Thyssenkrupp has reached agreement with Ternium on the sale of the CSA Siderúrgica do Atlântico (CSA) steel plant in Brazil to Ternium for a purchase price (enterprise value) of EUR1.5bn (US$1.6bn).
“With the sale of CSA we are parting fully with Steel Americas,” said Thyssenkrupp CEO, Heinrich Hiesinger. “This is an important milestone in the transformation of Thyssenkrupp into a strong industrial group.
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“We now generate over 75% of our sales with our profitable capital goods and services businesses.”
With the closing of the transaction Thyssenkrupp will receive a cash inflow which it says will significantly reduce the Group’s net financial debt. Although a write-down of around EUR0.9bn on CSA will be necessary with the signing, the Group’s gearing, that is the ratio of net financial debt to equity, will improve on completion of the transaction.
The sale is subject to the approval of the competition authorities, with the parties aiming to close the transaction by 30 September this year.
With the sale of CSA, Thyssenkrupp says it is bringing its loss-making chapter of Steel in the Americas to an end.
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By GlobalDataThe original plan was to produce slabs at low cost in Brazil and process and sell them in the US and Europe, but the supplier notes the “plan didn’t work out.” Following a significant increase in construction costs for the facilities in Brazil and Alabama in the US as well as technical problems with the ramp-up of the plants and high start-up losses, Thyssenkrupp placed the entire project under review immediately after Hiesinger took over as CEO.
“We found an integrated link-up of the two plants no longer made strategic sense,” added Hiesinger. “The economic parameters had changed too significantly. So as part of the realignment of Thyssenkrupp we drew the necessary and correct conclusions and decided to sell both plants.”
To date Steel Americas has cost the Group more than EUR12bn in capital expenditures and start-up losses. Even after deducting the proceeds from the divestment of the plants in the US and Brazil and Vale’s share in the financing, a net loss of around EUR8bn remains.
The impact is visible on the balance sheet to this day and redressing it completely “will take Thyssenkrupp a few more years.”
Thyssenkrupp sold the processing plant in the US to a consortium of ArcelorMittal and Nippon Steel in 2014, but at that time it was not possible to divest CSA. Complex contractual ties existed with the former co-shareholder, Vale.
In May last year the Group succeeded in ending these ties and has been the sole owner of CSA since then. “As promised, we succeeded in moving the plant into operational profit,” said Hiesinger.
“Also, after intense discussions with the authorities we finally obtained the operating licence in September, 2016. Our stamina and tenacity have paid off.”
Ternium is a Latin American steel producer with production facilities in Mexico, Argentina, Colombia, the southern US and Guatemala. With shipments of 9.8m metric tons of finished steel products, Ternium purchased around 3.7m tons of steel slabs from third parties in 2016.
With the purchase of CSA, Ternium will acquire additional production capacities of up to 5m metric tons of slabs per year. With a slab supply contract agreed up to 2019, CSA will continue to deliver an annual 2m tons to the ArcelorMittal/Nippon Steel plant in the US.
The sale of CSA will take economic effect retrospectively at 30 September, 2016. Until the closing of the transaction Thyssenkrupp’s Steel Americas business area will be reported as a discontinued operation.
The sale will have corresponding effects on the Group’s net income.
Beyond this, Thyssenkrupp does not expect the transaction to have any impact on the adjusted EBIT and free cash flow before M&A targets of its continuing operations for the current fiscal year 2016/2017.
