Whalesbook
Deal Faces Major Hurdles
Current difficulties suggest Thyssenkrupp's plan to sell its steel business may be derailed. The €2.4 billion pension debt has long been a major obstacle. Now, rising energy costs, fueled by global instability, and disagreements over future investments add to the problems. These challenges highlight deep structural issues within Thyssenkrupp Steel Europe (TKSE), a division that has repeatedly weighed on the company's overall finances.
Key Deal Obstacles: Valuation, Pensions, and Energy
Negotiations for Thyssenkrupp's steel division with Jindal Steel International are reportedly near collapse. The main stumbling blocks are disagreements over the unit's value and its large legacy costs. Thyssenkrupp Steel Europe's (TKSE) €2.4 billion in pension debt is a major obstacle, having complicated previous sale attempts. Jindal Steel International, part of the Naveen Jindal Group, wants clear answers on these liabilities and the restructuring costs Thyssenkrupp expects to cause an €800 million net loss in fiscal years 2025/2026. This valuation gap suggests differing views on the unit's worth and the risks a buyer would accept. Thyssenkrupp's own funding needs and uncertainty over German government support for green initiatives also add complexity.
Energy Costs Surge Amid Geopolitical Tensions
Global tensions, particularly the conflict involving Iran, have worsened concerns about high energy costs in Europe. Energy prices are already higher than in Asia and the US, creating an unstable business environment. For steelmakers, which use a lot of energy, this means higher production expenses. Thyssenkrupp Steel has warned that rising gas prices would increase costs, as natural gas is vital for heating furnaces and other processes. While Thyssenkrupp doesn't source materials through the Strait of Hormuz, it faces indirect cost hikes from higher energy prices generally, increased transport costs, and more expensive raw materials. This instability makes potential investors like Jindal wary about the long-term future of European steel production. The European steel sector, as reported by Eurofer, is facing record import levels, indicating structural pressures worsened by these external events.
Sale Delay Threatens Company Transformation
Failing to sell TKSE is a major setback for Thyssenkrupp CEO Miguel Lopez's plan to streamline the company into a holding firm. Thyssenkrupp has long tried to sell its difficult steel business through various methods like public listings, spinoffs, and direct sales, but has always been held back by its financial burdens. Jindal Steel International's initial offer included a €2 billion commitment to invest in green steel production and electric arc furnace capacity, showing interest in modernizing. However, agreeing on the unit's value and operational responsibilities remains difficult. Recent efforts, like listing its naval shipbuilding arm TKMS and forming separate business units, show Thyssenkrupp's move away from heavy industry. Yet, the ongoing issues with the steel division suggest selling it will be more complicated and costly than expected.
Mixed Analyst Views on Outlook
Despite immediate problems, the wider European steel market is expected to see a slight recovery in 2026, supported by EU import restrictions and potential price increases. Policies like the Carbon Border Adjustment Mechanism (CBAM) aim to create fairer competition. However, analysts are cautious about Thyssenkrupp's specific situation. Jefferies had seen potential value if the steel unit was sold, suggesting a significant upside. But Morgan Stanley recently downgraded Thyssenkrupp to 'Equal-Weight,' noting a more balanced risk and reward after the stock's decline. Morgan Stanley points out that TKSE's value could be negative after accounting for restructuring and pension costs, highlighting the unit's negative impact on the group's overall valuation. The uncertainty over when and how the deal will conclude continues to affect investor confidence.
Financial Projections for the Coming Years
Thyssenkrupp anticipates a difficult fiscal year 2025/2026. The company forecasts sales between -2% and +1%, with adjusted EBIT expected to range from €500 million to €900 million. Free cash flow before mergers and acquisitions is projected to be negative, between -€600 million and -€300 million, mainly due to ongoing restructuring efforts. Looking ahead, analysts predict a clean adjusted EBITDA of €1.55 billion for fiscal year 2026 and earnings per share (EPS) recovering to €1.02 in fiscal year 2027. However, current estimates point to a group net loss of €800 million to €400 million for the upcoming fiscal year. The dividend per share is expected to stay at €0.15. The company's ongoing shift to a holding company structure, and whether it successfully sells or retains the steel division, will be key factors for its future performance and how investors view the stock.