Day of reckoning for proposed Outokumpu ThyssenKrupp deal lies ahead

Conflicting reports surfaced within very short time period today on the eagerly anticipated deal that is being discussed between Finnish steelmaker Outokumpu (OMX:OUT1V) and German industrial giant Thyssenkrupp. Thyssenkrupp is looking for ways to exit stainless steel business with least costs and greatest potential reward possible. Its stainless unit Inoxum is the somewhat larger player in the discussion.

Just before market close in Europe, report from newspaper Die Welt suggested that a deal in 2.7 billion Euro vicinity, depending on Outokumpu’s valuation, is all but made. Outokumpu’s current market cap is around half of that number. This would create a world leader in stainless steel with over ten billion in annual revenue and 18 000 employees.

The whispers are that Thyssenkrupp would get ”under 30%” holding in Outokumpu. This would mean it would not need to consolidate the company. The shares would be frozen for a year so Thyssenkrupp could not exit immediately. Thyssenkrupp would also be able to move some of its debt into ”new” Outokumpu.

While others point out that due to obvious benefits for Outokumpu such as access to Central European market and complementary product offering, others feel that 2.7 billion is very steep bill to foot. If Outokumpu needs to pay a part of it in cash, how is it going to get the money? Certainly one would think a potential issue might not be limited to only shares being planned to be allotted to Thyssenkrupp.

Earlier the reports said that German workers union IG Metall could be blocking the merger. Die Welt also acknowledges that tough negotiations with the unions are still ahead but seems to think the companies are willing to compromise and give very generous terms for the employees of the two factories in Germany that may face closure. Harsh rhetoric would also be typical union negotiation tactics.

Competition authorities will certainly also want to look into this arrangement if the companies reach a definite agreement. Outokumpu’s annual accounts are due on Wednesday morning. Outokumpu swinged wildly on Monday as reports broke out but was regardless mired deeply in the red for the entire day and did not have the time to gain back more than a portion of that at market close. The stock is still up nearly 50% from when the news of ongoing negotiations first broke.