Thyssenkrupp: a break-up will be a long and arduous task

Steel makers extract carbon, nitrogen and other elements from impure pig iron. Thyssenkrupp’s corporate transformation will also require some extraction — that of its steel and hydrogen businesses from the rest of its hodgepodge of activities. As the group’s first-quarter cash burn shows, that will not be an easy task.

Thyssenkrupp has been through a painful retrenchment, which included the €17bn disposal of its elevator business. But further divestments would be desirable. The group today has a market value of €4bn, compared with a sum-of-the-parts valuation nearer €6bn.

The biggest nugget of value is the steel division, which Thyssenkrupp has much-delayed plans to spin off. This should generate €825mn of ebitda in 2023, according to Visible Alpha estimates. At a 20 per cent discount to ArcelorMittal, it would be worth €2.8bn. An initial public offering of Thyssenkrupp’s hydrogen business, Nucera, might value the electrolyser business at €2bn Lex has estimated, in perhaps more ebullient times.

The residual businesses — industrial components, automotive and the like — could be worth about €4.5bn, say analysts. Subtract €3.3bn — the net effect of Thyssenkrupp’s cash, capitalised costs, pension liabilities and minorities — and that results in an equity value of €6bn, a 50 per cent premium to the current market cap.

Trouble is, neither steel nor hydrogen are an easy sell as standalone businesses at this time.

Thyssen Steel faces a high wall of capital expenditure. It needs to catch up on lost years pursuing an unfruitful combination with Tata Steel. Plus, European climate targets mean it has to go green. Thyssenkrupp has already earmarked €2bn for a hydrogen-fed direct reduction plant. Turning all its steel mills green might require €7bn to €10bn of investment. This steel venture requires a parent with strong shoulders.

Nucera is in a similar spot. It also needs clarity on the rules and subsidies for green hydrogen, which will determine the size of its addressable market. With capital markets still choppy, its IPO will have to wait.

All of this makes Thyssenkrupp’s restructuring a long game. There is latent value to capture, but only for the most patient shareholders.