Thyssenkrupp backs down drastically to survive

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Thyssenkrupp will transform from a sprawling conglomerate into a “lightest possible” holding company, as it leads through a radical restructuring plan that could leave it with at least 20,000 fewer employees and result in its merger of steel arms with a rival.

As the coronavirus crisis adds to its growing debts, the struggling German group will put up for sale companies with annual sales of around 6 billion euros, including its stainless steel plant in Italy and its unit of construction.

Despite the collapse of a merger with rival Tata Steel last year, the Essen-based company confirmed that it was in talks to consolidate its struggling steel business and said it would seek partners for its division shipbuilding.

Martina Merz, who became Thyssenkrupp’s third chief executive officer in just over a year in September, said the company “is holding talks in all directions in the steel sector”, which was plagued by excess capacity even before the appearance of the coronavirus.

But she added that Thyssenkrupp had learned from Tata’s failed deal “not to commit to an option too early”.

The steel unit, which has lost nearly half a billion euros in the past six months alone, will therefore be developed simultaneously as a stand-alone business.

The decision to accelerate the breakup of Thyssenkrupp is a justification for the arguments put forward by activist investors Elliott and Cevian, who for years pushed to abolish the integrated structure of the conglomerate in favor of a looser holding company.

After abandoning an attempt to split the company in two, Thyssenkrupp, once a symbol of German industrial power, but now struggling with a debt of 7 billion euros and huge retirement commitments, sold its unit the more profitable at the start of this year.

The 17.2 billion euro elevator and escalator deal with private equity groups Advent and Cinven is expected to be finalized at the end of Thyssenkrupp’s fiscal year in September.

Merz told reporters that she believed there was “no risk” that the transaction, which has yet to be approved by the European Commission, would not be completed on time.

Separately, Thyssenkrupp will be reduced to just five main activities: materials, components, auto parts, shipbuilding and steel.

The remaining units for which Thyssenkrupp sees “no sustainable future” will be grouped and separated from the company’s main balance sheet, and put up for sale.

Alan Spence, analyst at Jefferies, said he “wouldn’t be surprised if it wasn’t the final plan,” as Thyssenkrupp may still have to get rid of underperforming small businesses, particularly in its automotive division.

The Krupp Foundation, which owns almost 21% of Thyssenkrupp and remains its largest shareholder, said it supports the measures, despite its mandate to protect the integrity of the business.

“We have confidence in the board of directors and we expect them and all management teams to pursue the advertised course with vigor,” said the foundation. “Thyssenkrupp has no time to waste. “

Lars Forberg, founding partner of Cevian, which owns 18%, said the announcement marked an “important step” for Thyssenkrupp, adding that it was “now crucial that this plan be implemented with urgency and determination”.

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