Elliott Management’s noisy brand of activism could be just what Thyssenkrupp TKAMY -0.59% needs.
Paul Singer’s hedge fund last week confirmed reports that it had a stake in the German industrial icon, which produces steel, elevators and a panoply of car parts and other industrial goods. This makes two of the world’s top activist investors agitating for change. Cevian Capital , Europe’s largest activist fund, owns a $3 billion or 18% stake in Thyssenkrupp, and sits on its supervisory board.
While Elliott whips up media storms when they serve its purpose, Cevian prefers operating behind closed boardroom doors. But they want the same thing: a more valuable company. Elliott may end up playing bad cop to Cevian’s good cop.
For now, Elliott’s stake is below the 3% level that requires disclosure, but that could soon change. Any Elliott stake above that threshold would give the two activists combined a larger position than the 21% owned by the charitable foundation that is Thyssenkrupp’s top shareholder. The foundation is essentially a passive investor that supports the default management position.
Even Cevian, which built its stake in 2013, has resorted to the media soapbox in this sorry case. It has made clear its displeasure with the turnaround pace under Chief Executive Heinrich Hiesinger. Both investors seem likely to support a change, though neither has publicly called for Mr. Hiesinger’s resignation.
So far, Elliott has only said it sees “significant scope for operational improvement.” Thyssenkrupp’s group operating margin has remained below 3% for half a decade, and this month it issued a profit warning alongside half-year results, sending its stock down 6%.
As well as woeful profitability, Thyssenkrupp suffers from a classic conglomerate discount. If the profits from its elevator division, which account for less than half of the group total, were valued in line with those of specialists Kone or Schindler, the unit would be worth more than the whole company at its current valuation. A breakup is the obvious solution.
More value still could be created if the elevator portfolio could be merged with Kone’s, with which it is complementary. Thyssenkrupp is currently in the process of merging its steel operation with that of Indian group Tata Steel to create a more credible rival to European leader ArcelorMittal .
Industrial groups across the globe are pursuing such breakup-and-merge strategies. General Electric last week agreed to merge its transport division with rail specialist Wabtec. GE’s European peer Siemens announced its own train merger last year, and in March spun out its health-care arm. Volkswagen is exploring an initial public offering of its truck business.
The problem with Thyssenkrupp isn’t the direction of reform but the speed. Cevian’s patience may have reached its limits. Elliott could bring new energy to one of Europe’s largest activist bets.
Write to Stephen Wilmot at stephen.wilmot@wsj.com