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Thyssenkrupp plunged into turmoil as CEO Kerkhoff set to leave

Logo of Thyssenkrupp AG. Photograph:( Reuters )

Reuters Frankfurt, Germany Sep 25, 2019, 06.31 PM (IST)

Thyssenkrupp said it was preparing to replace its chief executive Guido Kerkhoff, making him the latest casualty at the German steel-to-submarines conglomerate which has been in crisis mode for more than a year.

The plan to ditch Kerkhoff after 14 months follows a dramatic loss of confidence among key investors, who no longer believe the 51-year old can deliver a turnaround that includes selling the company's most profitable division, elevators.

It adds to turmoil at a company that has struggled to cope with falling steel prices, a weak car market, and a cooling global economy. Since Kerkhoff became CEO in July 2018, the firm has issued four profit warnings.

"Most importantly, we see an increasing risk surrounding a timely execution of the elevator business strategy, in turn creating further questions over whether the company's stretched balance sheet can be fixed over the next 6-12 months," Credit Suisse analysts wrote, keeping an "underperform" rating.

Shares in the group traded 1.1 per cent lower at 1038 GMT.

Kerkhoff is set to be replaced on an interim basis by Supervisory Board Chairwoman Martina Merz, who will face pressure to quickly find a buyer for the elevator business, which is valued at up to 17 billion euros ($18.7 billion), more than twice that of its parent.

Kerkhoff's plan to sell or list elevators, raise margins and find new ownership structures for Thyssenkrupp's other divisions was executed poorly and failed to create momentum, said two people familiar with the matter.

"That's why Thyssenkrupp's key owners had to hit the 'emergency brake'," one of the sources said, after Thyssenkrupp did not give a reason for Kerkhoff's departure in its statement.

Growing skepticism has been reflected in a 40 per cent share price decline since Kerkhoff became CEO, compounded by two failed restructuring plans under his watch: a spin-off of the capital goods units and a joint venture with Tata Steel.

Lars Foerberg, founding partner of Thyssenkrupp's second-largest shareholder, Cevian, said he fully supported the appointment of Merz, a former Bosch manager who became chairwoman in February.

Faster Turnaround

This echoed remarks by the Alfried Krupp von Bohlen und Halbach Foundation, the biggest shareholder with a 21 per cent stake.

If elected CEO, Merz's duties as chairwoman will be taken over on an interim basis by former Siemens board member Siegfried Russwurm, who sits on Thyssenkrupp's supervisory board.

The company said it would recommend that Klaus Keysberg, head of the group's Materials Services business, join the board.

"We expect that the new leadership will speed up the transformation process that Thyssenkrupp so urgently needs, and improve the quality of implementation. We are confident that Thyssenkrupp will now finally get a crystal clear strategy and a well-defined plan of action," Foerberg said.

Under Merz, who also sits on the steering committees of Lufthansa, Volvo, and automotive supplier SAF Holland, the existing turnaround plan is expected to gather pace.

Dirk Sievers, head of Thyssenkrupp's works council and a member of the group's supervisory board, said the group's strategy needed to be implemented faster and more consistently now, adding there would be no change to the existing plans.

Thyssenkrupp's supervisory board will decide on the proposals at an extraordinary meeting shortly, the company said.

"The realignment of the group announced in May 2019 and unanimously approved by the supervisory board will be systematically continued. The focus will be on the three areas 'performance first', 'flexible portfolio' and 'efficient organization'," it said.

Kerkhoff, who joined Thyssenkrupp as finance chief in 2011, took over as CEO last year following tumultuous weeks during which the conglomerate's former CEO and chairman also left due to mounting investor pressure over strategic issues.

Story highlights

It adds to turmoil at a company that has struggled to cope with falling steel prices, a weak car market, and a cooling global economy. Since Kerkhoff became CEO in July 2018, the firm has issued four profit warnings.