ThyssenKrupp spin-off and Industrials stake sell-down could take years - MergerMarket
05 OCT 2018
ThyssenKrupp [ETR:TKA] is targeting a shareholder vote on its proposed split at the February 2020 AGM and might retain a stake in the proposed Industrials spin-off entity for a matter of years, according to a company spokesperson.
The 12 to 18 months guidance from the company for when a shareholder vote on the split might take place is too long for most investors, according to a ThyssenKrupp shareholder spoken to by this news service.
In addition, ThyssenKrupp Materials’ stake in ThyssenKrupp Industrials should be sold as soon as possible after the spin-off occurs, dependent on market conditions, the shareholder believed.
The shareholder said they expected Materials’ stake in the Industrial entity to be a “significant minority but not a majority” and that it should not be a “strategic holding”.
The size of ThyssenKrupp Materials’ stake in the Industrials entity has not yet been decided, the spokesperson said. The company would not confirm a suggestion by a TKA supervisory board member that a 30% shareholding would be retained. The size will be decided closer to the time of the split, he said.
The range being looked at is between 20% and 40%, it is understood.
The timeline for the spin-off is in line with other recent spin-offs carried out by German companies including Bayer’s [ETR:BAYN] spin-off of Lanxess [ETR:LXS] and Metro’s [ETR:B4B] separation of Ceconomy [ETR:CEC], the spokesperson said.
The 2019 AGM is coming too soon to hold a vote, which would be the final step in the separation process, the spokesperson said. An EGM could also be called to hold such a vote, but the group is currently aiming for the 2020 AGM, he said.
Post-split M&A?
The purpose of a TKA Materials’ stake in Industrials would not be to block a takeover of the Industrial group, but to support the balance sheet of Materials, the spokesperson said.
“It’s not about control – both companies will be strong but independent from each other,” he said.
If Materials did not retain a stake in Industrials, its balance sheet would not be sufficiently capitalised, the shareholder agreed. That would be bad for Thyssenkrupp and its employees, he said.
The stake would “very probably” be eventually sold, but the timing was uncertain and perhaps not for “one or two or three years”, the spokesperson said.
In addition to Materials, activist investor Cevian Capital, and the ThyssenKrupp Foundation will be the main shareholders in the spun-off Industrials group.
The agreement of Cevian and the ThyssenKrupp Foundation would be necessary to decide whether TKA Industrials, or parts of it, would be sold following the spin-off, the shareholder said.
The Elevator business is the “crown jewel” of the Industrials unit and the split will enable its full value to be unlocked, a German M&A banker said, noting it was valued at above 15x EBITDA and could be compared with Finnish company Kone [CPH:KNEBV] and Swiss company Schindler [SWX:SCHN].
The share price reaction to Thyseenkrupp’s sepearation plans were significant, the shareholder noted. There may have been quite unrealistic expectations in terms of what this could mean, and an immediate deal with Kone might have been calculated, he suggested.
Shares in ThyssenKrupp closed up 17% on 27 September, the day it announced its spin-off plans.
“At the moment, there's a conglomerate discount on Thyssenkrupp's shares. But, with two new listed companies, their respective share prices will increase,” said a German sector lawyer said.
“There will certainly be takers for these assets but that isn't to say that it is the main reason behind the split. I guess management is just following a format that has worked for many companies of this size in Germany,” the lawyer said.
In 2016 German retailer Metro announced the split of its food business from its consumer electronics division, in a move to enable the independent companies to pursue more acquisitions. In 2012, German technology group Siemens[ETR: SIE] announced the spin-off of its lighting subsidiary Osram [ETR: OSR]. This was followed by German drug maker Bayer’s announcement to separate its polymer materials subsidiary Covestro [FRA:1COV].
The 12 to 18 months guidance from the company for when a shareholder vote on the split might take place is too long for most investors, according to a ThyssenKrupp shareholder spoken to by this news service.
In addition, ThyssenKrupp Materials’ stake in ThyssenKrupp Industrials should be sold as soon as possible after the spin-off occurs, dependent on market conditions, the shareholder believed.
The shareholder said they expected Materials’ stake in the Industrial entity to be a “significant minority but not a majority” and that it should not be a “strategic holding”.
The size of ThyssenKrupp Materials’ stake in the Industrials entity has not yet been decided, the spokesperson said. The company would not confirm a suggestion by a TKA supervisory board member that a 30% shareholding would be retained. The size will be decided closer to the time of the split, he said.
The range being looked at is between 20% and 40%, it is understood.
The timeline for the spin-off is in line with other recent spin-offs carried out by German companies including Bayer’s [ETR:BAYN] spin-off of Lanxess [ETR:LXS] and Metro’s [ETR:B4B] separation of Ceconomy [ETR:CEC], the spokesperson said.
The 2019 AGM is coming too soon to hold a vote, which would be the final step in the separation process, the spokesperson said. An EGM could also be called to hold such a vote, but the group is currently aiming for the 2020 AGM, he said.
Post-split M&A?
The purpose of a TKA Materials’ stake in Industrials would not be to block a takeover of the Industrial group, but to support the balance sheet of Materials, the spokesperson said.
“It’s not about control – both companies will be strong but independent from each other,” he said.
If Materials did not retain a stake in Industrials, its balance sheet would not be sufficiently capitalised, the shareholder agreed. That would be bad for Thyssenkrupp and its employees, he said.
The stake would “very probably” be eventually sold, but the timing was uncertain and perhaps not for “one or two or three years”, the spokesperson said.
In addition to Materials, activist investor Cevian Capital, and the ThyssenKrupp Foundation will be the main shareholders in the spun-off Industrials group.
The agreement of Cevian and the ThyssenKrupp Foundation would be necessary to decide whether TKA Industrials, or parts of it, would be sold following the spin-off, the shareholder said.
The Elevator business is the “crown jewel” of the Industrials unit and the split will enable its full value to be unlocked, a German M&A banker said, noting it was valued at above 15x EBITDA and could be compared with Finnish company Kone [CPH:KNEBV] and Swiss company Schindler [SWX:SCHN].
The share price reaction to Thyseenkrupp’s sepearation plans were significant, the shareholder noted. There may have been quite unrealistic expectations in terms of what this could mean, and an immediate deal with Kone might have been calculated, he suggested.
Shares in ThyssenKrupp closed up 17% on 27 September, the day it announced its spin-off plans.
“At the moment, there's a conglomerate discount on Thyssenkrupp's shares. But, with two new listed companies, their respective share prices will increase,” said a German sector lawyer said.
“There will certainly be takers for these assets but that isn't to say that it is the main reason behind the split. I guess management is just following a format that has worked for many companies of this size in Germany,” the lawyer said.
In 2016 German retailer Metro announced the split of its food business from its consumer electronics division, in a move to enable the independent companies to pursue more acquisitions. In 2012, German technology group Siemens[ETR: SIE] announced the spin-off of its lighting subsidiary Osram [ETR: OSR]. This was followed by German drug maker Bayer’s announcement to separate its polymer materials subsidiary Covestro [FRA:1COV].