Feb 12 (Reuters) – Germany\u2019s Thyssenkrupp aims to decide in March whether to sell its steel unit to Britain\u2019s Liberty Steel, spin it off or keep the business.<\/p>\n
Potential advantages and disadvantages for each of those options are listed below:<\/p>\n
– Thyssenkrupp could agree a sale as soon as March that would cut its liabilities by up to 4 billion euros ($4.8 billion).<\/p>\n
– 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.<\/p>\n
– Liberty Steel plans to protect sites and jobs until 2026, sources say, offering assurances that Thyssenkrupp might not be able to deliver itself.<\/p>\n
– 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.<\/p>\n
– 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.<\/p>\n
– 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.<\/p>\n
– 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.<\/p>\n
– Thyssenkrupp investors, who receive shares in the new entity, would have new stock they could sell or keep.<\/p>\n
– 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.<\/p>\n
– While a sale could be agreed in weeks, a spin off could take at least a year.<\/p>\n
– Without commitments from a buyer or support from Thyssenkrupp\u2019s other businesses, a standalone firm could face capital market pressure to close sites and make major job cuts.<\/p>\n
– There is no guarantee investors would value a standalone unit more highly and Thyssenkrupp may need to pour in more cash.<\/p>\n
– Thyssenkrupp secures the full benefit of any uplift in steel demand.<\/p>\n
– Thyssenkrupp remains responsible for ensuring the unit stays competitive, which could mean cost cuts and restructuring.<\/p>\n