Hedged out

ThyssenKrupp boss left with little option but to quit

A man of steel no longer. Source: Reuters

A week is a long time in the international conglomerate business. On Saturday, ThyssenKrupp boss Heinrich Hiesinger signed the biggest deal of his career, a merger of his firm’s steel business with Tata Steel, creating Europe’s second-largest steel producer. The tie-up had been two years in the making, and was hard won.

But on Thursday, with the ink barely dry, he suddenly quit. Initial surprise at the move was quickly replaced with cold, hard realism. In his resignation letter, Mr. Hiesinger had cited a lack of support from the supervisory board for his departure, and leaks from insiders soon revealed just what he had been up against.

Cevian, the Swedish activist inverstor and second-largest stockholder in ThyssenKrupp, had long been opposed to his much-coveted deal with Tata, but had been outvoted on the supervisory board. However, there were more battles to come, and it now seems that other board members, including those of owners the Krupp Foundation, had lost faith in his wider strategy. This involved ploughing on with ThyssenKrupp’s unwieldy structure – it has interests in everything from steel to packaging and elevators – rather than breaking it up. Cevian had demanded his head, and the Krupp Foundation acquiesced. It was time to go.

“The broad support of stockholders and the supervisory board was the basis for the success of the strategic development of ThyssenKrupp,” Mr. Hiesinger wrote in a message to the workforce. He said it was a hard decision to step down but necessary to enable a thorough discussion of the company’s future.

Hounded by hedge funds

Cevian, backed by US investor Carl Icahn, has long urged the dissolution of the holding company. In addition, Elliott Management, the investment vehicle for Paul Singer, recently took a stake and called outright for Mr. Hiesinger to step aside.

René Obermann, former CEO of Deutsche Telekom, also voted against the merger and, surprisingly, Carola von Schmettow, head of HSBC’s German unit, withheld her vote. The 10 labor representatives all voted in approval after unions had won job guarantees and other concessions in connection with the merger, but nearly a third of the shareholder representatives did not approve of it.

However it was the Krupp Foundation’s silence that broke the camel’s back. Even when asked directly, Ursula Gather, chair of the foundation, did not back the CEO.

In the past, Cevian generally supported a merger with Tata. Its opposition had more to do with a long-standing dispute with ThyssenKrupp’s management, and very different visions of the company’s future. The Swedish investor wants drastic restructuring of the steel and industrial giant, including the dissolution of its holding company, and a lucrative sell-off of some divisions.

On Sunday, Cevian founder Lars Förberg confirmed his opposition to ThyssenKrupp’s corporate structure, suggesting he wanted to dispose of parts of the conglomerate. He called for a review of each division and how it should be owned, guided by industrial logic, “rather than history, emotions or personal ambitions.”

Mr. Hiesinger, who had been CEO since 2011, had strongly opposed radically restructuring the company. His strategic plan was more evolutionary than revolutionary, with a focus on existing technology divisions, including elevators and plant construction. The Tata merger frees up considerable capital for Thyssen, meaning acquisitions may once more be on the horizon. Divisions that could be sold off include the company’s loss-making shipbuilding business, as well as its raw materials trading division.

Cost-cutting is also on the agenda: The sale of the steel business should spell considerable savings in administration. That would be a popular move with Cevian, which has long argued the company is over-managed. On Sunday, Mr. Förberg repeated his criticism: “ThyssenKrupp’s different divisions can only thrive without the costs and bureaucracy of a centralized structure.”

The ThyssenKrupp board is expected to discuss Mr. Hiesinger’s successor Friday as it meets to accept his resignation. Sources told Handelsblatt that CFO Guido Kerkhoff, a key ally of Mr. Hiesinger, was likely to take over in the interim. Supervisory Board Chairman Ulrich Lehner will then begin sounding out options for a permanent replacement, with both internal and external candidates conceivable. ThyssenKrupp did not comment.

Martin Murphy covers companies for Handelsblatt. Darrell Delamaide adapted this article for Handelsblatt Global. To contact the author: murphy@handelsblatt.com

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