By Christoph Steitz, Andrey Sychev and Jan Lopatka
FRANKFURT/BERLIN/PRAGUE (Reuters) -Thyssenkrupp will sell a 20% stake in its steel business to the energy holding controlled by Czech billionaire Daniel Kretinsky, a major breakthrough for the German conglomerate after years of unsuccessful attempts to divest the unit.
For Thyssenkrupp (ETR:TKAG) the deal marks what it hopes will result in a balance sheet separation from a cyclical and struggling business it has been trying to sell, spin off or merge.
With a history of supplying steel for factories and railways stretching back more than 200 years, Thyssenkrupp Steel Europe is Germany's largest steelmaker and tied to the country's rise as an industrial powerhouse.
However, cheaper Asian competitors, high power prices and a cooling global economy have put pressure on the business, leading to operating losses in four of the past five years.
The parties are in talks for Kretinsky to buy a further 30% stake, aiming for a 50-50 joint venture in the future, Thyssenkrupp said on Friday, sending its shares up 9% by 1305 GMT.
Thyssenkrupp is currently hammering out a business plan for the division, which is struggling with 3 billion euros ($3.2 billion) worth of pension funds, including investment plans and ensuring a solid capital base, CEO Miguel Lopez told reporters.
The deal is centred around the idea that steel production will require cheap and green electricity going forward, areas where Kretinsky's holding EPCG can deliver with its 22 gigawatts (GW) of installed capacity across Europe.
EPCG, which made core profit of 7.3 billion euros last year, has been shutting its coal-fired plants and investing heavily in hydrogen-ready new gas-fired plants, with 2.4 GW currently under construction at three sites in Italy and Britain.
Its EPETr unit will hold most of the remaining coal assets, which are to be phased out as part of a 10 billion euro renewables investment push.
LABOUR CONFLICT
No deal value was disclosed, but brokerage Baader said that, unless more writedowns were announced for the unit, Thyssenkrupp could receive 350-400 million euros for the stake.
"This strategic partnership is an historic and significant step toward ensuring a resilient and climate friendly steel production," Lopez said, adding it contributed to securing the future of Germany's steel sector.
Lopez said the steel unit's book value was 3.6-3.7 billion euros and there was no need for writedowns currently. Both parties have the right to step back from the deal, he added.
Kretinsky, who has been on a European buying spree, called the transaction an important contribution to steel decarbonisation, adding that "the entire European steel sector will undergo a similar transformation to the energy sector".
The news comes as Thyssenkrupp is revamping the steel unit, which employs about 27,000 people, to climate-neutral production by 2045, with the help of multi-billion government subsidies.
The German industrial conglomerate recently announced it will cut jobs and reduce capacity at its main Duisburg site, which was a sticking point in talks with Kretinsky and has sparked criticism from the German government.
The Alfried Krupp von Bohlen and Halbach Foundation, Thyssenkrupp's biggest shareholder with a stake of roughly 21%, welcomed the deal.
Powerful labour representatives, who said they were informed just a few hours before the official announcement, were less enthusiastic.
"We now need a viable concept for the future for the further reorganisation towards green steel - and finally a return to respectfulness for the labour side," said Juergen Kerner, board member at the IG Metall union and deputy chairman of Thyssenkrupp's supervisory board.
"Otherwise, conflict is inevitable."
($1 = 0.9318 euros)