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Enter Dual-Activist Name Now to See Multiple Catalysts Play Out

Germany-based industrial conglomerate Thyssenkrupp AG (TKA GY) has been a multiple catalyst Special Situation idea at The Edge since May 2015, when we posited that TKA would become a pure play capital goods holding company and look to separate all its non-core assets (including Steel operations) either through Spinoffs or asset-sales. However, little has changed since then and the company has continued to operate as an industrial conglomerate. Changes are now on the horizon...

What's Interesting? The Edge View...
We believe that TKA is a developing story with multiple catalysts. With the Steel Europe JV finalized, the key focus will be growth in the Capital Goods business and potential restructuring within the segment. The management has been slow to address shareholder concerns amid calls for restructuring and the divestiture of non-core assets, and has posted dismal earnings over the years. Additionally, the management has also ignored the suggestions made by Swedish activist fund Cevian Capital, which holds a 14% stake.

Now, TKA is back in the news as its earlier announced Steel Europe Joint Venture with Tata Steel has been finalized as of the end of last month (June 2018). Furthermore, in a statement on May 24, 2018, activist investor Elliott Management Corp. confirmed that it holds a significant stake in the industrial group, though it is below the 3% mandatory disclosure level required by German law. This makes two of the world’s top activist investors pushing for change at the German industrial conglomerate, resulting in The Edge taking another look at the opportunity present in TKA.

As highlighted above, the involvement of activist investors Cevian Capital and Elliott Management is anticipated to expedite any restructuring efforts. From a Special Sits angle, we believe that an IPO of the Steel Europe JV and a separation or disposal of the remaining metals distribution assets will prove value creative in the near-term. Additionally, we believe that the company may further rationalize its portfolio of assets through a Spinoff of the high margin Elevator Technology business, which has seen speculation as a potential M&A target. We like the fact that the Steel Europe JV has closed favorably for TKA investors, with a 55/45 economic interest and a rider included to decide on the timing of a potential IPO.