Thyssenkrupp shoved into a panicky Plan B gfhay
Thyssenkrupp’s U-turn could yet be a step forward. The 8 billion euro German conglomerate on Friday ditched a plan outlined in September to split its business, and revealed it expected a joint venture with Tata Steel to be blocked by European regulators. An ensuing 20% share price jump suggests investors prefer Chief Executive Guido Kerkhoff’s Plan B, despite the fact that he was shoved into it.
Thyssenkrupp attracted the attentions of activists Cevian Capital and Elliott Advisors because its bloated cost base left operating margins below 4%, almost half the average of peers. Plan A, communicated in various stages, was a 50-50 JV with Tata Steel which could have yielded synergies with a present value of 3 billion euros after tax. Thyssenkrupp would then split its remaining business into an industrials bit containing the crown jewel elevator business, and a weaker materials business.
Now Plan A has been scrapped, Thyssenkrupp will lose its share of synergies and a structure that might have made it more obvious where costs are allocated. But a perceived undervaluation of the German group’s steel assets in the JV offset the synergies, and the split carried 900 million euros of costs. Meanwhile, the materials group would have retained a 30% stake in the industrials arm.
Plan B – listing the elevator business – could generate more value. Assuming the arm makes 1 billion euros of operating profit in 2020, it would be worth around 14 billion euros on the same multiple as 20 billion euro rival Kone. A listing would generate cash to keep the company’s 10 billion euro debt pile and pensions manageable. A merger with Kone could generate 1 billion euros of annual synergies, according to a person familiar with the situation.
Kerkhoff would have saved himself the embarrassment of a massive U-turn had he been prepared to offload his crown jewel earlier. His fortunes now hinge on whether he can cut Thyssenkrupp’s head office costs – and turn his elevators into gold.
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