Salzgitter Said to Mull €1 Billion Sale of Bottling Unit KHS

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(Bloomberg) — German steel and industrial conglomerate Salzgitter AG is considering a sale of its bottling machine unit KHS, which could be valued at as much as €1 billion ($1.1 billion), according to people familiar with the matter.

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The company is in early stage deliberations on the potential divestment and hasn’t launched a formal review or sale process, the people said, asking not to be identified because the information is private. The asset could attract private equity firms, while the proceeds would help fund the transformation of Salzgitter’s steel business, the people said.

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Salzgitter’s leadership are set to discuss whether to proceed with a strategic review for KHS in the coming weeks, the people said. As Salzgitter needs fresh capital, including to fund the potential closure of a steel plant that it has a 30% stake in, some supervisory board members could push for a sale of the firm’s nearly 30% stake in publicly-traded copper recycling firm Aurubis AG instead, the people said.

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Shares of Salzgitter erased earlier losses and jumped as much as 4.3% on Thursday afternoon following the Bloomberg News report.

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Deliberations are ongoing and there’s no certainty of any deal, the people said. A representative for Salzgitter declined to comment. 

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The potential move comes after a failed attempt to take over Salzgitter by two of its large shareholders, GP Günter Papenburg and TSR Recycling GmbH. The investor group was seeking to boost its holding to at least 45% plus one share and had tabled plans to revive the profitability of Salzgitter’s steelmaking operations.

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Salzgitter, which traces its roots to one of Germany’s oldest steel companies, was spun off from the Preussag Group in 1998. The company has announced a costly plan to decarbonize its steel production, weighing on the profitability of an industry already plagued by cheap imports and high energy costs at home. 

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Salzgitter’s management has given a cautious tone on the outlook for the rest of the year, with only a modest recovery expected in the steel production segment in the second half and margin likely to remain under pressure, Bloomberg Intelligence analysts said in a recent note. The company’s net debt is likely to rise sharply as decarbonization spending climbs, according to Bloomberg Intelligence. 

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Despite the currently challenging environment, Salzgitter’s shares have soared almost 40% this year, boosted by hopes that higher military spending in Europe will lead to stronger domestic steel demand. The company has a market value of about €1.38 billion.

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(Updates Salzgitter’s market value in last paragraph. An earlier version corrected the shareholdings in third paragraph.)

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