FRANKFURT Germany's ThyssenKrupp (TKAG.DE) said it was nearing a long-awaited sale of its U.S. steel plant and had reached an agreement to settle a cartel lawsuit, clearing the way for it to raise much-needed capital.
Shares in Germany's biggest steelmaker fell 2.1 percent, however, as it became clear that the deal would not also include the company's loss-making Brazilian factory.
ThyssenKrupp has been trying for more than a year and a half to find a buyer for Steel Americas - comprised of the U.S. factory in Calvert, Alabama and steel mill CSA in Brazil - which has drained cash from the company for the past few years.
Three people familiar with the matter told Reuters that ThyssenKrupp was in exclusive talks to sell Calvert to a consortium of ArcelorMittal ISPA.AS and Nippon Steel & Sumitomo Metal (5401.T), the world's two biggest steelmakers.
One of the sources said the bidders were likely to pay $1.5 billion for Calvert, a third of the 3.3 billion euro ($4.5 billion) valuation of Steel Americas in ThyssenKrupp's books.
"They are close to a solution. An agreement is possible in the next week or two," one of the people told Reuters.
ThyssenKrupp said late on Tuesday it was pushing back the publication of its financial results - which are expected to show a third straight annual loss - to December 2 from November 21 due to the talks entering the final stages, raising hopes that a deal will be announced by then.
ThyssenKrupp said the talks included a long-term supply contract for CSA to "secure the value of the Brazilian steel mill", but many questions remained unanswered for now.
It is not clear how much any buyer will pay for the Calvert plant or how much of CSA's output it will agree to purchase.
The Wall Street Journal Deutschland reported last month that ThyssenKrupp could seek a partner to set up steel processing in Brazil to take excess slabs produced by CSA.
ThyssenKrupp has not yet clarified whether its announcement means it will remain a long-term investor in CSA, which is part-owned by Brazil-based iron ore miner Vale (VALE5.SA).
"Ultimately for the 'end game' we need to hear ongoing strategic thinking from management," Credit Suisse analyst Michael Shillaker said.
Shares in ThyssenKrupp were down 2.1 percent at 19.00 euros by 1336 GMT, making it the biggest decliner on Germany's blue-chip DAX index .GDAXI, which was flat. ArcelorMittal was 0.9 percent higher at 12.60 euros.
ArcelorMittal, which has said any purchase would not jeopardize its debt reduction target, reiterated its interest in Calvert, while Nippon Steel declined to comment.
Early on Wednesday, ThyssenKrupp also said it had agreed in principle to pay German railway Deutsche Bahn damages for its role in a rail cartel, and that existing provisions in its accounts should cover the cost.
Finding a solution to its problems in the Americas and settling the cartel issue would give a major boost to ThyssenKrupp Chief Executive Heinrich Hiesinger.
Hiesinger has been trying to shift ThyssenKrupp away from the volatile steel business into higher-margin products and services such as elevators, submarines and factory components.
But he has fought an uphill battle since taking over in 2011 as the company was hit by scandals, while finances at the industrial conglomerate, a symbol of Germany's industrial prowess, steadily deteriorated.
ThyssenKrupp shares trade at 16.8 times its estimated 12-month forward earnings, according to Thomson Reuters StarMine, a discount to ArcelorMittal's 26.1 times due to the investor uncertainty over Steel Americas and ThyssenKrupp's finances.
A fall in its equity capital caused ThyssenKrupp's gearing - the ratio of its debt to equity - to jump to 185.7 percent at the end of June from 148.2 percent three months earlier. ArcelorMittal's gearing was 34 percent at the end of September.
ThyssenKrupp had to ask banks to waive loan covenants this year to avoid losing a major credit line and said it would not rule out a capital increase once Steel Americas and unresolved compliance issues had been dealt with.
Three bankers familiar with the matter told Reuters that ThyssenKrupp was already stepping up preparations to increase its capital by 10 percent. One of them said ThyssenKrupp should be able to sell the new shares at a small discount of around 5 percent.
While low power prices are boosting manufacturing in the United states, ThyssenKrupp's American ambitions have suffered as it underestimated the cost of supplying the Alabama plant with steel slabs from Brazil, blaming operational problems, an appreciation of Brazil's real currency and rising labor costs.
Analysts see a partial sale of Steel Americas as better than no sale at all but would be disappointed if CSA, of which ThyssenKrupp owns 73 percent, remained on the company's books.
Steel Americas generated an operating loss of 944 million euros in the first nine months of ThyssenKrupp's financial year that ended on September 30, but the company has not said how much of that loss came from Brazil and how much from Calvert.
"The news is a clear setback for those who hoped for a clear cut solution in the Steel Americas dilemma," Equinet analyst Stefan Freudenreich said, cutting his recommendation on ThyssenKrupp's stock to "reduce" from "hold".
For ArcelorMittal, buying the Calvert plant would make sense, analysts say, as it could supply it with steel slabs from its rolling mill in Mexico, with lower transport costs than those incurred by ThyssenKrupp for shipments from Brazil.
ArcelorMittal could put the Mexican mill in a joint venture with Nippon Steel, thereby lowering the amount of cash it has to contribute in a joint deal to buy the Calvert plant.
Meanwhile, Nippon Steel has been stepping up global expansion and said it would consider adding facilities in North America, Indonesia and India, areas where Japanese automakers are accelerating their production.
($1 = 0.7394 euros)
(Additional reporting by Alexander Huebner, Tom Kaeckenhoff, Sabine Wollrab, Philipp Blenkinsop, Aaron Sheldrick and Yuka Obayashi; editing by Tom Pfeiffer)