(Bloomberg) — Thyssenkrupp AG is in talks with the German government over an aid package for its struggling steel unit worth at least 5 billion euros ($5.9 billion), well exceeding the group’s current market value in a key push to secure its survival.
Chancellor Angela Merkel’s government has signaled a willingness to provide financial support to shore up the unit and ensure future domestic production of an environmentally friendly form of steel, according to people familiar with the matter.
While a wide range of aid is still being debated, the steelmaker and politicians are exploring about 2 billion euros in liquidity from a government fund and at least 3 billion euros in grants, said the people, who cautioned the amount is fluid and could still change considerably during the negotiations.
Thyssenkrupp as well as Germany’s finance and economy ministries declined to comment.
The shares declined 1.7% at 9:19 a.m. in Frankfurt, extending its decline for the year to 61% and valuing the company at 2.9 billion euros.
Once synonymous with German industrial prowess, Thyssenkrupp is fighting for survival. The pandemic intensified deep-seated structural issues at the company, which still employs more than 100,000 people. Its steel division faces severe problems, with profitability hammered by yawning pension deficits and cheap steel imports from Asia.
Rescue Funds
The government is ready to offer grants equivalent to about 30% to 40% of the 10 billion-euro transition to fossil-free steel under a hydrogen-development program, said one of the people, who asked not to be identified because the talks are private.
In addition to money for the green-steel project, Thyssenkrupp is also in talks with the government’s WSF fund, which was set up earlier this year to rescue companies from a pandemic-induced liquidity crunch. The discussions are aimed at helping stabilize the business by covering losses of about 2 billion euros and more funds might be needed, the people said.
The complex talks also involve Thyssenkrupp’s home state of North Rhine-Westphalia, which confirmed the discussions to Bloomberg. The steel division employs around 27,000 workers, many in the heavy industrial Ruhr region. Germany’s most populous state is looking to preserve jobs by promoting green manufacturing.
“To enable companies like Thyssenkrupp Steel to innovate and modernize we are working with the federal government and the European Commission,” Andreas Pinkwart, the state’s economy minister, said in an emailed statement. “Our goal: to become the leading European region for modern and climate-friendly industry.”
There are differences over the total package and how it would be structured, with the federal government seeking to minimize the use of WSF funds as much as possible, the people said. There are formidable obstacles for tapping the money because of long-running issues at the company, and no final decision has been reached, they said.
Aid has become critical for Thyssenkrupp’s steel operations, the traditional heart of the industrial conglomerate which supplies “Made in Germany” products from cars to wind turbine blades. That’s prompting decision makers to lean toward a deal to shore up the company.
“We want to keep steel production in Germany,” said Carsten Schneider, general secretary of the Social Democrats, the junior coalition party in Merkel’s government. “Several options of aid are under discussion.”
Talks with the government gained traction after Sanjeev Gupta’s Liberty Steel made an offer for the Thyssenkrupp unit. The Essen-based company is seeking buyers or partners for its steel unit as it races to restructure, but ongoing losses are eating into cash from selling its prized elevator business.
What Bloomberg Intelligence Says:
Thyssenkrupp reckons the best option for its struggling Steel Europe arm would be within a larger entity — with consolidation necessary to secure the European industry’s long-term future — so discussions with the German state for aid for the expensive low-carbon steel transition could improve the unit’s attractiveness in any merger discussions.
— Grant Sporre, BI metals and mining analyst. Click here for the full report
Unlocking funds from the WSF could prove contentious, the people said. Officials from the SPD are insisting that the government receive an equity stake and voting rights in the company for any aid extended — similar to the structure of the government’s bailout earlier this year of Deutsche Lufthansa AG.
But for Merkel’s conservative bloc, a government shareholding might be a tough sell. The Christian Democrats are typically wary of state intervention and could be difficult to sway ahead of elections next year.
“Of course, all instruments which we used for Lufthansa are also available for the steel industry,” Peter Altmaier, Merkel’s economy minister and a member of her Christian Democratic party, said last week in Berlin. “But this doesn’t need to lead to a public stake.”
Additionally, tapping the WSF might prove difficult because Thyssenkrupp’s steel unit was unprofitable before the pandemic, in contrast to Lufthansa. A deal could also struggle to gain approval from the European Commission because of the pre-existing financial issues.
(Updates with market reaction)
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