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INDUSTRY & TRADE

German industrial giant ThyssenKrupp faces ‘aggressive restructuring’ after bosses quit

Turmoil has erupted at industrial giant Thyssenkrupp after a mega deal merging its steelmaking arm with India's Tata, with its bosses quitting amid an acrimonious battle with shareholders on whether to break up the venerable institution.

German industrial giant ThyssenKrupp faces 'aggressive restructuring' after bosses quit
Steelworks from ThyssenKrupp in Duisburg, North Rhine-Westphalia. Photo: DPA

The leadership chaos sparked fears of further job losses as some key investors push for redical surgery on the two-century-old conglomerate that makes everything from elevators and submarines to car components, turnkey industrial installations and steel.

“It is clear that ThyssenKrupp is at a crossroads…aggressive restructuring may be in the cards,” analysts at US investment bank Jefferies wrote Tuesday after supervisory board chief Ulrich Lehner followed chief executive Heinrich Hiesinger out of the door late Monday.

Hiesinger, who quit earlier in July, and Lehner were both fierce defenders of keeping ThyssenKrupp's sprawling structure intact.

“I take this step consciously to enable a fundamental discussion with our shareholders on the future of ThyssenKrupp,” Lehner said in his parting statement.

“A break-up of the company and the related loss of many jobs is not an option,” he warned in a final swipe at his opponents.

Tracing its roots back to 1811 and a household name of German industry for  over a century, ThyssenKrupp booked 41.5 billion euros ($48.7 billion) of revenue in its 2016-17 financial year and employs some 159,000 people worldwide.

July should have been a month of optimism for the Essen-based group, after it sealed a deal in late June with India's Tata to merge their European steel operations.

SEE ALSO: Germany's ThyssenKrupp and India's Tata merge to become Europe's second-biggest steelmaker

Bosses had hoped to find 400 to 500 million euros of annual savings, in part by shedding up to 4,000 jobs, persuaded that the merger would secure ThyssenKrupp's historic core against competition from a global flood of cheap Chinese steel.

But activist shareholders like Swedish investment firm Cevian and the US hedge fund Elliott want management to go further.

The two shareholders have been pushing for its dismantling with “methods that could even be described as psychological terrorism,” Lehner told weekly Die Zeit earlier this month.

Beyond their fundamental differences with bosses over the company's direction, the investors also were displeased by the details of the Tata deal.

Hiesinger provided powerful German union IG Metall guarantees to preserve jobs and keep sites open.

'Power vacuum'

News that Hiesinger backer Lehner had quit bounced ThyssenKrupp's stock to the top of the DAX index of blue-chip German shares, gaining 8.6 percent to trade at 22.37 euros by 1100 GMT Tuesday.

The share price appears to have tracked investors' hopes of realizing their dream of breaking up the group to sell off its units or list them independently on the stock market.

Its value had fallen in the wake of the Tata deal as the Alfried Krupp Foundation – the historic anchor shareholder which controls 21 percent of the firm – spoke out against unbundling its divisions.

But the institution, whose founding document calls for ThyssenKrupp to be preserved as a whole “as far as possible into the future”, no longer has the blocking minority needed to hold off other shareholders.

Cevian and Elliott has a combined stake of about 20 percent of the group's shares, making them more or less evenly matched with the foundation and leaving neither side with an uncontested claim on leadership.

But foundation bosses' “muted” defence of the Tata tie-up “has clearly left a power vacuum filled by Cevian/Elliott,” Jefferies analysts wrote.

“Activist investors are increasingly likely to come out on top… a broader break-up of ThyssenKrupp is increasingly likely,” they added.

Business newspaper Handelsblatt predicted that “those who have to pay the price for this development could be the workers,” with hoped-for savings at the different units after a breakup likely to come from more job losses.

ThyssenKrupp works council chief Wilhelm Segerath charged that “we're protecting the financial markets, but protecting too little industry and the real economy” in comments to news agency DPA.

“With the foundation and all the shareholders, we want to try and maintain the enterprise,” he said.

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STEEL

German steel giant rejects ‘high cost’ state support

German industrial giant Thyssenkrupp on Friday rejected state participation to support it during the pandemic, an option favoured by unions but judged too costly by management.

German steel giant rejects 'high cost' state support
Thyssenkrupp's offices in Duisberg. Photo: Ina Fassbender / dpa / AFP
“State participation off the table,” Klaus Keysberg, the group's financial director, told the German daily Rheinische Post on Friday.
   
Keysberg blamed “high costs” in the long term of government assistance, “due to the interest payments and the terms of repayment.”
   
Already weakened by years of cut-price competition from China in the steel industry, Thyssenkrupp has further struggled with the effects of the pandemic that caused business activity to plunge.
   
The company said in mid-November it would cut an additional 5,000 jobs as part of its restructuring plan, bringing the total to nearly 11,000, to be spread out over several years.
 
   
Thyssenkrupp chief executive Martina Merz has not ruled out state assistance.
   
The powerful IG Metall union had organised rallies in October to demand a rescue plan from Berlin.
   
But the government was never enthusiastic, despite their acquisition of stakes in the airline Lufthansa and tour operator TUI, which also had business ravaged by Covid-19.
   
“I don't believe that nationalisation is the right response at the moment,” Germany's Economy Minister Peter Altmaier said in October on Thyssenkrupp.   
 
But national and regional governments favour more traditional aid structures, such as subsidies, or moves to convert to production of so-called green steel.
   
Discussions will continue to find alternatives.
   
A takeover of Thyssenkrupp's steel activities is still on the cards. British steel giant Liberty, founded by industrialist Sanjeev Gupta, launched a takeover bid in October.
   
Discussions are also underway with Sweden's SSAB and India's Tata Steel.
   
An alliance with fellow German steelmaker Salzgitter to create a national steel champion is also being considered. But these options won't be decided until “spring 2021”, Thyssenkrupp said.
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