Profit warning exposes takeover risk for Thyssenkrupp

Enterprise value drops to €14.3bn; elevator unit alone valued at €15bn; shares under pressure after second profit warning

Afresh hit to Thyssenkrupp shares has driven down the group’s enterprise value, raising the chances of a full takeover bid, two people familiar with the matter said, a move that could derail a plan to split the group in two.

The German conglomerate cut its profit forecast late on Thursday, sending its shares tumbling 12.2% to €16.7 apiece on Friday, their biggest intraday fall since June 2016.

The group’s enterprise value, a key gauge for potential suitors, fell to €14.3bn ($16bn), according to Refinitiv data.

That is below the standalone value of its elevators division — of around €15bn, according to analysts — the most valuable part of the group, which had appeared untouched by issues afflicting other units.

“The value of the group is reaching a level that could expose it to interest from private equity consortia,” one of the sources said. “This does not bode well for the group’s current restructuring move.”

The profit warning by chief executive Guido Kerkhoff, his second since being confirmed in the job on September 30, undermines his efforts to retain control over the company’s strategy of keeping the automotive and elevators divisions separate from steel and materials.

Kerkhoff ousted the head of the elevators division this week in an attempt to tighten his grip on the company, sources familiar with the matter said.

With the shares falling to a more than two-year low on Friday, shareholders already appear to be losing patience with Kerkhoff ’s restructuring plan, which won’t come to fruition until March 2020.

That puts pressure on Kerkhoff to justify the logic of the corporate split, which is aimed at unlocking value and meeting the expectations of some investors — notably activist shareholder Cevian which holds 18% — who say the group could be worth as much as 50 euros a share.

“It shows how fragile the business is and further erodes confidence in the management, which simply is not getting a handle on the problems,” Ingo Speich, fund manager at Thyssenk- rupp shareholder Union Investment said. “Thyssenkrupp remains a colossus on shaky footing.”

A spokesman for Thyssenkrupp said that management was cleaning up in a resolute manner and openly addressing all issues, adding that measures had been agreed with the business areas to improve their overall performance.

What is less clear is whether there is interest in an asset as complex as Thyssenkrupp, which makes everything from steel and submarines to elevators, car parts and chemical plants.

That complexity could make it difficult to find a single suitor, the people said.

“Who knows how many more skeletons Thyssenkrupp will pull out of its closets,” one of the people said. The group is a risky bet, with problems at its divisions emerging on almost a weekly basis: its planned steel joint venture with Tata Steel faces a deepened EU probe; its loss-making plant engineering unit is a restructuring case; its car parts business just unveiled quality issues; and its elevator business is facing currency headwinds.

“These worries are getting traction because they speak to the potential Achilles heel of the Thyssenkrupp equity story,” said one top 40 investor who asked not to be named because he is not authorised to speak to the media.

“Some investors may believe that arrival at the promised land requires simply that the company deconsolidates and ultimately exits the steel business.

However, that belief may demand that we look at the rest of the group with an uncritical eye: something some may have been doing for too long.”

Kone, Schindler and Otis are all looking at Thyssenkrupp’s elevator unit, the sources said, but not at automotive parts and plant engineering — the other businesses the conglomerate plans to spin off along with elevators.

“It would require quite a creative consortium to bid for these assets,” one of the sources said, adding the fact that the spin-off included two underperforming assets effectively creates a poison pill for those interested in elevators.

Even if a takeover bid does not materialise, Kerkhoff faces an uphill struggle to raise the group’s share price — the most effective way to ensure lasting shareholder support for the capital goods spin-off, the sources said. Since the announcement of the split in September, Thyssenkrupp shares have fallen by nearly a quarter. Kone, Schindler, Otis and Cevian all declined to comment.