Conglomerates have been the dinosaurs of the corporate world for two decades. Investors don’t like them because they usually trade at a “conglomerate discount,” meaning a share price less than the sum of their parts. Managers don’t like them because they are unwieldy and often divert attention from their core business.
One conglomerate that is attempting to defy this conventional wisdom is ThyssenKrupp, the iconic German steelmaker that also produces elevators and car components, builds factories and makes submarines. Cevian Capital, a Swedish activist investment company, has become ThyssenKrupp’s second largest shareholder and has been prodding management for months to split up the company.
But ThyssenKrupp is not buying that advice. On Monday, CEO Heinrich Hiesinger received the backing of the company’s board of directors for his strategy of keeping the company together. “A breakup of the group is not an issue at all,” board chairman Ulrich Lehner told Handelsblatt in an interview. “If a shareholder publicly positions himself in this way, it will hurt the company.”