ThyssenKrupp

Jindal and ThyssenKrupp called off talks regarding the Steel business. This decision is called “mutual” and due to the fact that the conditions of the steel market have materially changed since last October (energy, EU tariffs etc.). 

Other rumours had cited that ThyssenKrupp and Jindal could not agree on the way/timing/cost to turn Steel Europe around (remember TK was willing to sell, say, 60% first to take part in the restructuring of the business).

What is for sure is that the prospects for European steel have improved and may have led TK to be more (overly?) demanding.

The market may view this break in talks negatively, since Steel Europe has historically been the rock in the group's shoe. That said, we and the market were becoming more and more doubtful on the negotiations so the surprise shouldn't be massive. Also, we can only agree that conditions have actually improved in Europe. Keep in mind we value the business at c.€3bn or 27% of gross assets.

Now the CEO is faced with a challenge: to prove that the (undetailed) plan B for Steel Europe he has been mentioning since last October actually works…

Remember the group is also helped short-term in term of momentum by the proposed takeover of TK Elevators by Kone announced last week.

We still expect a negative reaction today, of course, also for a stock that has been up +15% since the announcement on TK Elevators on 30 April.

Expert Opinion:
This isn't good news.  However, the expected changes in the European steel market due to CBAM and higher tariffs are a game-changer, and Steel Europe may be profitable on its own going forward. We still view ThyssenKrupp as an attractive valuation play. Any sharp drop in the share price would be an opportunity to add to the name.  

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