Cevian Is Said to Push for Thyssenkrupp Breakup Over Tata Deal

(Bloomberg) -- Activist Cevian Capital is opposing Thyssenkrupp AG’s plan to combine its European steel unit with Tata Steel Ltd.’s business in the region and is instead favoring a breakup of the German engineering company, according to people familiar with the matter.

Sweden’s Cevian is against the merger because of doubts it will yield significant synergies, the people said, asking not to be identified because the deliberations are private. Cevian has representation on Thyssenkrupp’s supervisory board and is its second-largest shareholder with a 15 percent stake, according to data compiled by Bloomberg.

Cevian’s opposition may put a deal with Tata at risk for Thyssenkrupp’s management, who have said they favor the Tata merger, as more supervisory board members come out against the joint venture. Chief Executive Officer Heinrich Hiesinger aims to reach a deal in principle with Tata this month, creating a joint venture that would be Europe’s second-largest steel producer by output, valued at about 10 billion euros ($12 billion) including debt, the people said.

“Talks with Tata are constructive,” and negotiations are ongoing, a Thyssenkrupp spokeswoman said in an emailed statement. “It is expected to receive approval from the board. An agreement could be possible within this month.”

A spokesman for Cevian declined to comment. A spokesman for Tata said the company has stated previously that talks with Thyssenkrupp are ongoing and declined to comment further. Thyssenkrupp and Tata are nearing an agreement on the steel joint venture after a breakthrough in negotiations, Manager Magazin reported, citing people familiar with the matter.

Labor representatives, which have half of the seats on Thyssenkrupp’s supervisory board, have also expressed fears that the combination will lead to job cuts. For the transaction with Tata to move forward, Essen-based Thyssenkrupp’s management needs to win approval from at least half of its board members.

If Thyssenkrupp reaches an agreement on the Tata venture, the German company may consider the option of raising fresh capital of about 1.5 billion euros, or about 10 percent of the firm’s market value, on the back of potentially positive stock reaction, two of the people said.

Plan B

The company’s oversight committee is set to meet around the weekend of Sept. 23, giving labor and shareholder representatives an opportunity to discuss the company’s strategy, the people said.

“The executive board is currently discussing strategic options,” Thyssenkrupp said in the statement. The company confirmed that it had postponed the meeting originally scheduled for Sept. 12 “in order to be able to inform the supervisory board appropriately about the status of these discussions.”

Instead of the joint venture, labor representatives and Cevian support a plan to spin off Thyssenkrupp’s non-steel activities, the people said. Shareholders would end up owning two types of stock -- shares in the steel operations as well as the company holding the firm’s other businesses, they said.

In that scenario, Thyssenkrupp would separate its other businesses, including elevator operations, components technology, industrial solutions and material services activities, from European steel, people familiar with the matter said last month. Non-steel operations contribute about 80 percent of the company’s overall revenue.

Hiesinger has been exploring alternatives for the German industrial giant, with roots dating to 1811, as the market for metals weakened. The company completed its exit from its Steel Americas unit in February when it agreed to sell its Brazilian steel plant to Ternium SA.

--With assistance from Siddharth Philip Swansy Afonso and Aaron Kirchfeld

To contact the reporter on this story: Eyk Henning in Frankfurt at ehenning1@bloomberg.net.

To contact the editors responsible for this story: Aaron Kirchfeld at akirchfeld@bloomberg.net, Benedikt Kammel at bkammel@bloomberg.net, Amy Thomson, Lynn Thomasson