Latin American steel production giant Ternium SA (NYSE: TX) said it agreed to acquire Brazilian steel plant CSA Siderúrgica do Atlântico from German global industrial conglomerate thyssenkrupp AG (tkAG) (ETR: TKA), at an enterprise value of €1.5 billion. As part of the deal, tkAG will assign to Ternium an agreement to supply 2 million tons per year of slabs to thyssenkrupp’s former Calvert facility in Alabama.

Ternium said it expects to disburse €1.26 billion for the buyout, taking into account CSA’s debt of €300 million with BNDES and adjustments as of September 30, 2016. At closing thyssenkrupp will receive a clear cash inflow which will significantly reduce the group’s debt.

The deal is subject to antitrust clearance in several jurisdictions, including Brazil, Germany and the U.S., and other conditions, and is expected to close on or before September 30, 2017.

“With the sale of CSA we are parting fully with Steel Americas. This is an important milestone in the transformation of thyssenkrupp into a strong industrial group,” said Dr. Heinrich Hiesinger, CEO of thyssenkrupp AG. “We now generate over 75 percent of our sales with our profitable capital goods and services businesses.”

With the sale of CSA, thyssenkrupp is bringing its loss-making chapter of Steel in the Americas to an end: In 2005 the Group decided to expand its steel business into the Americas. The original plan was to produce slabs at low cost in Brazil and process and sell them in the USA and Europe. The plan didn’t work out. Following a significant increase in construction costs for the facilities in Brazil and Alabama in the USA 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 Heinrich Hiesinger took over as CEO.

“We found that an integrated link-up of the two plants no longer made strategic sense. 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,” added Hiesinger.

To date Steel Americas has cost the group over €12 billion in capital expenditures and start-up losses. Even after deducting the proceeds from the divestment of the plants in the U.S. and Brazil and Vale’s share in the financing, a net loss of around €8 billion remains. The impact is visible on the balance sheet to this day. Redressing it completely will take thyssenkrupp a few more years.

thyssenkrupp succeeded in selling the processing plant in the U.S. to a consortium of ArcelorMittal and Nippon Steel back in 2014. At that time it was not possible to divest CSA. Complex contractual ties existed with the former co-shareholder Vale. In May 2016 the Group succeeded in ending these ties and has been the sole owner of CSA since then. Over recent years thyssenkrupp has worked continuously on optimizing the plant’s facilities and operational performance.

CSA is a steel slab producer with a steelmaking facility located in the state of Rio de Janeiro, Brazil, and has an annual production capacity of 5 million tons of high-end steel slabs, a deep-water harbor and a 490 MW combined cycle power plant. In 2016, the assets to be acquired generated annual sales of €1.6 billion, shipments of 4.3 million tons and EBITDA of €256 million.

Ternium’s CEO, Daniel Novegil, said: “Upon completion of this transaction, Ternium is adding another state-of-the-art facility into its industrial system. This will enable us to enhance our differentiation. The facility’s specialization in high-end steel slabs, combined with a coordinated product development and supply chain management effort with our high-end steel capacity in Mexico and Argentina, will support new integration opportunities for the manufacturing of sophisticated finished steel products for our customers. This, in turn, will strengthen our business in strategic industrial sectors across Latin America.”

Ternium is a leading steel producer in Latin America, with an annual production capacity of approximately 11 million tons of finished steel products. The company manufactures and processes a broad range of value-added steel products for customers active in the construction, automotive, home appliances, capital goods, container, food and energy industries.

With production facilities located in Mexico, Argentina, Colombia, the southern United States and Guatemala, Ternium serves markets in the Americas through its integrated manufacturing system and extensive distribution network. In addition, Ternium participates in the control group of Usiminas, a Brazilian steel company.

With annual crude steel production of 6 million tons and shipments of 9.8 million tons, Ternium purchased from third parties approximately 3.7 million tons of steel slabs in 2016, that were processed in its downstream facilities to obtain finished steel products to supply its customers. Ternium offers a high-value-added product range to serve the most demanding requirements of its industrial customers. After the completion of the CSA acquisition, Ternium will substantially increase its steelmaking capacity.

Ternium was formed in 2005 through the consolidation of three companies: Siderar (Argentina), Sidor (Venezuela) and Hylsa (Mexico). Siderar was established by Argentine-based industrial conglomerate Techint in 1992 following the privatization of Somisa, and Ternium still trades on the Buenos Aires Stock Exchange by the Siderar name. A fourth unit, Grupo IMSA, was acquired in 2007, by which Ternium expanded its operations into Guatemala and the U.S. Techint, headed by CEO Paolo Rocca, remains the principal owner of Ternium with a 62% stake, followed by Tenaris with an 11% stake, both of which are also headed by Rocca.

Ternium plans to finance the acquisition with bank debt, and will begin consolidating tkSI’s balance sheet and results of operations as from the third quarter of 2017.

Photo: Paolo Rocca, CEO of the Techint, Chairman and CEO of Tenaris, and Chairman of Ternium.



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