Thyssenkrupp Plans Elevator IPO and Abandons Original Split
(Bloomberg) -- Thyssenkrupp AG announced a dramatic U-turn in corporate strategy, saying it will take its elevator business public and abandon a plan to split in two.
The shares surged the most on record after Chief Executive Officer Guido Kerkhoff said Friday that the new proposal could also lead to the elimination of as many as 6,000 jobs. Kerkhoff’s reversal comes just seven months after he told investors that dividing the company was the best way forward.
“It is clear that Thyssenkrupp’s strategy of the past has failed," said Lars Forberg, founding partner of Sweden’s Cevian Capital AB, the second-biggest shareholder. "All stakeholders now believe that a fundamentally new direction is urgently needed."
The company has faced intense turmoil over the past year and the shares are trading near the lowest level since 2003. It’s come under pressure from activist investors such as Cevian, who argued for the split as a way to resolve an overly complicated business model spanning everything from submarines to engineering.
It’s time "to hit the reset button," said Kerkhoff, who took the top job at the company just last year.
Thyssenkrupp decided on Friday against an earlier plan to spin off the steel operations into a joint venture with Tata Steel Ltd. after deciding regulators were likely to reject it.
Thyssenkrupp shares rose as much as 21%, the biggest intraday gain on record. The stock was up 20% to 13.44 euros as of 3:14 p.m. in Frankfurt. Tata Steel slid as much as 7.7% in Mumbai.
Flagging auto sales and U.S.-China trade war are continuing to take a toll on the company. Thyssenkrupp expects to report a net loss for the year and Kerkhoff said trade woes are stifling business development.
A key part of the CEO’s new turnaround plan will be an initial public offering of the elevator business. The unit is the largest contributor to earnings, with rapid growth coming from cities in emerging markets that are industrializing and building skyscrapers. In the fourth quarter, it accounted for 61% of pre-tax profits. Thyssenkrupp plans to keep a majority stake in the business after the IPO.
“Elevators remains the crown jewel and should attract strong interest,” said analysts at Jefferies International Ltd. including Alan Spence.
|What Bloomberg Intelligence Says|
"Thyssenkrupp’s planned IPO of its elevator and escalator unit could be worth about 15 billion euros, based on our scenario, and comes as elevator-market sales accelerate. Robust European construction activity in most regions support this growth. Still, rivalry in this market, both from pure-plays Kone and Schindler, as well as Otis (United Technologies), remains tough."
-- Mustafa Okur, industrials analyst
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Thyssenkrupp also said it was unable to resolve antitrust issues presented by the European Commission over its steel joint venture. The rationale for the deal was questionable, given the pressures facing the Tata Steel Europe business, said Christian Obst, a metals equity analyst at Baader Bank AG.
It will also scrap a plan, announced in September 2018, to carve out two distinct businesses. The CEO’s aim was to create Thyssenkrupp Industrials, comprised of elevator, automotive supplies and plant construction businesses, and Thyssenkrupp Materials, which would run steel and metal-focused operations.
“Thyssenkrupp has lost another eight months with its attempt to turn around,” said Ingo Speich, chief of sustainability and corporate governance at Deka Investment, one of the top shareholders. “The split was the chief executive’s master plan, the failure therefore dents into his credibility."
Kerkhoff said the main focus is now improving financial performance. Thyssenkrupp’s relatively weak balance sheet hampers its strategic options and “that needs to change,” he said.
The company is still feeling the pinch from past missteps like the ill-fated ventures in the Americas that cost it about 8 billion euros, he said.
“For years, we didn’t really make much progress,” Kerkhoff said.
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