TKAMY Thyssenkrupp AG (PK)

By Ruth Bender 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 11, 2019).

BERLIN -- Shares of Germany's Thyssenkrupp AG surged 28% Friday after the group said it was dropping a plan to split into two companies and would instead pursue an initial public offering of its elevator unit.

The company, which makes steel, elevators and auto components, also said it would restructure the remaining businesses in a bid to improve profits.

The surprise U-turn is the latest example of a large, aging conglomerate being forced to reinvent itself. The company, with roots in industrial-revolution Germany, has been under pressure from shareholders to simplify and reorganize its businesses many regard as inefficient, unfocused, and costly.

Siemens AG, another storied German industrial giant, earlier this week said it would spin off its troubled gas and power division, the latest step in Chief Executive Joe Kaeser's efforts to squeeze more value out of the company's individual businesses and improve profitability.

While Siemens has gained praise from shareholders for its pro-active approach to change, Thyssenkrupp has stumbled in its efforts. An initial plan to form a European steel joint venture has fallen foul of European antitrust authorities and repeated profit warnings last year have weighed on its stock.

CEO Guido Kerkhoff said Friday that Thyssenkrupp would now "hit reset" to build a new company, with the main goal being to improve performance across divisions. "Sometimes, when a chosen path is no longer right, one has to turn around in good time," he said of the decision to abandon the split plans.

The company's shares closed up 28% on the news, after hitting a nearly 15 year-low earlier this week. Thyssenkrupp shares have lost roughly 40% since the plans were first announced last year, as investors grew skeptical of the split.

Thyssenkrupp's overhaul would include the IPO of its most profitable business -- elevators -- and drastic cost cuts, it said.

Under the new plan, it will shed more than 6,000 jobs, or nearly 4% of its global workforce, and nearly halve administrative costs to under EUR200 million ($224 million), Mr. Kerkhoff said.

Bending to pressure from activists, the conglomerate last September said it would split itself into two independently traded companies -- one encompassing the capital goods businesses and the other the group's materials operations, where its traditional steel business would have resided.

Thyssenkrupp has also been planning a European joint-venture with India's Tata Steel Ltd. to form Europe's second-largest steelmaker behind ArcelorMittal SA. Mr. Kerkhoff said Friday that Margrethe Vestager, the European competition commissioner, told him that the merger couldn't be approved without further concessions, which Mr. Kerkhoff said would undermine the economic logic of the deal.

A person familiar with the matter said the European Commission, the EU's antitrust enforcer, is expected to block the ThyssenKrupp-Tata merger in coming weeks, adding that the concessions put forward by the companies earlier this spring fell short of what the commission had demanded.

The commission's review of the planned merger is continuing, with a decision due by June 17, said Commission spokesman Ricardo Cardoso.

The company lost both its CEO and chairman in less than a month last summer amid an internal fight over the company's future direction.

Some key shareholders, including U.S. hedge fund Elliott Management Corp., feared the now abandoned split plan would create two mini conglomerates, each holding a mixed bag of assets and both lacking cost-cutting potential, according to people familiar with the matter.

While shareholders welcomed Friday's reversal as a sign management was ready to consider drastic steps, some also warned of the delicate task ahead. Cevian Capital, Thyssenkrupp's second-largest investor with a stake of about 18%, said a "fundamentally new direction was urgently needed."

"There can be no historical or political taboos any longer if Thyssenkrupp wants to sincerely tackle underperformance and get the businesses back to growth," said Lars Förberg, founding partner of Cevian.

The Krupp foundation, which for decades was the steering force behind Thyssenkrupp as its top shareholder with a roughly 21% stake, said it would evaluate the new plan based on its capacity to make all units competitive, guarantee future jobs, and ensure a sustainable dividend. It had supported both the joint venture and the split, it said.

Ingo Speich, head of corporate governance at Deka Investment, a longtime Thyssenkrupp shareholder with a roughly 0.7% holding, said scrapping the split was the right move but that implementing a completely new strategy wouldn't be easy.

Mr. Kerkhoff said the IPO of the elevator business would free up capital to support other businesses. Materials and steel businesses would be at the heart of Thyssenkrupp after the IPO but the company is open to entering partnerships for some of its industrial operations and would consider giving up majority ownership, he said.

He said there was still a need for consolidation in the European steel sector, which has struggled for decades with high costs and global overproduction. With the European Commission having said it could block the Tata joint venture without further concessions, however, he said only "small" steps might now be possible.

Ben Dummett and Valentina Pop contributed to this article.

Write to Ruth Bender at Ruth.Bender@wsj.com

(END) Dow Jones Newswires

May 11, 2019 02:47 ET (06:47 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.