German industrial group Thyssenkrupp’s shares fell 16 per cent on Monday, as the company warned proceeds from the sale of its crown-jewel lift business would not go as far as hoped, while private equity firms buying the unit sought to offload some of the deal’s risks.
In a letter sent to Thyssenkrupp’s 160,000 staff, and seen by the Financial Times, executives warned the crisis caused by the coronavirus pandemic would hit the company’s restructuring plans.
“In the medium term, the corona-related outflow of liquidity will in all probability result in the financial leeway from the sale of the elevator business being much smaller than originally assumed,” three board members, including chief executive Martina Merz, wrote.
The steel and materials group is in a “difficult economic situation,” they added. “Corona is making the situation much worse. In view of the seriousness of the situation, everything must be examined and nothing can be ruled out.”
Separately, the FT reported that Advent and Cinven, the private equity firms planning to buy Thyssenkrupp’s lifts business for €17.2bn, are seeking to offload risk by bringing extra investors into the deal, which is due to be completed in July.
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While buyout firms often sell on chunks of equity after agreeing to large deals, the process is taking longer than usual as the groups try to sell down at a hefty price tag, since the deal was struck in late February before the impact of the coronavirus pandemic became clear.
However, people close to Cinven and Advent said the majority of the equity syndication was accounted for and the groups would still be able to complete the acquisition even without new investors.
Thyssenkrupp’s shares began to tumble in February as fears grew about the impact of the pandemic, falling from about €11 in the middle of that month to a low of €3.55 on March 19, although they have recouped some of those losses. On Monday morning, shares fell from €6.07 to as low as €5.08.
Shares in neighbouring steel distributor Klöckner & Co also fell by 13 per cent on Monday, after the company reported a €21m net loss in the first quarter.
The wider MDax index, of which Thyssenkrupp is a constituent, fell by more than 3 per cent in Frankfurt.
“Thyssenkrupp’s liquidity problems [negative cash flow] have been exacerbated by the crisis,” said Michael Muders, a portfolio manager at German institutional investor Union.
“Thyssenkrupp must now prepare for the time after the corona crisis, ie continue to reduce and restructure costs.”
The Essen-based company, which has already furloughed 30,000 employees and announced more than 6,000 job cuts, recently secured a €1bn credit facility from Germany’s state-owned development bank KfW.
The funds would only be needed if there was a delay in the closing of the lift transaction, according to a person familiar with the company’s position.
Thyssenkrupp had also received half of the necessary antitrust clearances needed, a person close to the group said, although it was still waiting for approval from the European Commission.