(Bloomberg) -- Thyssenkrupp AG’s planned sale of half its steel business to a Czech billionaire is likely to drag on due to tough talks with key customers and will hinge on the embattled conglomerate investing about €1 billion in the unit, according to people familiar with the matter.

The German company has been in talks with Daniel Kretinsky this year over a deal. Before concluding a deal, the tycoon may want to see the outcome of steelmakers’ contract talks with car companies to supply steel for 2024, the people said. Those negotiations are taking place against a backdrop of low prices for the metal and higher costs for coal, a key production expense.  

The negotiations with automakers could last until year end and will affect the performance of the business, the people said, declining to be identified because the information is private. Thyssenkrupp’s steel unit had sales last year of €11.7 billion. 

A representative for Kretinsky’s EPH holding company declined to comment. In an emailed statement, Thyssenkrupp said, “We can confirm that we are currently holding constructive and open-ended talks with EPH regarding a possible joint venture in steel.” 

For Kretinsky to go ahead with his preliminary offer, Thyssenkrupp will likely have to inject cash into the unit. That is because his preliminary offer for a 50% stake values the business at less than its pension liabilities of €3.5 billion, the people said. 

Thyssenkrupp would need to fill the gap with a capital injection to avoid the deal having a negative equity value.  

The steel unit would then require further capital from both Kretinsky and Thyssenkrupp to boost its balance sheet, the people said. 

To be sure, a deal isn’t a foregone conclusion. But a first meeting between Kretinsky and the unit’s labor representatives this week was constructive, people familiar with the discussions said. The company confirmed Kretinsky personally introduced himself to worker representatives.

With half the seats on Thyssenkrupp’s supervisory board, the unions can slow and perhaps block the deal.

Thyssenkrupp has for years looked to spin off or sell its steel unit, which has repeatedly failed to break even due to high investment requirements and low steel prices. But workers harbor doubts as to whether Kretinsky would follow through with the estimated €1 billion in investments needed to modernize the Duisburg plant and switch to decarbonized steel production, some of the people said.

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