Separate ways

ThyssenKrupp surprises with move to split into two companies

ThyssenKrupp helmet 1800px
No more patchwork. Source: DPA

After months of tension and turmoil, including the departure of the board chairman and CEO, ThyssenKrupp is suddenly in a hurry to make radical changes. The supervisory board is to meet Sunday to approve the division of the conglomerate into two separate companies.

The plan by acting chief executive Guido Kerkhoff calls for the company to be split into ThyssenKrupp Industrials and ThyssenKrupp Materials. The former is to include the company’s most profitable division, elevators, as well as plant construction and auto components. The latter will include the historic steel core as well as the raw materials trading activity.

The division is to take place in 2020 and current shareholders will get new shares in both companies. Investors reacted positively and the stock gained about 10 percent.

Activist investors pushed for change

Hedge fund investors Cevian and Elliott Management have been pushing for a breakup of the company for months to unlock value they see diminished by the centralized and bureaucratic holding company structure. Their activist intervention is credited with forcing out both Heinrich Hiesinger, the former chief executive and then Ulrich Lehner, the former chairman, over the summer.

Mr. Kerkhoff’s plan comes amid a stalemate between Cevian and the biggest shareholder, the Krupp Foundation, over who should be the new chairman. The CEO position is impossible to fill until the chairman is chosen, and more than a dozen candidates who have been interviewed have all turned down the job.

The new plan to split the company into two is intended to put the breakup debate to rest. Each of the new companies will have a better chance to tap capital markets as independent entities, Mr. Kerkhoff believes. The division into just two companies is an alternative to the full breakup sought by the financial investors. “This is exactly what we as an executive board have sought – without anxiety and without illusions,” Mr. Kerkhoff said.

Two new companies nearly equal in sales

The two new companies would be roughly equal in terms of sales. The materials company would have 40,000 employees and €18 billion ($21 billion) in revenue, while the industrials company would have 90,000 employees and €16 billion in sales.

ThyssenKrupp’s steel activities are still due to be merged with those of Tata Steel in Europe, pending approval by European Union authorities.

The new industrials company would probably keep ThyssenKrupp’s place in the DAX index of 30 blue chips. The profitable elevator business alone is valued at more than €16 billion. Both Cevian and the Krupp Foundation support the split.

The trade unions, including the worker representatives on the supervisory board, are also backing the plan. These board members are in the unusual position of having the majority since Germany’s co-determination law calls for a balance of 10 shareholder representatives and 10 worker representatives. The resignation of the chairman and another shareholder representative, the worker members outnumber shareholder representatives 10-8.

The timing is also unusual and reflects the deadlock between the two major shareholders. The Krupp Foundation could not agree with Cevian’s breakup strategy but offered no alternative strategy of its own. Mr. Kerkhoff, the former CFO acting as the interim chief executive, stepped into the gap with his plan. Whether that will secure him the top job on a permanent basis remains to be seen.

Martin Murphy covers industry for Handelsblatt. Kevin Knitterscheidt covers steel and machinery. Darrell Delamaide adapted this story into English for Handelsblatt Global. To contact the authors: murphy@handelsblatt.com and knitterscheidt@handelsblatt.com.

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