Activist investor raises stake in Thyssen

September 26, 2013

Activist investor Cevian has raised its stake in ThyssenKrupp to 5.2 percent, in a move that was welcomed by the German steelmaker’s CEO who is trying to steer the loss-making firm into new profitable businesses. “With Cevian Capital as a new investor we are gaining a renowned European major shareholder who also has extensive industrial experience in Germany,” ThyssenKrupp Chief Executive Heinrich Hiesinger said.

Shares in ThyssenKrupp rose as much as 5.7 percent after Sweden-based Cevian revealed its stake had increased from less than 3 percent on Wednesday. Hiesinger, who took over in 2011 is trying to extricate the Essen, Germany-based company from a costly investment in a Brazilian steel mill and shift the company away from its traditional business into less cyclical products like elevators and submarines.

Cevian backed management’s strategy to shed non-core assets, cut its cost base and shake up its management structure. “The measures that ThyssenKrupp’s management has initiated as part of its strategic development programme are starting to have an effect,” Cevian Capital partner Jens Tischendorf said. Pressure has been rising on ThyssenKrupp to seek cash from shareholders as its finances have deteriorated.

ThyssenKrupp had net debt of 5.3 billion euros ($7.15 billion) at the end of June, and a decline in equity had caused its gearing ratio – how much debt it has compared to equity – to jump to 185.7 percent from 148.2 percent three months earlier. That forced it to ask its banks to waive loan covenants it was at risk of breaching next week. The Krupp Foundation remains the firm’s biggest shareholder, with about 25 percent.

“It is a positive sign that there is an additional long-term investor in ThyssenKrupp’s shareholder structure,” Commerzbank analyst Ingo-Martin Schachel said. Equity capital markets bankers said that any capital hike is unlikely to come before ThyssenKrupp presents a solution for its steel mills in the Americas. ThyssenKrupp’s stock has fallen 1.5 percent so far this year, underperforming a 13.8 percent gain by Germany’s bluechip DAX index.

It trades at 15.3 times 12-month forward earnings, a big discount to fellow steelmaker ArcelorMittal’s multiple of 32.1, according to Thomson Reuters StarMine. Cevian said it saw ThyssenKrupp as undervalued and was convinced of its long-term potential. Activist investors such as Cevian commonly buy shares in companies to push for sweeping changes in the hope of raising the value of their holdings.

Cevian said it was not seeking representation on ThyssenKrupp’s supervisory board at the moment but left the door open for future action. “The move could fuel speculation on the break-up of ThyssenKrupp,” DZ Bank analyst Dirk Schlamp said. There has been talk in the past that ThyssenKrupp could completely exit the steel sector to focus on industrial equipment and services.

ThyssenKrupp’s most pressing task is its year-long attempt to sell its loss-making Steel Americas business, including the Brazil plant. It has had to write down the value of that business to 3.4 billion euros over the past year, from more than 7 billion euros. “The company has recently made progress in its talks over selling a US-based mill and will likely keep its Brazilian operations,” a person familiar with the negotiations said on Wednesday, adding it was unclear when a deal would be signed.

Commerzbank’s Schachel said Cevian’s involvement in other companies had not proven to be disadvantageous for investors and other stakeholders. “Quite the opposite, there has generally been a sustainable value accretion following Cevian’s investment,” he said. Source  Reuters

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