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The Deal: ThyssenKrupp Sells Alabama Plant, Buys Back Outokumpu Assets

-- Written by Andrew Bulkeley

BERLIN (The Deal) -- German industrial conglomerate ThyssenKrupp on Saturday, Nov. 30, announced the long-anticipated sale of its U.S. steel plant and said it would also buy back some stainless assets from Finland's Outokumpu after that seller had trouble finding a buyer.

ThyssenKrupp, of Dusseldorf, said Luxembourg's ArcelorMittal (MT) and Japan's Nippon Steel & Sumitomo Metal would pay $1.55 billion for its Alabama steel plant. The two also agreed to buy 2 million tons of steel slabs annually from a sister plant in Brazil with annual capacity of five million tons.

Thyssen had promised to sell both the Alabama and Brazilian plants, known collectively as Steel Americas. The unit was built by former CEO Ekkehard Schulz, who hoped to produce steel cheaply Brazil and then finish the product in the U.S.

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However, the Brazilian economy grew more quickly than expected, forcing labor costs up just as steel prices slipped. Thyssen then struggled to find a buyer and on Saturday said it would now also sell new shares equivalent to as much as 10% of its share capital to help offset the damage done by the plants. It wants to issue up to about 51.4 million new shares, which would be worth about 924.7 million euros($1.25 billion) at the current price.

The company also warned it may post its fourth consecutive loss in the year ending Sept. 30 after losing 1.4 billion euros in fiscal 2013 as new CEO Heinrich Hiesinger works to get the company back on track. More restructuring is expected since Swedish activist investor Cevian Capital AB recently increased its investment in the company to 5.2%.

ThyssenKrupp shares slipped 6.7%, or 1.275 euros, to 17.99 euros.

"The company's statements about its dealmaking were worse than expected with concern over the ongoing financial impact of the Brazilian plant, which will remain with the company," wrote Nomura Equity Research analyst Neil Sampat in a note. He has a reduce rating on the stock.

Thyssen isn't the only steel company having trouble finding buyers for its assets. The company also said it would buy back the Italian Terni steel mill and VDM alloy unit as well as some stainless service activities it sold to Outokumpu. In exchange, Thyssen will cancel a loan it extended to the Finnish seller that was worth 1.27 billion euros at the end of September.

The loan was part Outokumpu's 2012, 2.7 billion euros acquisition of Thyssen's stainless steel activities. That deal raised hackles in Brussels. To appease regulators, Outokumpu had agreed to sell the Italian mill and VDM activities.

To further calm Brussels, Thyssen Saturday said it would also sell a 29.9% Outokumpu stake to institutional investors and Finnish stake holding company Solidium Oy, booking a loss of about 1 billion euros. After a rights issue at the Finnish company, Solidium will end up with a 29.9% stake.

A Sullivan & Cromwell LLP provided counsel to Sumitomo and ArcelorMittal on the acquisition. The Sullivan & Cromwell team was comprised of Robert DeLaMater, Jinhee Chung, Rosita Lee, Amaris White, Steven L. Holley, Juan Rodriguez, Eric Queen, Bradley Smith, Axel Beckmerhagen, Michael Engel, Nader Mousavi, Alice Lee, Ronald Creamer Jr., Kevin Salinger, Matthew Brennan and Rebecca Coccaro.

Outokumpu was advised on the sale of Terni and VDM back to ThyssenKrupp by Perella Weinberg Partners' Stefan Jentzsch and Tanguy Riviere.

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