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In many ways, German industry is the envy of the world. Ironically, the country’s oldest industrial behemoth has been in dire straits for a decade. ThyssenKrupp has been through an orgy of mismanagement, and is struggling to recover.
ThyssenKrupp frittered away euro 9 billion — 110 per cent of its current stock market capitalisation — on a blighted investment in steel mills in Brazil and the United States. The company now has euro 5.3 billion of debt, a burden that limits investment in such flourishing business units as elevator technology and industrial plant construction. There has also been a string of allegations of anti-competitive behaviour and fraud. And, the recession does not help.
The mere fact that ThyssenKrupp has survived so far highlights its inherent strength. Heinrich Hiesinger, the current chief executive poached from Siemens two years ago, has done a decent job of sweeping up the pieces.
He recently sold the loss-making stainless steel unit for a reasonable price. The debt burden is shrinking and an ambitious efficiency programme is under way. Hiesinger has decided to sell the unfortunate American plants. While this is the right decision, it will entail further financial pain in the short run. ThyssenKrupp will be lucky to receive half the assets’ euro 7 billion book value.
Hiesinger’s largest problem is the Krupp Foundation, which owns 25.3 per cent of the shares and sharply limits his room for manoeuvre. The foundation, designed to maintain corporate unity, is run by the 99-year-old Berthold Beitz. A former confidant of the last Krupp, he is desperate to protect the family’s heritage and the foundation’s own position.
He has blocked any capital increase, because the foundation cannot afford to take part. He also insists on a constant stream of dividends to fund the foundations’ numerous charitable activities. That hurts, since many operations are loss-making.
Furthermore, Beitz is loyal to Gerhard Cromme, ThyssenKrupp’s long-serving chairman who oversaw the ill-fated American foray. Cromme is still expected to succeed Beitz at the foundation. As long as the weak governance persists, investors should be wary.