Reuters – The world’s No. 1 stainless steel maker Outokumpu said it planned to raise 650 million euros through a rights issue and divest assets back to ThyssenKrupp in an unexpected package of steps aimed at shoring up its finances.
The move will partly reverse Finnish Outokumpu’s 2012 acquisition of Thyssenkrupp’s stainless steel business Inoxum as it transfers a large steel plant in Terni, Italy, and high-performance alloy unit VDM back to the German group.
Outokumpu has been hit hard by Europe’s economic slowdown and by overcapacity in the industry, pushing up its debt and leading to speculation that it may need more cash from its shareholders.
The assets will be transferred to ThyssenKrupp in exchange for the cancellation of a 1.25 billion euro ($1.7 billion) loan note that Thyssen granted to Outokumpu when their original deal was done in 2012.
“This outcome was totally unexpected. For Outokumpu it is a relief package, as the company’s financing risks come down significantly,” said Antti Viljakainen, analyst at Helsinki-based Inderes Equity Research.
The divestments will lower Outokumpu’s debt-to-equity ratio by about 30 percentage points from 132 percent at the end of October.
Outokumpu also announced other financing steps, saying it has secured a new 500 million euro loan facility from a group of its banks and is seeking to extend the maturities of its existing debt.
The 650 million euro share issue plan has received the support of owners representing most of its shares, it said, while the remaining part will be underwritten by Outokumpu’s core banks.
Chief executive Mika Seitovirta told a conference call he was happy the company can now concentrate on spurring growth, adding that he still believed the company could target annual savings of 200 million euro from the Inoxum deal.
“Now we can focus on continuing synergies and operational restructuring, and driving growth through the ramp-up of new investments,” he said.
As part of the deal, ThyssenKrupp will sell its 30 percent shareholding in Outokumpu. The price will be only 5 euro cents per share, compared to Outokumpu’s latest close at 38 cents. That was seen as counterbalancing the high price ThyssenKrupp is effectively paying to take back the Terni plant and VDM.
Many analysts estimate the total price of those two assets would have been less than a billion euros.
The Finnish state’s investment arm Solidium has promised to buy some of the shares from Thyssen, boosting its stake in Outokumpu to about 30 percent from 22 percent. It said it would spend around 200 million euros for the transaction and the rights issue.
Private equity firm Ahlstrom Capital will also be among the new Outokumpu owners with a stake of 5 percent.
Analysts said the news was positive for Outokumpu stock in the short term, but added that the company’s business problems will remain.
“Capacity is not going away, and Outokumpu will get a new competitor as these assets continue operations. Debt will come down, but not a whole lot,” said Jukka Oksaharju, broker at Nordnet bank.
“From Thyssen’s perspective this is a very good arrangement. They will get the most profitable parts of Outokumpu, and they don’t have to participate in any of its rights issues.”
Outokumpu, like other steelmakers in Europe, has faced weak demand as construction and metal engineering customers are holding back from purchases. Meanwhile, its Inoxum acquisition suffered a huge setback as authorities demanded the Terni mill be sold as a condition for approval.
The closing of the deal is subject to approval by the EU and an Outokumpu shareholder meeting due early next year. The shareholders will also have to approve the rights issue.
Separately, ThyssenKrupp announced it had reached a deal to sell a U.S. steel plant for $1.55 billion and planned to raise its capital by up to 10 percent. ($1 = 0.7345 euros) (Additional reporting by Maria Sheahan; Editing by Robin Pomeroy and Hugh Lawson)