Step into a lift and there is a two in three chance that it will have been built by one of four companies – US firm Otis, Swiss group Schindler, Finland’s Kone or Thyssenkrupp of Germany.
The quartet account for two-thirds of the global market in making and maintaining lifts or, as most of the world knows them, elevators.
Thyssenkrupp, the smallest of the four by market share, may soon be about to change hands. Guido Kerkhoff, chief executive of the 218-year-old German industrial giant, is reportedly planning to sell the company’s elevator division or float it on the stock market as a separate business.
It is the latest twist in what has been a tumultuous few years for the company which, in May this year, had to abandon a plan to merge its steel-making division with Anglo-Dutch firm Tata Steel – owner of the UK’s largest steelworks in Port Talbot – when it became clear the European Commission would block it.
Essen-based Thyssenkrupp, a bellwether of German industry which employs 155,000 people worldwide, is losing €2.7m every day and its net debt of €5bn is equal to twice the company’s stock market value. Its credit rating is deep in ‘junk’ territory, implying that the ratings agencies consider it at risk of defaulting on its debts, while its share price has halved during the last 12 months – making relegation from the DAX 30, Germany’s equivalent of the FTSE-100, a near-certainty.
So Mr Kerkhoff, who succeeded Heinrich Hiesinger in July last year, is under pressure to do something to, in his words earlier this month, “stop the bleeding”. His job has been made more difficult by downturns in some of the key industries in which the company operates – notably steel – while its key customers, particularly in the car-making sector, have also been going through a lean patch. The company, like many German manufacturers, has undoubtedly been caught in the trade war crossfire between the United States and China.
His solution has been to put a number of the company’s divisions – springs and stabilisers, system engineering and heavy steel plate – under review. He also said earlier this year that Thyssenkrupp would spin off its elevator division, one of its most prized assets, as a separate company.
Yet it has emerged this week that the business is also up for sale at the right price. The news is likely to reignite speculation that Kone, the third biggest player in the market, will bid for the business. Analysts have speculated the division could fetch as much as €14bn although Thomas Oetterli, the chief executive of Schindler, told investors two weeks ago he would be unsurprised if the division attracted as high an offer as €18bn.
A merger with Kone would create the world’s biggest elevator maker with a combined market share of 28% – putting it ahead of both Otis on 20% and Schindler on 16%. Kone first tried to buy the business five years ago while, three years ago, the Finnish company’s largest shareholder approached the Krupp Foundation, Thyssenkrupp’s largest single shareholder, to suggest a deal.
Yet Kone will not have things all its own way. A combination with a rival would undoubtedly attract the interest of competition authorities.
Mr Oetterli said earlier this month: “Our industry, in general, is one of the most consolidated in the world. So any strategic move between, let’s say, big players would immediately generate a lot of questions about anti-trust. I think this will generate a lot of huge hurdles for any attempt if any two of the big ones would like to come close with each other.”
Selling the elevators division would represent something of a wrench for Thyssenkrupp, whose sprawling range of activities, apart from steel, include making submarines, chemicals and a wide range of parts for cars, household appliances and aircraft.
So that could open the door either for a Japanese company with a smaller market share, such as Hitachi or Mitsubishi, or a private equity firm. The German media has speculated that a number of private equity firms, including Apollo, Carlyle, Advent, CVC, KKR and EQT, could all be interested.
Mr Kerkhoff was quoted in the German news magazine Der Spiegel earlier this month as saying: “Strategic investors and private equity will miss out at first if a listing happens. This is putting them under pressure. You won’t believe how many phone calls I’m currently getting from that corner.”
A sale may also make more sense because, apart from the fact that it could be completed more quickly than a stock market flotation, the business would face competition in attracting the attention of investors – because Otis is in the process of being spun off by its parent, United Technologies, the US aviation giant currently undergoing a merger with defence group Raytheon.
Selling the elevators division would represent something of a wrench for Thyssenkrupp, whose sprawling range of activities, apart from steel, include making submarines, chemicals and a wide range of parts for cars, household appliances and aircraft. This is because it is regarded as one of the company’s best-performing assets.
It would, though, confirm that Mr Kerkhoff is serious about reviving the company. Analysts at the stockbroker Jefferies International reported in May that he had told them there would be “no sacred cows”.
Thyssenkrupp was formed from a merger in 1999 between two steel-making giants, Krupp and Thyssen, which respectively trace their origins back to 1811 and 1867, making them both older than Germany – which was created by Otto von Bismarck in 1871. Krupp was instrumental in the creation of railways in the country that became Germany and pioneered the Bessamer process, the first way of mass-producing steel cheaply as well as stainless, acid-resistant steel. It was also a key arms supplier during the First World War, building the notorious ‘Big Bertha’ howitzers that pounded British troops on the western front. Thyssen has an equally distinguished history. The elevator business, however, is a relatively new part of the empire. It was acquired when, in 1973, Thyssen bought lift-maker Rheinstahl.
In the UK and Ireland, Thyssenkrupp Elevator employs 470 staff across 13 sites, including London, Manchester and Nottingham. Its International Technical Services division, based in Manchester, is responsible for training engineers and providing technical support to the company’s branches across Europe and Africa.
A sale or flotation of the elevators division, along with the other sales under discussion, is one of a number of corporate shake-ups that are potentially on the horizon. Mr Kerkhoff is, according to reports, also considering challenging in court the European Commission’s decision to block the company’s merger of its steel operations with Tata Steel.
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