bid on its
own, though no consortia have been formed yet, one banker said.
Final bids are likely to be due 6-8 weeks after the deadline for
indicative offers, according to two people familiar with the
Thyssen's advisors Goldman Sachs and Morgan Stanley will try
to get at least 2-3 bidders interested enough to drive the
Thyssen's brand new steel mill in Brazil has a capacity of
up to 5 million tonnes of steel slabs, part of which are sold to
the company's cutting-edge U.S. plant in Calvert, Alabama for
processing into flat steel products used mostly by carmakers.
Initially, the construction of the two plants was meant to
take advantage of low-cost production in Brazil to create a
cost-effective and secure supply of slabs for the U.S. plant.
But wage inflation, rising costs for iron ore and the
appreciation of the Brazilian real have made production in the
Latin American country much more expensive than expected, just
as demand from the U.S. car industry started to wane.
The plant in Alabama would be attractive to any buyer
seeking more exposure to the U.S. market via state-of-the-art
flat-rolled steel production. The mill in Brazil, meanwhile,
offers a way to reduce dependence on slab-producing suppliers.
ArcelorMittal CEO Lakshmi Mittal recently said that everyone
in the industry was looking at Steel Americas, but stopped short
of saying whether Arcelor would bid for any of the assets.
Charles Bradford, steel industry analyst at Bradford
Research in New York, cautioned that Arcelor cannot legally buy
more in the United States. It was already forced to sell
Sparrows Point, one of the largest U.S. steel plants, to gain
approval for Mittal Steel's takeover of Arcelor SA.
JP Morgan analysts think there could be a deal with a U.S.
domestic steel player based on an agreement by ThyssenKrupp to
buy raw material or semi-finished steel at a discount.
For U.S. Steel, for instance, the Thyssen assets would help
build more scale in flat-rolled steel, but market watchers were
sceptical on whether the company would benefit from such a move.
"The U.S. market already has overcapacities - why should
U.S. Steel add more home turf plants?" a banker familiar with
the industry said.
A sale of the Brazilian mill, CSA, is complicated by the
fact that the venture is a quarter owned by Vale.
And while Vale has said several times it was not interested
in buying Thyssen's stake in CSA itself, the Brazilian miner is
expected to take part in any negotiations.
Korea's POSCO, which already owns a stake in Brazilian steel
mill CSP, has said it was studying the CSA mill.
The world's No.4 steelmaker, has been keen to expand
oversees as it faces growing competition in its home market from
local rival Hyundai Steel, backed by world No.5
automaker Hyundai Motor Group .
"It is meaningless for Posco to add capacity in the domestic
market because of Hyundai Steel. The situation is not good in
Asia either because of China's overcapacity," Kim Hyun-tae, a
steel analyst at KB Investment & Securities in Seoul said.
Brazilian companies may seek to outmanoeuvre Asian rivals in
the bidding for CSA, with CSN and Usiminas seen on the list of
possible domestic bidders.
"For Brazilian bidders it is all about securing their supply
relationship with Thyssen," an industry banker said.
A Brazilian newspaper reported on Tuesday that CSN has hired
the investment banking unit of Banco Bradesco to advise on a
One person said Brazil's Gerdau, meanwhile, was
Steel Americas as a whole posted an adjusted loss before
interest and tax of 778 million euros in the nine months through
June, after losing just over a billion euros the year before.
This gives Thyssen what one banker working for an interested
company called a "weak negotiating position", as potential
buyers could just lean back and wait for the price to drop.