UPDATE: ThyssenKrupp, Outokumpu In Talks On Stainless Steel Sale

ThyssenKrupp AG (TKA.XE) said Monday it is in talks with Finnish rival Outokumpu Oyj (OUT1V.HE) regarding a sale of ThyssenKrupp's stainless-steel unit Inoxum, naming for the first time a potential partner in its plan to divest the unit, as the German steelmaker and engineering group struggles to reduce debt and realign its portfolio.

The company stressed it is keeping open two other options for the unit--an initial public offering or a spin-off--given high macroeconomic uncertainty and current high market volatility.

The company first announced plans to divest a majority stake of the unit in May last year. ThyssenKrupp's Chief Executive Heinrich Hiesinger said at the time the company will become a minority shareholder in the stainless steel business and give up operational control. It aims to complete the divestment by Sept. 30--the end of its fiscal year 2012.

Analysts welcomed ThyssenKrupp's moves to minimize cyclical steel exposure, as well as potential consolidation in the industry as a whole.

However, some said a tie-up between Inoxum and Outokumpu, two of the four main players in the European stainless steel market, could lead to problems obtaining anti-trust clearance.

Equinet said it expects to see a separation of ThyssenKrupp's Italian Acciai Speciali Terni, or AST, assets due to anti-trust regulations, adding the most likely scenario is a merger between stainless steel flat product maker ThyssenKrupp Nirosta GmbH and Outokumpu, as Outokumpu would profit from Inoxum's strong distribution network in Europe.

However, BHF-Bank analyst Hermann Reith said a tie-up could be possible from an anti-trust perspective as Outokumpu is strong in the U.K., Sweden and Finland while ThyssenKrupp is strong in Germany and eastern Europe. He added a tie-up between ThyssenKrupp and Aperam (056997440.LU), the business ArcelorMittal (MT) spun off a year ago, would be harder as the companies overlap so much.

Inoxum has about 11,500 employees and is made up of a stainless steel segment and a high performance alloys division. Its sale is part of a broader effort by ThyssenKrupp to sell assets that generate around EUR10 billion in annual sales and employ some 35,000 people.

German union IG Metall Monday called on ThyssenKrupp to safeguard the jobs of Inoxum workers and said it wouldn't approve a sale without employee protection.

At 1004 GMT, ThyssenKrupp shares traded flat at EUR21.20 compared with an 0.1% lower DAX index, while Outokumpu was up 11% at EUR7.50.

-By Harriet Torry, Dow Jones Newswires; [phone]; [e-mail]