ThyssenKrupp

Caught between angry investors and even angrier employees

Thyssenkrupp steel workers hold a protest rally in Andernach
Unhappy: Around 8,000 Thyssenkrupp steel workers protested against the planned merger with Tata in late November. The placard shows Thyssenkrupp CEO, Heinrich Hiesinger, and, concerning the merger, says "not with us." Source: Reuters

Anyone wanting an idea of how German industrial giant, ThyssenKrupp, sees its future need only visit the foyer of the company’s Essen headquarters. There, you will find mixed reality headsets featuring digital presentations on futuristic elevators and driverless cars.

In that futuristic albeit virtual reality, however, there’s not much about steel, the basic ingredient in all of those potential products and the metal that gave ThyssenKrupp its start in the first place; the company was formed as a merger between two German steel companies.

For ThyssenKrupp, this week’s presentation of its annual results was another opportunity to talk up alternative plans for the company’s core business: The planned merger of its steel division with India’s Tata Steel would create Europe’s second-largest steelmaker, behind ArcelorMittal.

Steel may be an essential part of ThyssenKrupp’s business, but CEO Heinrich Hiesinger believes that his company must shed it to survive.  “We want to turn ThyssenKrupp into a strong industrial group,” he told reporters in Essen on Thursday.

Overcapacity for flat steel in the European market is among the structural problems the industry has so far failed to fix, said Mr. Hiesinger, who has led ThyssenKrupp for just under seven years. “We’re convinced that the joint venture with Tata is the best solution,” he added.

The big headline from ThyssenKrupp’s 2016-2017 results — a 30 percent jump in earnings before interest and taxes to €1.9 million ($2.25 million) — obscures the more complicated nature of the company’s finances. The sale of its Brazilian steel plant CSA contributed to “one-time earnings charges,” according to the company, resulting in an annual loss of €649 million, without minority interest.

Thanks to rising prices, Steel Europe was actually ThyssenKrupp’s second most profitable division after its elevator business, with earnings before interest and taxes up nearly three-quarters at €547 million. The company’s CEO welcomed the result, but cautioned against drawing the wrong conclusions: “It goes to show that once again, you can win and lose it all in half a year.”

 

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For ThyssenKrupp’s workers, the real fear is unemployment as a result of the Tata Steel merger. An estimated 4,000 jobs could be lost, analysts suggest. And as Mr. Hiesinger announced the annual results on Thursday, some 8,000 of his employees were taking to the streets of the German town of Andernach, where the company runs a tin plate plant.

The union representing the workers, IG Metall, is demanding long-term job guarantees as a precondition for supporting the merger with Tata. “We call for a decade of security for employment, locations, factories and investments,” said Detlef Wetzel, deputy supervisory board chairman of ThyssenKrupp Steel Europe, one among the labor representatives who, altogether, hold about half of the seats on the company’s board.

It’s not just the company’s staff who have been worried about the merger. In the run-up to September’s general elections, German politicians made the merger a campaign issue. The center-left Social Democrats were particularly concerned.

“ThyssenKrupp doesn’t want to put its cards on the table, and that’s been the case for months,” Andrea Nahles, the head of the SPD’s parliamentary group, told demonstrators on Thursday. “But the workers are rightfully demanding there be transparency here.”

Mr. Hiesinger, the CEO, has countered that the Tata merger would not trigger any changes that the company wasn’t already planning to make, and that it would ultimately mean less hardship for everyone involved. Negotiations between labor representatives and management were set to continue Friday, with talks expected to focus not only on jobs, but also on the financial makeup of the joint venture, in which ThyssenKrupp and Tata would likely have an equal stake.

Mr. Hiesinger was confident that the two sides will agree. Chief human resources officer Oliver Burghard, who is leading labor negotiations on ThyssenKrupp’s behalf, was optimistic too, and said that the company would take its time in hammering out an agreement. The issue is a complex one, Mr. Burghard said, and ThyssenKrupp is not rushing into anything.

“The model of the old-style conglomerate no longer works because the challenges come faster than they can react. ”

Lars Förburg, co-founder, Cevian Capital

If the deal with Tata does eventually go through, ThyssenKrupp will emerge as a very different company. But it won’t be enough change for some people. Lars Förberg, co-founder of activist investor, Cevian Capital, which has a more than 15 percent share in the conglomerate, making it the second-largest stakeholder behind the Krupp Foundation, said the spin-off won’t do enough.

Mr. Förberg wants a complete overhaul of ThyssenKrupp’s business strategy, particularly in light of Thursday’s “worrisome” annual results.

“We have been waiting for visible progress for four years now,” the hedge fund manager told Handelsblatt in an interview. “It is clear that the company has changed, but it has not become any more competitive.”

In asking what the best structure for Steel Europe is, the board is asking the right questions, Mr. Förberg continued. And he and his fellow investors agree that the Tata merger is part of the answer. They have confidence in Mr. Hiesinger as CEO, but the strategy that is currently being pursued has not delivered what was promised, he said. “If something is not working, it’s got to change,” he said, adding that now ThyssenKrupp’s board needs to ask the same questions of all the other divisions too. They may find the answers lie in further decentralization, more joint ventures and even the sale of some sectors, Mr. Förburg suggests.

“The main issue is that the model of the old-style conglomerate no longer works because the challenges come faster than they can react,” he said. “The conglomerates of the past are evolving because the business environment is changing quickly.” He added: “These days, companies need to be faster and more efficient and closer to their customers. That only happens if they decentralize.”

Handelsblatt’s Martin Wocher writes about companies and markets and focuses on the steel, machine and electric industries. To contact the author: wocher@handelsblatt.com.

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