Top management have floated the idea of selling a 49% stake in the elevator unit to buyout firms along with added governance rights, said the people, who asked not to be identified because discussions are private.
That structure could generate enough money to address funding and pension needs while allowing Thyssenkrupp to benefit from a private equity-managed improvement of the business, followed by an eventual listing or sale in the years ahead, they said.
Thyssenkrupp this week invited about 10 private equity firms as well as four rival elevator manufacturers to bid for the business, which could be valued at more than €15 billion (US$16.6 billion), according to the people.
Several investment firms will start making proposals next week, with elevator companies likely to follow afterward, they said. Some of the buyout firms may express an interest in a majority stake, the people said.
Kerkhoff had previously planned an initial public offering of the unit. The company’s worsening financial performance and a slowing German economy has forced him to look at partial or full sale, which could fetch a higher price and bring in cash sooner.
Thyssenkrupp shares fell 2.3% to €11.95 on Monday, valuing the group at €7.4 billion.
Compromise Deal
While Thyssenkrupp and its advisers will review all proposals, the CEO sees a partial sale to private equity as a compromise between an IPO – which would raise less money and take longer – and a full exit that would leave the struggling group with underperforming assets, the people said.
“In addition to preparing for the IPO, we are also examining expressions of interest from potentially interested parties,” Thyssenkrupp said in a statement. “We are doing this diligently. We have therefore initiated a structured process to evaluate offers from strategic and financial investors ensuring a decision that is sustainable and the best for Thyssenkrupp and its stakeholders.”
Thyssenkrupp also sees the merits of a private equity buyer over a tie-up with another competitor because it would avoid the risks of a long antitrust review, the people said.
The Essen-based firm was burned earlier this year when European regulators derailed a planned steel joint venture with Tata Steel Ltd.
Thyssenkrupp is broadening the process and ramping up competitive tension as Finnish rival Kone Oyj works on a takeover offer for the elevator business.
The longtime suitor has pitched potential cost savings and the advantages of creating a larger industry leader, the people said.
In an interview with the Rheinische Post newspaper published Thursday, Kone CEO Henrik Ehrnrooth said the elevator division of Thyssenkrupp “would be a perfect match.”
Kone, which has lined up financing for its planned bid, could also seek a buyout partner for certain assets to preempt pushback from antitrust regulators, they said. Several private equity firms have already approached Kone about the idea, the people said.
The Finnish could also offer a higher price and a break fee to cover the antitrust risk, two of the people said.
Antitrust Approvals
Apollo Global Management Inc, Advent International, Blackstone Group Inc, Brookfield Asset Management Inc, Clayton Dubilier & Rice, Cinven, CVC Capital Partners, EQT Partners and KKR & Co are among investment firms that were invited to submit offers, according to the people.
Some of the private equity suitors are considering teaming up and may seek backing from Asian or Canadian sovereign and pension funds, the people said.
Japan’s Hitachi Ltd is also working with an adviser as it pursues a potential offer for all or part of the elevator business, the people said.
The Tokyo-based company may also wait and pick up any assets that the ultimate buyer has to sell to get antitrust approval, the people said.
No final decisions have been made, and there’s no certainty the suitors will proceed to submit bids, the people said.
Representatives for Advent, Blackstone, Brookfield, CVC, EQT, KKR, Cinven and Kone declined to comment.
Representatives for Apollo, CD&R and Hitachi didn’t immediately respond to requests for comment.
Some within Thyssenkrupp’s powerful labour unions would also prefer bids from private equity firms or Hitachi because they believe a tie-up with Kone would be more likely to lead to job losses, according to one person.
Equity investors and labour unions are equally represented on Thyssenkrupp’s supervisory board, giving them both influence over a potential deal.
Activist investor Cevian Capital, Thyssenkrupp’s second-biggest shareholder, prefers a full sale of the elevator business, the people said. A representative for Cevian declined to comment.