German consortium Thyssenkrupp announced the sale of 17.2 billion Euro ($18.9 billion) of the elevators production unit to the group of investors headed by direct investment funds Advent and Cinven. This will allow the company experiencing an uneasy situation to improve the financial position.
The industrial giant, inter alia, produces steel, automotive components and submarines, but Thyssenkrupp Elevator, the division that manufactures elevators, escalators, passenger conveyors, lifts, jetways, and attracts investors by large and reliable revenue, was considered a gem in its business. Last year revenues of Thyssenkrupp Elevator amounted to 8 billion Euro, about half came from maintenance of already installed equipment.
The intentions to purchase the business have been also declared by consortium of Blackstone, Carlyle and Canada Pension Plan Investment Board; the Finnish manufacturer of elevators Kone in partnership with CVC Capital Partners; and Canadian investment company Brookfield Asset Management. But in the end, the winner became the consortium of Advent, Cinven, the German RAG Foundation and Sovereign Fund of Abu Dhabi. This is the largest deal in Europe with participation of private equity funds and one of the largest in the world since 2008, writes The Wall Street Journal (WSJ) with reference to Dealogic data.
In recent years, Thyssenkrupp has been experiencing losses. In the fiscal year ended last September its net loss rose to 260 mln. Euro, and the total loss to 3.7 bln. Euro. Because of this, the company has been forced to cancel the annual dividends and partially reduce the staff, and the investors have to urge it to change the business model. That is why, Thyssenkrupp began to think of sale the elevator unit or taking it to the stock exchange.
In February 2019, Moody's downgraded the credit rating of Thyssenkrupp from Ba3 to B1. Thyssenkrupp Elevator, including the subsidiary in Russia, employs approximately 53,000 people, is about 30% of all employees of the consortium. The buyers have given the guarantees of preserving the employment in Germany for seven years. “We are sorry to leave the business and employees, - said Martina Merz, Director General of Thyssenkrupp, - Nevertheless, it is a good day for all parties."
According to expectations of Thyssenkrupp the deal should not give rise to objections from antitrust regulators and will be closed by the end of the current fiscal year. The company is going to use the funds raised for debt reduction and covering of other expenditures, in particular, the pension obligations. In addition, it intends to reinvest 1.25 billion Euro from the proceeds into the sold unit to have around 7.3% of shares in already independent company for production of elevators.
The main shareholder of the consortium Krupp Foundation, who owns 21% of shares, called the deal the right step: “Thyssenkrupp should become competitive and pay dividends again".
But the prospects for other units of Thyssenkrupp raise questions against the background of weakening demand for vehicles and international trade conflicts, noted WSJ. Merz said that the company would consider any business restructuring opportunities, and hinted at the possibility of selling other units, in particular, one for construction of industrial plants. In February, Johannes Ditsh, CFO of Thyssenkrupp, said the company is still interested in consolidation with European steel producers. Although last year the European Commission blocked the merger of the German consortium with the Indian Tata Steel because of antitrust considerations.
Jefferies analysts called the deal amount as impressive. Thyssenkrupp promises in May to disclose more information on its strategy and plans for use of the funds.