Thyssenkrupp AG announced a sweeping overhaul of its corporate strategy, saying it plans to take its elevator business public and abandoned a plan to split the company in two.
The company announced the U-turn after deciding that regulators were likely to reject its proposed joint venture with Tata Steel Ltd. due to antitrust concerns. While investors responded positively to the news, with the shares rallying on Friday, anger over the company’s leadership and earnings slump has been building over the past several months.
“The CEO will have to explain to us why the strategy he hashed out eight months ago didn’t work out in the end,” said Markus Grolms, deputy chairman of Thyssenkrupp’s supervisory board. “We as labor representatives will make sure the new path will take into account our interests."
On a call on Friday, Chief Executive Officer Guido Kerkhoff said the company is considering cutting 6,000 jobs. The company isn’t ruling out forced layoffs and German operations could account for 4,000 of those positions.
Thyssenkrupp shares rose as much as 21%, the biggest intraday gain on record. The stock was up 16% to 13.05 euros as of 1:42 p.m. in Frankfurt.
The weak German economy 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.
The company is expected to report another decline in earnings when it releases quarterly results next week, adding pressure on Kerkhoff to orchestrate a turnaround that has so far failed to deliver. It’s time "to hit the reset button," he said in a conference call on Friday.
Part of that plan is an initial public offering of the elevator unit, the most-prized possession. Thyssenkrupp plans to keep a majority stake in the elevator business, the CEO said.
“Elevators remains the crown jewel and should attract strong interest,” said analysts at Jefferies International Ltd. including Alan Spence.
It will also scrap a plan announced last year that would have divided the company into two separate, listed businesses. Thyssenkrupp also said it was unable to resolve antitrust issues presented by the European Commission over its steel joint venture, and expected the deal to be blocked.
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." -- Mustafa Okur, industrials analyst
The rationale for the joint venture was questionable, given the pressures facing the Tata Steel Europe business, said Christian Obst, a metals equity analyst at Baader Bank AG.
“What they have to concentrate on now is operating performance, which is complicated enough,” he said. “They’re now more open to real M&A activities, whether it’s an IPO of the elevator business or selling other units, and I think we’ll see more of that over the next three to five years."
More Financial Details
- Adjusted earnings before interest and tax, including the steel division, will be between 1.1 billion and 1.2 billion euros (US$1.23 billion and $1.35 billion).
- Free cash flow will be "negative in the high 3-digit million" euro range.
- The company will publish quarterly results on May 14.
By William Wilkes and Christoph Rauwald