ThyssenKrupp AG (TKA), Germany’s largest steelmaker, ousted three top executives in an effort to repair a boardroom tainted by corruption allegations and an ill-fated expansion in the Americas.
Executive board members Olaf Berlien, 50, Edwin Eichler, 54, and Juergen Claassen, 54, will be relieved of their duties at the end of the year, the Essen-based company said in a statement late yesterday.
ThyssenKrupp, which is cutting the number of business units to five from eight and building up its non-steel base, is expected to post a second straight annual loss next week. Chief Executive Officer Heinrich Hiesinger, who previously headed Siemens AG (SIE)’s industrial unit, was brought in last year to revive the fortunes of the company that was formed in the 1999 merger between Thyssen and Krupp.
“Hiesinger has nobody to blame anymore, he has to deliver,” said Hans-Peter Wodniok, an analyst at Fairesearch GmbH & Co. KG in Kronberg, Germany. “The act of liberation doesn’t come until Steel Americas is sold.”
ThyssenKrupp rose 2.3 percent in Frankfurt trading today to 16.43 euros. Today’s gain pared the stock’s loss for the year to date to 11 percent.
An audit into the company’s unprofitable plants in the U.S. and Brazil highlighted decisions made on “assumptions and key data which were either clearly too optimistic or later proved to be incorrect,” ThyssenKrupp said in the statement. The company said it’s also been confronted with a series of corruption and cartel cases that raise questions over the current leadership culture.
Berlien and Eichler were on the board when the investment decision was made for the failed move into the U.S. and Brazil.
Claassen, who joined the board last year, is being investigated over a possible breach of trust, Wilhelm Kassenboehmer, a spokesman for prosecutors in Essen, said last week. Six employees at ThyssenKrupp’s GfT Bautechnik, for which Eichler is responsible, were fired on suspicion of a breach of trust. ThyssenKrupp was among companies fined by Germany’s Cartel Office for antitrust violations in the country’s railway- steel market this year.
ThyssenKrupp, whose stainless-steel panels were used in the construction of the Chrysler Building in 1929 and the Empire State Building in 1931, has the lowest return on equity among its European peers, weighed down by losses at its Steel Americas unit.
ThyssenKrupp announced in May that a sale of its $13 billion steel plants in the U.S. and Brazil was among “strategic options” as losses mounted up amid sluggish demand and weak prices. The U.S. plant opened in 2010, importing steel slabs made at the Brazil facility and processing them into high- grade sheets.
Hiesinger said in August he wanted to sell the Americas unit for its book value of about 7 billion euros ($9 billion). The company was already divesting assets contributing about a quarter of annual revenue before that decision, including a stainless-steel business, as it builds up the non-steel base that ranges from elevators to automotive parts and marine services.
The example of Steel Americas is a “textbook case of how not to do it,” said Wodniok. ThyssenKrupp “had been a mere German steelmaker by then with some processing capacity in foreign European countries, zero experience in South America and little trading experience in North America.”
Cia. Siderurgica Nacional SA (SID:US), Brazil’s third-largest steelmaker by output, offered about $3 billion to buy the two plants in the Americas, according to two people familiar with the matter last week.
CSN, as the Sao Paulo-based company is known, is among bidders that will participate in the final round of negotiations, said one of the people, who asked not to be identified because the discussion is private.
ThyssenKrupp’s debt stands at 6 billion euros, largely due to the failed U.S. expansion. With a loss expected on the sale of the plants, the company will need to find another way to raise cash to expand into other markets.
ThyssenKrupp will probably report a net loss of 846 million euros for the 2011-2012 fiscal year on Dec. 11, based on the median estimate of 18 analysts in a Bloomberg survey. That compares with a loss of 1.3 billion euros the previous year when it wrote down the value of its Steel Americas unit.
“Sentiment for the shares is negative, also with regard to the results for the 2011-2012 fiscal year,” said Marc Gabriel, an analyst at Bankhaus Lampe KG in Dusseldorf. “It remains to be seen whether Hiesinger can refloat this ship.”
The losses have spurred calls among analysts for a capital increase. A possible obstacle is the Krupp Foundation, whose 25.33 percent stake gives it a blocking minority in ThyssenKrupp.
The foundation is headed by Berthold Beitz, a 99 year-old veteran German industrialist who has been hailed in Israel for saving Jews from the death camps during World War II. Created in honor of the former head of the Krupp company, the foundation manages the family fortune and sponsors philanthropic projects.
The foundation “hinders ThyssenKrupp from raising capital,” said Ingo Schmidt, an analyst at Hamburger Sparkasse AG in Hamburg. The company will be “obliged to sell more assets, that means silverware” in the event that an increase is ruled out, he said.
ThyssenKrupp paid a dividend of 45 cents a share for the fiscal year through September 2011 even after posting the loss.
“Berthold Beitz still is the dominant man at ThyssenKrupp,” said Schmidt. “Therefore the group will continue to pay a dividend even in the case of a loss.”
An official at the foundation declined to comment.
“The company is solidly financed,” Kilian Roetzer, a spokesman for ThyssenKrupp, said today. “A capital increase currently is not an issue.”
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