Christoph Steitz, Emma-Victoria Farr and Tom Keukenhoff
FRANKFURT/DUSSELDORF (Reuters) – Private equity firm Carlyle and German development bank KfW are in talks to jointly buy most of Thyssenkrupp’s (ETR:) submarine division, three people familiar with the matter said, in the latest sign that Ukraine is at war is changing the European defense sector.
The plan to join forces and take a majority stake in Thyssenkrupp Marine Systems (TKMS) reflects growing investor interest in defense assets, as well as Berlin’s efforts to maintain control of what it views as key military technologies.
All three parties are negotiating a deal in which Carlyle would take a majority stake in TKMS while state lender KfW would have a blocking minority, the sources said. Thyssenkrupp will own a minority stake, they said.
Carlyle and KfW declined to comment.
Thyssenkrupp is currently pursuing a dual process for TKMS, which could lead to either the sale or spin-off of the division producing submarines, frigates, and sensor and mine countermeasures technologies.
The deal marks a major milestone in Thyssenkrupp Chief Executive Miguel Lopez’s efforts to unravel the sprawling conglomerate, which is also in the process of selling a stake in its steel division to Czech billionaire Daniel Kretinsky.
KfW has completed a preliminary assessment of the potential transaction and is currently preparing a more in-depth assessment of the asset, which could be valued between €1.2 billion and €1.6 billion ($1.3 billion to $1.7 billion) in a two-stage process. This was reported by sources familiar with the situation.
Berlin is in principle ready to acquire a stake in TKMS through KfW, but requires more information about the business strategy of the division. “We will not buy blindly,” said a senior government source.
In addition, Carlyle, which has been conducting due diligence on TKMS in recent months, confirmed its interest in a letter to Thyssenkrupp’s supervisory board last month requesting a more detailed discussion, the sources added.
Carlyle and KfW delegations recently visited TKMS facilities in Germany to continue negotiations, the sources said.
If all parties agree, an agreement could be reached as early as September, at the end of Thyssenkrupp’s fiscal year, two of the sources said.
INDUSTRY CONSOLIDATION
No decisions have been made and talks could be delayed or broken down, the people said, pointing to potential disagreements over valuation or other terms that could arise down the line.
A Thyssenkrupp spokesman confirmed that the company is pursuing a dual process for TKMS and is in discussions with Carlyle and the German government.
The TKMS sale effort reflects a shift in European defense policy following Russia’s war with Ukraine, which has given impetus to potential consolidation in a sector traditionally dominated by national interests.
The idea behind the sale of TKMS is to take the first step towards creating a consolidation platform that could pave the way for pan-European consolidations or mergers in the future, something industry executives have been advocating for years.
Italy’s Fincantieri, which already has a partnership with TKMS, is interested in collaborating, its CEO Pierroberto Folgiero said last year.
CEO Lopez said this week that the process for TKMS, which employs 7,880 people and accounted for 11.4% of Thyssenkrupp group’s adjusted EBIT of 703 million euros last year, was ongoing.
“We’ve come further than we’ve ever gone before,” he said.
Unlike a spin-off, the sale does not require approval at Thyssenkrupp’s annual general meeting, potentially making it a simpler option, the people said.
IG Metall is involved in this process for TKMS and held talks with Carlyle last month as the union seeks the best and fairest agreement with the owner to protect facilities and jobs.
Significant union participation is seen as an advantage in current negotiations compared with the sale of Thyssenkrupp’s steel division, where IG Metall and management have clashed.
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