Under new management

ThyssenKrupp breakup: smaller HQ, no staff cuts, no hard feelings

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Does this headquarters look big on me? Source: ThyssenKrupp

ThyssenKrupp is on the way to solving what activist investors have criticized as one of its biggest problems: Its bloated management.

“We have made a start at slimming down management,” Guido Kerkhoff confirmed to Handelsblatt in an interview shortly after he was made ThyssenKrupp’s chief executive Sunday. “We are in the process of downsizing our headquarters. And we are actually further along with that than expected.”

Mr. Kerkhoff has been the acting chief of the company since the controversial resignation of former boss Heinrich Hiesinger in July this year and, at a board meeting Sunday, members made his position permanent, signing off on a five-year contract. At the same time, they voted to make business professor Bernhard Pellens, who has been with the board since 2005, their new chairman. Most significantly though, they agreed to split the German industrial giant in two.

In terms of shrinking management, executives at the holding company will be divided between the two new companies, Mr. Kerkhoff explained. “But there will be no further staff cuts,” he added, referring to an agreement with the union, IG Metall.

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Happy about his new job: Guido Kerkhoff. Source: DPA

One of the new companies – named ThyssenKrupp Industrials – will focus on the very profitable elevator business, currently valued at worth around €15 billion ($17 billion), as well as automotive supplies and plant construction. The other new branch – ThyssenKrupp Materials – will focus on steel and stainless steel production as well as the marine business.

The decision comes after months of unrest during which ThyssenKrupp’s activist investors, the hedge funds Cevian and Elliott Management, pushed to break up the company to make it more profitable and progressive, as well as dissolve what they saw as an unnecessarily complicated holding company. The infighting led to both Mr. Hiesinger and the former board chairman, Ulrich Lehner, resigning. And although shareholders have yet to vote on the board’s decision of last night, it seems as though it will be acceptable.

Mr. Kerkhoff says that no extra capital will be needed to fund the split and that, in fact, the division is likely to reveal what he describes as “hidden reserves.” Nor will the split jeopardize the company’s newly minted merger with Tata Steel, which would make ThyssenKrupp Europe’s second-largest steel producer. Mr. Kerkhoff: “We’re working hard to start up the independent steel branch so the way for the start of the joint venture is clear.”

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Asked whether all this meant ThyssenKrupp’s internal turmoil was in the past, Mr. Kerkhoff was diplomatic, even though as ThyssenKrupp’s chief financial officer he was long opposed the idea of dividing the company. “All sides were looking for a solution and we, as the board, built bridges. After all it is our job to come up with a strategy that the board can agree to,” he said.

And contrary to what some cynics said, the decision to split ThyssenKrupp was not forced on the board, Mr. Kerkhoff insisted. Rather it was a natural progression – “without the changes we made in the past this new structure would not be possible,” he said – and the two new companies will continue to bear the ThyssenKrupp name, and have similar culture and values.

Mr. Kerkhoff would not directly address the state of the relationship with activist investors, who are seen as having fomented ThyssenKrupp’s leadership crisis and whose representatives sit on the board. There are currently several empty seats and rumor has it that Cervian wants another one.

“The board unanimously supported the plan and I’m very happy about that,” was all Mr. Kerkhoff would say. “I am looking forward to it. The unanimous vote is the basis for that. That’s what [my work] depends on and that is what we are building upon.”

The interview was conducted by Martin Murphy, who covers the steel, car and defense industries for Handelsblatt. It was adapted in English for Handelsblatt Global. To contact the author: murphy@handelsblatt.com 

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