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German steelmaker and engineering company ThyssenKrupp AG (TKA.XE) has in principle agreed to sell its stainless steel operations to Finland's Outokumpu Oyj (OUT1V.HE) in a transaction valued at EUR2.7 billion, a person familiar with the matter told Dow Jones Newswires Monday.

The sale of ThyssenKrupp's unit Inoxum to Outokumpu would create the world's largest maker stainless steel with 18,000 employees and over EUR10 billion in annual revenue.

The possible sale of Inoxum 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, in order to refocus the business and reduce debt. In fiscal 2011, which ended Sept. 30, ThyssenKrupp generated sales of around EUR49.1 billion.

Under the deal, Outokumpu would buy ThyssenKrupp's stainless steel business for a cash sum, the person said.

However, ThyssenKrupp would also take a stake of just under 30% in Outokumpu and keep that stake for at least one year, the person added.

Additionally, ThyssenKrupp would unload a three-figure million euro amount in debt on Outokumpu, the person said, confirming a report in German daily newspaper Die Welt earlier Monday.

ThyssenKrupp and Outokumpu declined to comment on the matter.

The person familiar with the matter also said that the deal further foresees the shutting down of the stainless steel smelters at ThyssenKrupp's Krefeld and Bochum plants to tackle overcapacity that has blighted the European stainless steel industry for years.

In return, however, the rolling capacities at the Krefeld plant would be expanded, the person added.

ThyssenKrupp's Chief Executive Heinrich Hiesinger had previously said that the global stainless steel sector remains a growth market, but that overcapacity in Europe and to an extent in Asia mean the sector will have to consolidate. Hiesinger had added that the company's decision to spin off its stainless unit could provide further options for mergers or partnerships.

Last year ArcelorMittal (MT), the world's largest steelmaker by output, spun off its stainless business Aperam, but other consolidation attempts have failed in recent years.

ThyssenKrupp's supervisory board is expected to make a decision on the sale at a meeting Tuesday afternoon.

Before that meeting, however, both companies are continuing with their efforts to convince ThyssenKrupp workers and labor union IG Metall of the merits of their deal.

Over the past few days, IG Metall has organized several demonstrations by ThyssenKrupp workers, seeking assurances from Outokumpu, including an exclusion of mandatory layoffs as well as certain investment in stainless steel mills in Bochum and Krefeld.

-By Jan Hromadko, Dow Jones Newswires; +49 69 29 725 503; jan.hromadko@dowjones.com

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