European Commission expected to block planned steel joint venture Executive Board proposes fundamental strategic realignment to Supervisory Board
After conversations with the European Commission on May 10th, together with Tata Steel we expect that the planned joint venture of our European steel activities will not go ahead due to the Commission's continuing concerns.
With the expected unsuccessful outcome of the steel joint venture, our Executive Board has reassessed the strategic options for the company and will propose to the Supervisory Board to not go ahead with the planned separation into two independent companies.
The effects of the economic situation on our businesses and the current capital market environment mean that the separation cannot be implemented as planned.
Instead, we will fundamentally realign our strategy to significantly improve our operating performance. As part of this new strategy, our Executive Board of will also propose an Initial Public Offering (IPO) of Elevator Technology to the Supervisory Board.
Why do we need a new strategy?
The unsuccessful outcome of the steel joint venture and the associated reintegration of the steel business is a reason for us to fundamentally review the Group's strategic orientation. In addition, the performance of the businesses is not satisfactory, which is also due to a deteriorating global economy. Our share price has also fallen by 40 percent since 2018, reaching a 15-year low last Wednesday. We have to be honest: Under these conditions, a separation is no longer the best solution for us. We can no longer achieve the restart we intended.
What exactly does the new strategy for thyssenkrupp look like?
We will fundamentally realign the strategy. The Executive Board will now propose this to the Supervisory Board. Without taboos and in recognition of the new circumstances. We need to build a whole new thyssenkrupp – following three principles:
1) Increasing the performance of our businesses is our top priority. Our aspiration is to manage businesses that are among the best in their respective markets.
2) In the future, we will measure our success by the best possible development of our businesses - not necessarily by the fact that we own the majority of them. The management of the businesses will be given more entrepreneurial freedom than ever before in the history of thyssenkrupp.
3) We will develop a fundamentally new organizational and leadership model that focuses on the performance of our employees. This applies to all units and all levels. We will streamline the holding and significantly reduce administrative costs throughout the Group.
This will only work if we strengthen our capital base at the same time. We are therefore planning to list our elevator business on the stock exchange. This is a courageous and important step for Elevator, but also for thyssenkrupp as a whole. We will use the capital from the IPO to press ahead with the necessary restructuring of the Group.
For eight months we have been working under high pressure on the separation - and now this U-turn?
It is of course perfectly clear to us that the decision raises new questions and uncertainties. But our responsibility is clear: If fundamental parameters change, we owe it to our employees, customers and shareholders to reassess the situation. And above all, to do the right thing.
Will there be any job cuts?
In order to achieve the objectives described above, 6,000 jobs will have to be reduced. Similar to the separation, we are also striving to reach an agreement with employee representatives on this strategic realignment. Discussions on this have already begun and a basic agreement has been reached. As always, our aim is to shape these changes with our employees and not against them.
What are the reasons for the JV not to go ahead?
The closing of the joint venture was subject to approval by the responsible competition authorities, including in the European Union.
The European Commission in Brussels has been examining the planned joint venture for several months. The Commission is investigating whether the planned merger will lead to distortions of competition in the European steel market, for example through excessive market shares in individual market or product areas.
The Commission raised competition concerns in several product groups in the course of the merger control procedure. Together with Tata Steel we consequently submitted a package of proposed solutions to address the competition authority's concerns. This means, that both partners – in case of an approval of the joint venture – would have removed individual plants from the planned group.
What were the concerns of the European Commission?
The European Commission took the improvements of the submitted covenants proposed by Tata Steel and us as an opportunity to conduct another market test.
The new market survey did not resolve the Commission's concerns, although the partners had offered significant further concessions.
Were the offered concessions insufficient?
Together with Tata Steel we have responded to the Commission's concerns with a comprehensive offer of concessions. We and Tata Steel believe, that further commitments or improvements would have adversely affected the intended synergies of the merger to such an extent that the economic logic of the joint venture would no longer be valid.
But that was not sufficient for the Commission. The Commission considers the joint venture to be an illegitimate restriction of competition. Both thyssenkrupp and Tata Steel do not share this view and very much regret the Commission's position.
How does this affect thyssenkrupp’s steel business?
It is clear that the Steel business is now again part of the thyssenkrupp Group. Without the joint venture, we will now have to respond to the challenges in the steel market independently in order to secure the future of the business. The Group Executive Board is currently working with the Executive Board and employee representatives of the steel business to determine exactly what this will look like.
Read Guido Kerkhoff's speech on the strategic realignment of thyssenkrupp - May 10, 2019, Essen, Germany