Activist investors go after a German industrial icon


FEW industrial scenes offer the drama of a steelworks in full flow. Perched high in a cabin, a technician guides a bucket the size of a house to send 250 tons of lava-like molten metal into a vast crucible. As a roar echoes across a gargantuan hall, a pile of scrap slides into the mixture. Plumes of illuminated smoke rise. Sparks like giant fireflies tumble down. ThyssenKrupp’s steelmaking plant in Duisburg makes 30,000 tons of the metal daily.

The firm itself is going through an industrial drama, after years of ailing. Its boss, Heinrich Hiesinger, was seen as its saviour after arriving from Siemens late in 2010. But swiftness is not his forte: a colleague says he talks of “diligence before speed”. He did rid the firm of loss-making steel plants, such as assets in the Americas that cost €8bn ($9.3bn) in write-downs. Yet he has not reformed a top-heavy company.

Several bits of the group—a hotch-potch that includes submarine-, ship- and lift-building, auto supplies and a unit for constructing entire factories—underperform their peers. Notwithstanding some bright areas, such as lifts (see chart), overall operating margins are just 3.5%, after years of failed promises by managers to match the market average for European peers of 7%. All divisions are guided by a powerful head office in Essen that is said to guzzle an extraordinary 30% of total profits. ThyssenKrupp’s share price badly lags behind Germany’s largest listed firms. Meanwhile, Siemens, Bayer and others have broken off subsidiary units and simplified structures. This “is the last man standing” says an observer, asking what makers of lifts and submarines have in common.

Two big changes loom, as activist investors demand reform. One is the end of steel, which provides two-fifths of revenues. The firm has agreed with Tata, an Indian maker, to bundle their European steel assets into a joint venture. The idea is to reduce steelmaking capacity and for ThyssenKrupp to pass on pension liabilities. Yet the Tata deal, announced in September, has dragged. ThyssenKrupp partly blames months of delays on Brexit (Tata faces uncertainty over its operations in Port Talbot, in Wales) and on a new boss at Tata. A signing ceremony is due this month.

The second, bigger question is how to revive the firm’s industrial activities. Mr Hiesinger says he has bright ideas for change, but will not spill them until the deal with Tata is signed. He talks up the activities of high-end engineering units, notably the lift business. Yet analysts say even the better-performing units suffer under a heavy superstructure. As a stand-alone firm, liftmaking, which is far more profitable than the firm’s other divisions, could be worth more than the entire conglomerate’s market capitalisation of €14.5bn, argues one observer. Managers still trot out 20th-century-style defences of conglomerates. They say units can share bright ideas and technology, citing a nifty idea for a horizontal motorised lift that came from the railways team. Yet more autonomous units, or outright independent firms, would be most open to innovation.

Cevian, an activist shareholder of long standing which owns 18% of ThyssenKrupp, is demanding “fundamental reorganisation” of industrial activities, scrapping Mr Hiesinger’s centralised structure. Cevian is relatively friendly to managers; a sharper spur to action is Elliott, the world’s largest activist hedge fund, which has just bought a stake. Both may have some quiet support from unions and from the Krupp family foundation, in Essen, which has the dominant stake. ThyssenKrupp’s shares leapt after news of Elliott’s arrival: the hope is for big changes this summer.



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