Ups and downs: the battle to buy Thyssenkrupp’s elevator unit

Industry:    2020-02-05

Finland’s Kone and private equity firms are battling to buy ThyssenKrupp’s prized elevator division worth more than 15 billion euros ($16.6 billion), a deal which would be Europe’s biggest private equity deal in 13 years.

Thyssenkrupp says it will either list the business, sell either a stake or the business in its entirety as the company aims to cut 12.4 billion euros ($13.7 billion) in debt and pension liabilities.

The deadline for binding bids for the whole business is mid-February.

SUITORS LINE UP

Suitors are:

* Kone has submitted a 17 billion euro non-binding bid, including a roughly 3-billion break fee, beating three private equity consortia whose offers were between 15-16 billion.

Union sources say that may not be enough to compensate for antitrust risks.

Analysts at Jefferies said that a price tag of 15.6 billion euros after tax would be enough “to negate net debt and pension liabilities, saving about 1.1 billion in outflows per year”.

The rival private equity consortia are:

* Blackstone, Carlyle and the Canada Pension Plan Investment Board

* A group comprising Advent, Cinven, the Abu Dhabi Investment Authority and Germany’s RAG foundation

* Canada’s Brookfield and Singapore’s Temasek

A buyout group victory would be Europe’s biggest private equity deal since KKR’s $21.4 billion acquisition of Britain’s Alliance Boots Plc in 2007, according to Refinitiv data.

KONE VS PRIVATE EQUITY

While being the safest option in terms of execution, a flotation is seen as unlikely at this stage as it wouldn’t bring in enough cash.

That’s why a sale to private equity looks like the easiest option as it would face little or no antitrust scrutiny and could be completed in months.

A sale to Kone runs the risk of a lengthy regulatory review, even when taking into account a plan to sell Thyssenkrupp’s elevator assets in Europe, where overlap is biggest, to CVC [CVC.UL] to try to resolve antitrust risks.

Danske Bank reckons that the combined market share of Thyssen and Kone stands at 43% in North America, which is also expected to lead to a deepened probe.

It took Linde (LINI.DE) and Praxair nearly 17 months to get U.S. antitrust approval for a merger, and only following far-reaching remedy sales to CVC and Messer.

Still reeling from Brussels’ veto of a planned steel tie-up with India’s Tata Steel (TISC.NS), Thyssenkrupp’s appetite for that is considered to be limited.

JOB SECURITY

Bidders are courting representatives of IG Metall, Germany’s most powerful union which can make or break any deal and will fight to protect jobs and secure sites.

The elevator business employs more than 53,000, a third of Thyssenkrupp’s total staff.

Labour representatives also control half of Thyssenkrupp’s 20-member supervisory board, which will have to approve an agreement.

Workers fear that a sale to Kone carries a higher risk of job cuts than a sale to private equity. While cost savings are a key for all bidders, Kone needs synergies to justify its higher price tag.

Labour leaders also remain sceptical about Kone’s plan to sell Thyssenkrupp’s European assets to CVC, as it is uncertain what would happen to workers at the 2.1 billion euro business.

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