Five Years After Hiring OSF Merchant Banking, Thyssenkrupp Sells CSA to Ternium

February 23, 2017

After investing approximately €8 billion to build the Companhia Siderúrgica do Atlântico (CSA) steel complex and failing to generate any returns, German group Thyssenkrupp finalized the sale of the company yesterday to Italian-Argentine firm Ternium. The deal was closed at €1.5 billion (approximately R$4.9 billion).

Thyssenkrupp had been trying to divest from CSA since 2012, shortly after the steel plant began operations in 2010, still grappling with operational and environmental issues. Located in Santa Cruz, a district of Rio de Janeiro, CSA started operations in mid-2010 and has a production capacity of 5 million tons of steel slabs (semi-finished flat steel used in sheet rolling).

Thyssenkrupp, an industrial and technology group, officially announced the sale of the Brazilian steel plant last night. Ternium had previously expressed interest in acquiring CSA in 2012, but negotiations did not progress. Last year, following Vale’s sale of its 27% stake in CSA to Thyssenkrupp, the Italian-Argentine group resumed negotiations.

The deal includes a €1.26 billion cash payment, according to Thyssenkrupp, based on CSA's valuation as of September 30, 2016 (fiscal year 2015/2016). The remaining €300 million corresponds to a debt with the Brazilian National Development Bank (BNDES).

The acquisition could also pave the way for resolving the ongoing dispute between Nippon Steel and Ternium over Usiminas. Since 2013, the two shareholders have been engaged in a legal battle over the management of the Brazilian steel company. The conflict escalated to the point where Ternium executives were removed, and board decisions were legally challenged, leading to litigation in the Minas Gerais courts.

With this sale, Thyssenkrupp is exiting the steel sector in the Americas. In 2014, the company sold its steel rolling mill in Alabama (USA) to ArcelorMittal and Nippon Steel & Sumitomo for a similar amount.

"With the sale of CSA, we have completely exited Steel Americas. This is an important milestone in redirecting Thyssenkrupp towards becoming a strong industrial group," said Heinrich Hiesinger, CEO of Thyssenkrupp, in an official statement. The company also announced that the transaction will generate a significant cash inflow, which will substantially reduce its financial debt. Additionally, Thyssenkrupp signed an agreement with Ternium to continue supplying 2 million tons of steel slabs per year from CSA to its rolling mill in Calvert, Alabama, until 2019.

With CSA as its new asset, Ternium could now consider selling its stake in Usiminas to Nippon Steel or acquiring additional assets. The Cubatão unit (SP)—which includes steel rolling operations—could be a strategic addition, as it would complement CSA's production. Additionally, Cubatão has port facilities, further enhancing its value.

According to Ternium, the acquired assets recorded €1.6 billion in annual consolidated sales in 2016, with 4.3 million tons in shipments and an EBITDA of €256 million.

Ternium stated that it plans to finance the acquisition through bank loans and expects to consolidate CSA's balance sheet and operational results starting in Q3 2017.

"By completing this transaction, Ternium is integrating another state-of-the-art steel plant into its industrial portfolio. This will allow us to enhance our differentiation and strengthen our business in strategic industrial sectors across Latin America," said Daniel Novegil, President of Ternium.

Source: Valor Econômico