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Thyssenkrupp's CEO Under Fire as Activist Elliott Buys Stake

Updated on
  • Elliott is said to be critical of management, Tata steel deal
  • Other shareholders have said Thyssenkrupp needs to simplify

Thyssenkrupp AG’s chief Heinrich Hiesinger is facing the fight of his career as a pair of activist investors take aim at the German industrial giant.

Elliott Management Corp. is building a stake in the company and wants to oust the 57-year-old chief executive for failing to guide the company through a turnaround, according to people familiar with the matter. Hiesinger, who studied engineering in Munich and rose through the ranks of Siemens AG, staked his reputation on transforming the German steelmaker into an engineering conglomerate.

Heinrich Hiesinger, chief executive officer of ThyssenKrupp AG.

Photographer: Jasper Juinen/Bloomberg

But he’s facing declining revenue, rising costs and a declining stock price. The company has also drawn shareholder criticism for its complicated structure, which runs from submarines to elevators and food packaging. Thyssenkrupp shares have lost about 30 percent since Hiesinger took the helm in January 2011.

For now, Hiesinger’s fate is unclear. To stay at the company, he’ll likely have to deliver on the promises of the steel joint venture with Tata Steel Ltd. and enact more sweeping changes to revive the company’s fortunes.

“Certainly, many investors (not least Cevian) have voiced exasperation at the seemingly endless restructuring,” at Thyssenkrupp, Christian Georges, an analyst at Societe Generale SA, said by email. There is a “recurring failure to impress at quarterly reporting,” he added.

On Tuesday, Thyssenkrupp rallied 9.6 percent in German trading, the biggest gain since 2009.

Elliott, led by Paul Singer, plans to re-evaluate the company’s top management and its planned multi-billion-dollar deal with Tata, said the people, asking not to be identified because the information is private. In line with its usual strategy, Elliott is building its stake in Thyssenkrupp and may cross the threshold of 3 or 5 percent in coming weeks, hurdles at which investors have to reveal their position, the people said.

Recent Victories

Elliott has notched up a series of recent victories. Hyundai Motor Group bowed to pressure from the hedge fund Monday and shelved an $8.8 billion deal, an unprecedented victory for shareholder activists in South Korea. Earlier this month, the firm won a proxy fight to take control of Telecom Italia SpA’s board, promising to push for asset sales and improve corporate governance.

Elliott joining forces with Cevian to shake up Thyssenkrupp could prove a "decisive step" toward change, according to Sylvain Brunet, an analyst at Exane BNP Paribas.

Cevian Capital, the second-largest investor, has previously argued that Thyssenkrupp needs to untangle its sprawling operations and cut ballooning costs at its corporate center.

Jens Tischendorf, Cevian’s representative on the supervisory board, called on fellow board members in a recent letter to analyze the benefits of the steel deal with Tata because of lingering obstacles, people familiar with the matter said.

Spokespeople for Thyssenkrupp, Elliott and Cevian declined to comment.

A major gripe among shareholders is the proposal to merge Thyssenkrupp’s European steel business with Tata, a cornerstone of Hiesinger’s turnaround plan. It’s been two years since the two companies started informal talks for the deal, which could be worth 15 billion euros ($17.7 billion), but they have yet to formally sign an agreement.

Adding to Hiesinger’s challenges are Thyssenkrupp’s labor representatives, who also have raised concerns about the company’s performance and risks related to the joint venture with Tata.

The key issues around the deal are privileges granted to Tata’s Dutch plant in Ijmuiden and potential environmental risks at a coke oven of its Port Talbot plant in Wales, people familiar with the matter said.

According to an internal plan, the German company intends to sign the Tata deal by mid-June, some people familiar with the process said. While Tata said last week it expects to sign an agreement by the end of June, representatives at the Dutch plant said they’re skeptical about the deadline and think it could take two or three more months from now.

Thyssenkrupp’s supervisory board, which consists of shareholder and labor representatives, has not yet given its blessing for the deal.

— With assistance by Thomas Biesheuvel

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