FACTBOX-Thyssenkrupp's tough steel choices: Sell, hold or spin off
Feb 12 (Reuters) – Germany’s Thyssenkrupp aims to decide in March whether to sell its steel unit to Britain’s Liberty Steel, spin it off or keep the business.
Potential advantages and disadvantages for each of those options are listed below:
1. SELL TO LIBERTY STEEL
– Thyssenkrupp could agree a sale as soon as March that would cut its liabilities by up to 4 billion euros ($4.8 billion).
– The company would no longer have to fund a cyclical business, putting the rest of the group on a stronger financial footing and reducing its reliance on capital markets.
– Liberty Steel plans to protect sites and jobs until 2026, sources say, offering assurances that Thyssenkrupp might not be able to deliver itself.
– Thyssenkrupp has a keen buyer in Liberty Steel, with Deutsche Bank estimating that a combination of the unit with the British firm could secure savings of 200 million-300 million euros a year, a figure one source said could prove conservative.
– Thyssenkrupp will not benefit from an expected recovery in the steel market as economies bounce back from the coronavirus crisis, with the help of government stimulus packages.
2. CREATE A SPIN-OFF
– Thyssenkrupp will not have a major struggle with timing in the market. Unlike an initial public offering, a spin-off can succeed in weaker markets because it does not involve issuing additional shares and there is no need to find new investors.
– A dedicated steel firm could remove the discount that often weighs on a conglomerate and the new entity could also become a target in any industry consolidation. In both cases, a spin off could release more value for shareholders.
– Thyssenkrupp investors, who receive shares in the new entity, would have new stock they could sell or keep.
– Thyssenkrupp could also retain a stake in the new company, selling those shares if it needs cash later, and it could also choose to shift some liabilities to the new entity.
– While a sale could be agreed in weeks, a spin off could take at least a year.
– Without commitments from a buyer or support from Thyssenkrupp’s other businesses, a standalone firm could face capital market pressure to close sites and make major job cuts.
– There is no guarantee investors would value a standalone unit more highly and Thyssenkrupp may need to pour in more cash.
3. KEEP THE BUSINESS
– Thyssenkrupp secures the full benefit of any uplift in steel demand.
– Thyssenkrupp remains responsible for ensuring the unit stays competitive, which could mean cost cuts and restructuring.
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