Distress Sale

Prepping the Bride: ThyssenKrupp Readies To Sell VDM Again

Hiesinger_DPA
Heinrich Hiesinger, ThyssenKrupp's chief executive, is debating whether or not to sell VDM.
  • Why it matters

    Why it matters

    If ThyssenKrupp does not sell its VDM unit, the stainless steel business could continue to weigh on the group’s overall profitability.

  • Facts

    Facts

    • Chief Executive Heinrich Hiesinger wants to divest non-core businesses in stainless steel and alloys but overcapacity in Europe is driving down prices.
    • Industry experts don’t expect market conditions to improve in the near-term, making a sale of VDM even harder.
    • Most companies interested in the stainless steel businesses are financial investors.
  • Audio

    Audio

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A lot has happened at ThyssenKrupp over the last four years. Chief Executive Officer Heinrich Hiesinger’s team sold shares to the tune of €10 billion ($12.86 billion) at a record pace. It auctioned off ThyssenKrupp Steel USA, the customized metal company Tailored Blanks, and a major portion of the stainless steel company, Inoxum.

Not everything has gone well, though, particularly with Inoxum. Although ThyssenKrupp found a buyer in Finnish competitor Outokumpu, the purchase price of €2.7 billion ($3.4 billion) was more than the Scandinavians could stomach and, with bankruptcy on the horizon at Outokumpu, Mr. Hiesinger took back parts of the stainless steel business.

Now, the special metals and alloy producer VDM Metals and the Italian subsidiary Terni are threatening the ThyssenKrupp balance sheet. The most recent value for the two companies is about €912 million.

Mr. Hiesinger has made it clear he is not going to hold on to the stainless steel operation because it’s not part of the core business. Sources close to the company said he has tasked Deutsche Bank to find a buyer. While some companies appear to be interested, the majority of potential purchasers is primarily financial investors, including Lindsay Goldberg LLC, Triton, KPS Capital Partners LP and Advent International.

“As a matter of fact, the conditions for a sale are not good.”

Heinrich Hiesinger, ThyssenKrupp CEO

These firms already know the stainless steel company. In previous attempts to sell DVM, Outokumpu negotiated with them, but ended the process when offers fell considerably short of the €1 billion the Finnish firm had hoped to raise, prompting Outokumpu to hand VDM back to ThyssenKrupp.

It’s doubtful a second attempt at unloading the company will be successful because the market for stainless steel is weak. Overcapacity in Europe means producers are barely making money and experts don’t expect the market to recover in the near term. They predict that some stainless steel factories will have to shut down if the E.U. economy doesn’t rally.

 

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VDM is certainly feeling the squeeze of over capacity. The company drastically reduced its operating profit forecast because of the unfavorable market environment. Earnings before interest and taxes are expected to be zero, according to financial experts, something Deutsche Bank noted in the sales documents, although company officials have not confirmed this.

Given the gloomy forecast, VDM is no longer the valuable company it was a couple of years ago in the eyes of potential bidders. It’s now a “fixer-upper,” a company with 2,000 employees in dire need of major restructuring. This, of course, will have a powerful impact on any offers submitted to ThyssenKrupp by October 22. Sources say a realistic purchase price is around €250 million, which is believed to be just half of what the company seeks in a sale.

ThyssenKrupp offered no comment on the VDM sales process. But Mr. Hiesinger has stressed repeatedly that the company won’t sell at any price, which makes it conceivable that VDM will remain in ThyssenKrupp’s hands. He has acknowledged the challenge, saying, “As a matter of fact, the conditions for a sale are not good.” This probably isn’t good news for VDM employees, as any turnaround effort by ThyssenKrupp will likely mean hefty cutbacks.

 

Martin Murphy is a Handelsblatt editor.  He covers the steel, car and defense industries. To contact the author: murphy@handelsblatt.com

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