Thyssen to decide on stainless next week

Steel workers of 'ThyssenKrupp Nirosta' arrive for a warning strike in the western city of Krefeld January 23, 2012.

DUESSELDORF, Germany/FRANKFURT (Reuters) - ThyssenKrupp's (TKAG.DE) supervisory board is to decide on a possible merger of its stainless steel unit with Finnish group Outokumpu (OUT1V.HE) in a meeting next week, the German steelmaker said on Friday.

ThyssenKrupp and Outokumpu said this week they were in early talks over a stainless steel tie-up, moving towards the long-awaited consolidation of a sector that has struggled to battle overcapacity and cheap Chinese imports.

Bertin Eichler, the deputy chairman of ThyssenKrupp's supervisory board, said concrete decisions were to be made at the meeting, which is scheduled for Tuesday, the day before Outokumpu publishes full-year 2011 financial results.

Under the broadest possible agreement, the result would be Europe's largest producer by a substantial margin, worth more than 3 billion euros ($4.0 billion), according to analysts, assuming all of Thyssen's Inoxum stainless steel assets were included.

"Negotiations with Outokumpu and labor representatives are ongoing," a spokesman for ThyssenKrupp said, adding an agreement with the labor side was needed before any supervisory board meeting could take place.

Hannu Hautala, Executive Vice President, General Stainless of Outokumpu, said: "We are currently in the process of examining the situation and the schedule is still wide open, so I can't give any comment."

WORKERS STAGE RALLY

The statement was issued as around 4,000 stainless steel workers staged a noisy demonstration in the city of Bochum, some 20 kilometers from the steelmaker's headquarters.

"ThyssenKrupp wants to sell the stainless steel business to Outokumpu," Eichler, who is also an official of the IG Metall trade union of metalworkers, told the placard-carrying workers.

He said the labor representatives on the supervisory board would not agree to any deal if Outokumpu and ThyssenKrupp failed to meet employees' demands to preserve all of Inoxum's manufacturing plants.

He also said Outokumpu should promise there would be no mandatory job cuts.

ThyssenKrupp shares were down 0.4 percent at 22.04 euros by 1242 GMT, underperforming the German blue-chip index .GDAXI, which was up 0.3 percent. Outokumpu shares traded down 1.7 percent.

ThyssenKrupp, a steelmaking conglomerate whose business stretches from submarines to lifts, is in the throes of a radical restructuring that will see it shed non-core assets with revenues of 10 billion euros to slash debt.

The sale of all or part of Thyssen's stainless steel unit would mark a key step forward in the slimming down of Germany's largest steelmaker. A source said on Friday that Thyssen aimed to divest a majority stake of Inoxum.

It would also provide a welcome piece of good news for its shareholders still reeling from cost overruns that pushed the company into the red last year.

Any deal could see Outokumpu take a majority stake in Inoxum, merge with some of Thyssen's stainless steel business or buy Inoxum outright.

But loss-making Outokumpu, with a market capitalization of 1.4 billion euros and a pile of debt, is expected to require a capital increase of as much as 1 billion euros to finance a deal and may use at least some shares to pay for a stake in Inoxum.

"We are of the view that ThyssenKrupp is unlikely to draw any cash from this transaction and that it may retain some stainless steel exposure after completion," Societe Generale analyst Alain William said.

($1=0.7601 euros)

(Additional Reporting by Eero Vassinen; Writing by Maria Sheahan; Editing by Helen Massy-Beresford and Mike Nesbit)