The Long Arms Of Krupp

CEO Cromme's bid for Thyssen's steel unit will be hard to stop

Gerhard Cromme stood behind a row of plexiglas riot shields as he addressed an angry mob of steelworkers outside the Essen headquarters of Germany's Krupp group. The 54-year-old chief executive was explaining his surprise, $8 billion hostile bid for rival steelmaker Thyssen. But the demonstrators, fearing job cuts, weren't listening. They hurled eggs and drowned him out with shouts of "string him up" and "job killer."

Such was the turbulent start of German industry's most important takeover attempt since Krupp snapped up rival Hoesch in 1992. The Thyssen bid wasn't supposed to happen until summer. But Cromme was forced to ad lib when word of the plan leaked out on Mar. 17. "He had to give up or act," says a source familiar with Cromme's strategy.

The firestorm of protest, plus pressure from local politicians in Germany's Ruhr rust belt, have forced Cromme to back off temporarily. On Mar. 19, he agreed to suspend his bid while discussing a merger of the two companies' steel operations with Thyssen CEO Dieter H. Vogel, a good friend with whom Cromme has vacationed in the past. If the talks fail to make progress within eight days, however, Cromme has vowed to return to the trenches.

That threat has heft. Cromme, a Harvard business school graduate, deftly executed one of Germany's first major hostile takeovers when he acquired Hoesch five years ago. Resistance then was equally sharp. Protesting workers camped on the front lawn of his home for weeks. But Cromme persevered, ultimately trimming 25,000 jobs and proving his willingness to buck Germany's ingrained tradition of consensus decision-making.

Observers familiar with Cromme's style bet that if talks with Thyssen fail, Krupp's bid will be difficult to stop this time, too. Cromme has already lined up financing with banks such as Deutsche Bank and Dresdner Bank. "The question really is: Does he give in to political pressure or not?" says consultant Roland Berger, who helped Krupp merge with Hoesch.

MAKING NOISE. Analysts say combining the giants makes sense. They could gain economies of scale in rolled steel used in the auto and appliance industries. Together, they would produce about 2.5 million tons annually, or about 25% of Europe's output. That could help the German companies overcome their $30-per-ton cost disadvantage. The merged operation could shed 20,000 workers and save up to $600 million a year in operating costs. "There are significant advantages," says Rod Beddows, chairman of London-based Beddows & Co.

Although his opponents are making the most noise, Cromme has powerful supporters. Rolf-Ernst Breuer, who will become Deutsche Bank's CEO this spring, welcomed Krupp's bid. He says the takeover might serve as a model for other deals in Germany. Indeed, a more freewheeling merger culture could speed the push to reform the country's sluggish, tradition-bound economy. For the moment, though, Cromme seems to be fighting that battle on his own.