Liberty Bid Puts Negative Value on Thyssenkrupp Steel Arm

Liberty Steel Group’s offer for Thyssenkrupp AG’s steel unit gave it a negative equity value of at least 1.5 billion euros ($1.8 billion), increasing the chances that the ailing German conglomerate will decide to keep the metal business, according to people familiar with the matter.

Liberty submitted a firmed-up bid for Thyssenkrupp’s steel unit late last month that calls for the German conglomerate to inject capital to cover liabilities including a roughly 4 billion-euro pension shortfall, said the people, who asked not to be identified as the process isn’t public.

Thyssenkrupp is reviewing an offer from Liberty for its steel unit and seeking clarification on aspects of the offer, Chief Executive Officer Martina Merz said in prepared remarks released Monday. She’s scheduled to deliver them Friday at the company’s annual general meeting. Thyssenkrupp could decide to keep the steel business with a view to spinning it off in the medium term, one of the people said.

A representative for Thyssenkrupp declined to comment beyond Merz’s remarks that talks are ongoing. A representative for Liberty declined to comment.

Liberty’s bid likely undervalues the steel division and the suitor may have wrongly assumed Thyssenkrupp is desperate to sell, according to Christian Georges, senior analyst at Societe Generale SA. The unit is worth 5 to 6 billion euros, minus around 4 to 5 billion euros for pensions liabilities, suggesting a positive valuation, he said.

“As we’ve seen with elevators, only a top of the range value will do,” Georges said, referring to Thyssenkrupp’s 17.2 billion-euro sale of its elevator division last year.

Long-Term Drag

While the steel business has dragged for years on Thyssenkrupp, it likely has benefited recently from the global rise in steel prices. The Essen, Germany-based company expanded planned job cuts to 11,000 positions -- roughly 10% of its workforce -- in November, citing long-term market developments and the effects of the coronavirus. It plans to make those reductions over three years.

Bloomberg News reported last month that Thyssenkrupp was considering listing the steel division on the stock market amid mounting opposition from union officials and some large shareholders to a potential sale to Liberty. Key Thyssenkrupp stakeholders have questioned whether Liberty has adequate funding and a viable strategic plan for the steel business.

“Gupta’s offer sounds tempting but needs to be diligently examined,” said Henrik Pontzen at Union Investment, a top 20 shareholder in Thyssenkrupp. Previous options for the steel unit have failed because of wrong strategic decisions and high pension liabilities, Pontzen said in an emailed statement ahead of Thyssenkrupp’s AGM.

Liberty Steel is part of GFG Alliance Ltd., a loose structure of companies owned by family members of Sanjeev Gupta, the British-Indian commodity trader turned industrial tycoon.

©2021 Bloomberg L.P.

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