All change

ThyssenKrupp shares soar as top-level departures signal breakup

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Iron lady: Ursula Gather. Source: Reuters

It doesn’t take a rocket scientist to figure out that if the CEO and board chairman of a company leave in quick succession, corporate strategy is about to change. Investors certainly concluded that the boardroom battle at ThyssenKrupp is now over, marking up the stock price in anticipation that its activist investors will now release value in the company by breaking it up.

“With the resignation of the chairman of the supervisory board, the radical change of the group, which the activist shareholders have embraced, could well accelerate,” Marc Gabriel, analyst at Bankhaus Lampe, told Handelsblatt.

“Radical change” means breaking up the conglomerate, which produces elevators, submarines, factory equipment, and other things. Hedge funds Cevian, the second-largest shareholder, and Elliott Management have been calling for the breakup, arguing that the top-heavy corporate structure stifles growth and profitability. The CEO, Heinrich Hiesinger, and board chair, Ulrich Lehner, felt that after spinning off the historic steel operation into a joint venture with Tata Steel, the rest of the company could forge ahead as a conglomerate. Mr. Hiesinger announced his departure earlier this month and Mr. Lehner on Monday.

Power vacuum

It seems they departed in quick succession because the company’s largest shareholder, the Krupp Foundation, seemed to be leaning toward a breakup. Both Mr. Hiesinger and Mr. Lehner blamed lack of support from the foundation and its chair, Ursula Gather, for their decision to quit.

If the activist investors actually get their way and transform one of Germany’s most iconic companies it would mark a turning point in the country’s corporate governance, which has been largely in the hands of a cozy club of insiders who don’t like rocking the boat.

In the meantime, the departure of the top two officials leaves a power vacuum. The board’s decision on a new chair will be telling. The leading candidates are two current board members, former Deutsche Telekom CEO René Obermann and former Hochtief CEO Hans-Peter Keitel.

Some analysts expect Cevian, a Swedish hedge fund backed by Carl Icahn, to step into the power vacuum as kingmaker for the new chair. However, much depends on Ms. Gather, a professor of statistics who took over the foundation chairmanship in 2013. Though a member of the ThyssenKrupp supervisory board, she has already taken herself off the list of possible successors to Mr. Lehner.

It was reportedly the disclosure over the weekend that Ms. Gather had talks two years ago with the Finnish maker of Kone elevators about a sale of ThyssenKrupp’s elevator business that prompted Mr. Lehner’s sudden resignation. Sources said the chairman wanted to send a “signal” to the foundation “that breaking up the company and the resulting loss of many jobs is not an option.” But it is his departure that makes a breakup much likelier.

The Krupp Foundation holds 21 percent of the company’s shares. Cevian holds 17 percent. The foundation said it will “responsibly” work to develop the company in keeping with the founder’s desire to preserve unity of the company “as far as possible.”

Job losses

The statement is ambiguous enough that not everything has to stay the way it is. The foundation’s website also has a quotation from an earlier chief executive, Alfried Krupp von Bohlen und Halbach: “Perceptions of a misunderstood tradition must not prevent us from finding new ways.”

Cevian will certainly be ready to furnish those new ideas, and investors have already priced a breakup into the stock. It was up about 10 percent at one point Tuesday following news of Mr. Lehner’s resignation late Monday.

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But the prospect of significant job losses among the workforce of 160,000 remains a hurdle. Social Democrat Party deputy Bernd Westphal warned Tuesday against a breakup, saying it would endanger jobs. He urged the large shareholders to work together on sustainable strategy and put long-term investments ahead of short-term gains.

The labor unions, which exert considerable influence in the works council and have equal representation on the board, are caught in the middle. They greenlighted the Tata merger only after getting job guarantees from the partners. However, the unions said they wanted to be a stabilizing factor in the company and pledged to side with Ms. Gather.

Several Handelsblatt reporters contributed to this article. Darrell Delamaide adapted it into English for Handelsblatt Global. To contact the author: d.delamaide@extern.handelsblatt.com

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