Financial Times UK 30Jan2020

Thursday 30 January 2020 ★ FINANCIAL TIMES 17

J O E M I L L E R— ESSEN

In a small room in Tübingen, on the
campusofoneofEurope’soldestuniver-
sities, Christian Gross hopes to take
on Google in the race to discover new
materialsusingquantumtechnology.
Mr Gross, 38, an experimental physi-
cist, has bought precision instruments
witha€1mprizefromtheAlfriedKrupp
von Bohlen und Halbach Foundation,
which has for decades supported sci-
ence and the arts, thanks to dividends
fromitsstakeinThyssenkrupp.
But the foundation, which has helped
breakthroughs in cellular biochemistry
androbotics,iscaughtinabitterconflict
about the survival of the conglomerate
that carries the name of its founder, and
whichitismandatedtoprotect.
In the coming weeks, Thyssenkrupp’s
largest single shareholder, with a stake
of almost 21 per cent, will have to make
a decision on the sale of the company’s
crown jewel: the elevator and escalators
businessthatisthesubjectofafour-way
bidding war involving private equity
firmsandKone,acompetitor.
After ditching its second chief execu-
tive in just over a year, the heavily
indebted group, hit by a downturn in
steel and a series of failed investments,
desperately needs the €17bn the unit is
projectedtofetch,topluga€4bnholein
its balance sheet, and more than double
thatamountinpensionliabilities.
Yet the likely disposal — at the behest
ofCevian andElliott, the activist inves-
tors that own a combined stake similar
to that of the foundation — has upset
workers,politiciansandmembersofthe
Krupp dynasty who fear it will hasten
the demise of a conglomerate with ori-
gins dating back two centuries that
helped fuel Germany’s postwarWirt-
schaftswunder,oreconomicmiracle.
“There are plenty of profits left to
realise in elevators, and all of Thyssen-
kruppshouldbenefit,”saidMikeSchürg
of the IG Metall union, which favours a
partial sale or flotation of the business.
“Weneedagoodsolution,”hesaid.“One
thatworksforworkers”.
It is an argument that resonates
among the foundation’s small staff, who
work in a former guesthouse on the
28-hectare estate of Villa Hügel, a 19th
century mansion built by Alfred Krupp,
Germany’spre-eminentindustrialist.
“Thyssenkrupp should pursue the
best solution for every business unit,
but always under the condition of ‘best
ownership’,”saidUrsulaGather,amath-
ematician and former Krupp prize
recipientwhorepresentsthefoundation
onThyssenKrupp’ssupervisoryboard.
“Any owner would have to reassure
employees that they will make an effort
tokeepthemonthepayroll.”
Bidders for the elevator unit have
paid heed, and are courting both the
foundation and unions with promises to
preserve jobs in plants in Hamburg and
near Stuttgart. One consortium, led by
Advent andCinven, has brought the
RAG Foundation, another Ruhr Valley
non-profit, on board in an attempt to
allay concerns about cost-cutting if it
does win in what would be the biggest
Europeanprivateequitydealinhistory.
But the Krupp foundation, which was
set up in part to rehabilitate the com-
pany’s image after its infamous role in
developing weapons for the Nazis, is no
ordinaryshareholdertopersuade.
At its creation in 1967, Alfried, the last
heir of the Krupp fortune, tasked it with
“preservingtheunity”ofThyssenkrupp
and gave it full ownership. But its chari-
tableroleinGermany’sindustrialheart-
land is dependent on dividends that
have diminished as losses have wid-
ened, and are likely to return only after
afull-scalebreak-upofthebusiness.

Until now, these two “distinct roles”,

as Mrs Gather calls them, of preserving

unity and providing charitable funding,

have rarely come into conflict. The

sheer scale of Thyssenkrupp, encom-

passing more than 800 companies at its

peak, allowed it to shield any substand-

ard units from the unforgiving glare of

themarkets.

Throughout the multiple steel crises

of the 1970s, the sale of a quarter of the

business to the shah of Iran, Krupp’s

merger with Thyssen in the 1990s, and

the company’s failed ventures in North

America and Brazil at the start of the

century, steady dividends enabled the

foundation to spend €678m on projects

in science, art, culture, education,

healthandsports.

Despite a couple of dividend-free

years in the early 2010s, it has also sup-

portedtheworld-classKrupphospital,a

fewmilesfromitsheadquarters.

Inthefoundation’sheyday,executives

from Krupp, and later Thyssenkrupp,

would present annual results in Villa

Hügel’s chandeliered grand hall and

hostsocialeventsontheestate.

But after the death of Berthold Beitz,

the Thyssenkrupp chief, in 2013 — the

year Cevian revealed its stake — the

foundation “went from being the king-

maker to a passive holding”, said a per-

sonclosetotheboard.

The foundation found itself unable to

buy into several Thyssenkrupp share

issues because it lacked spare funds. Its

influencediminishedalongwiththesize

ofitsholdingovertime.

In public, the foundation is at pains to

insist that as a charity, it cannot, by law,

interfere with operational decisions at

Thyssenkrupp. But with Cevian, which

owns 18 per cent, nipping at its heels, it

hashadtorethinkitspurpose.

In a modern economy, “unity must be

interpreted as what is good for the com-

pany”, said Volker Troche, who runs

operations at the foundation, where he

hasworkedformorethan20years.

Last September, it opted to join the

rest of Thyssenkrupp’s supervisory

board in backing the appointment of

Martina Merz, interim chief executive,

who has refused to rule out a complete

saleoftheelevatorbusiness.

As the foundation’s representative,

Mrs Gather immediately faced charges

of collusion with the activist hedge

funds that have been derided locally as

“locusts”.

But Mrs Gather, who is also the rector

of the Technische Universität in nearby

Dortmund, was adamant that a slim-

ming down of the conglomerate

was compatible with the foundation’s

mission.

“Competitiveness, the ability to pay a

dividend, the wellbeing of employees,

these may in the short term seem con-

tradictory, but they are not — definitely

not in the long term,” she said. “There is

no — and there has not been — any act-

inginconcertwithothershareholders.”

However, the foundation may not be

given the latitude to pursue a new path.

Its own board includes the minister

president of North Rhine-Westphalia, a

potential successor to Angela Merkel,

the chancellor, who has sided with

unions in opposition to the “short-term

exploitation”ofThyssenkrupp’sassets.

Decisions made at Villa Hügel have

never been purely commercial. “They

carry the Krupp name, and the Krupp

legacy comes with a special responsibil-

ity,” said a person close to the founda-

tion.

It is a sense of historic duty that Mrs

Gather acknowledges. “We are not,” she

insisted, “like a hedge fund, that comes

inonedayandleavesthenext.”

Buyout groups test loyalties at Thyssenkrupp

Biggest single shareholder’s founding mission compromised during humbled conglomerate’s struggle to survive

Thyssenkrupp’s tough call

Krupp Foundation’s holding in Thyssenkrupp () Net debt (bn) Operating profit (m)

Sources: company; Krupp foundation

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Elevator

Components

technology

Materials services

Marine systems

Steel Europe

Industrial solutions

Corporate











      











        

P E T E R W E L L S A N D E R I C P L AT T
NEW YORK

Warren Buffetthas agreed to sell his
localnewspaperstoLeeEnterprisesfor
$140m, in a rare move by the
billionairewhohasbeenloathtoselloff
any part of hisBerkshire Hathaway
investmentgroup.

The decision highlights fears for local
news operators across the US, who are
struggling with declining circulations as
consumersswitchtoonlinecontent.
The sale to Lee comprises 30 daily
newspapers across the country, includ-
ing Mr Buffett’s hometown paper, the
Omaha World Herald. As part of the
deal, Berkshire will provide a $576m,
25-year loan to Lee at a 9 per cent inter-
est rate, allowing the company to refi-
nance its existing $400m of debt and
payfortheacquisition.
If Lee does not default on, or renegoti-
ate, the loan, it would generate almost

$1.3bn for Berkshire over the next quar-

tercentury.

“We had zero interest in selling the

group to anyone else for one simple rea-

son: we believe that Lee is best posi-

tionedtomanagethroughtheindustry’s

challenges,”MrBuffettsaid.

The sale follows a 2018 agreement

where Lee took over management of

Berkshire’s newspaper business except

the Buffalo News. The papers Lee man-

aged for Berkshire generated $373m of

revenuesand$15mofprofitslastyear.

Mr Buffett has acknowledged the

deteriorating prospects of the industry

for years. Circulation at the Buffalo

News,thelargestofthedailiesownedby

Berkshire, fell more than a fifth from

2012to2017.

The sale to Lee may nonetheless be a

surprise to Mr Buffett’s longtime inves-

tors who have witnessed few divesti-

tures.Inanowner’smanualfirstdistrib-

uted to the company’s shareholders in

1996,MrBuffettwrotethatheandChar-

lie Munger, Berkshire vice-chair, have

“no interest at all in selling any good

businessesthatBerkshireowns”.

“Wearealsoveryreluctanttosellsub-

par businesses as long as we expect

them to generate at least some cash and

as long as we feel good about their man-

agersandlabourrelations,”headded.

Mr Buffett has had a decades-long

relationship with media. He delivered

newspapers as a boy and in 1977 Berk-

shire bought the Buffalo Evening News.

Buttheriseoftheinternethasputnews-

roomsunderpressure.

“The world has changed hugely and it

did it gradually. It went from monopoly

tofranchisetocompetitiveto... toast,”

Mr Buffett said of the newspaper busi-

nessin2019.

Lee said the deal would allow it to

reduce its interest costs by $5m and that

it would sell “noncore assets” as it

workedtoreduceitsdebts.

Media

Buffett sells papers to Lee for $140m

COMPANIES

Villa Hügel

epitomises the

influence that

Thyssenkrupp

wielded before

market realities

saddled the

group with debt

Denis Bury, VG Bild-Kunst

‘There are

plenty of

profits left

to realise in

elevators,

and all of

the group

should

benefit’

Mike Schürg

IG Metall

Contracts & Tenders

Legal Notices

JANUARY 30 2020 Section:Companies Time: 29/1/2020 - 19: 31 User: jon.wright Page Name: CONEWS4, Part,Page,Edition: LON, 17 , 1