ThyssenKrupp Under Fire 'We Won't Be Pressured'

Debt-plagued German industrial giant ThyssenKrupp has been struggling with shrinking equity capital and having difficulty selling off unprofitable mills. CEO Heinrich Hiesinger explains how he plans to prevent the breakup of the company.


SPIEGEL: Mr. Hiesinger, you have been the head of ThyssenKrupp for two and a half years. When did you realize what a suicide mission you had gotten yourself into?

Hiesinger: I knew from the beginning that it would be difficult. ThyssenKrupp had decided for the first time to bring in an outside CEO. You don't do that when everything is going well. But what I didn't even remotely expect, and what I wasn't made completely aware of, is that our new steel mills in the Americas would not operate as planned.

SPIEGEL: When you assumed office, you believed that you could preserve the corporation in its current structure. Is that still the case?

Hiesinger: Yes, that is our objective, despite all the risks involved. We are headed in the right direction, and so far we have kept all the promises we made. We have made the company more efficient and increased our earning power. The sale of the mills in the Americas is taking longer than expected because we are taking a cautious approach. And in that respect, we are not allowing ourselves to be pressured by the public's expectations.

SPIEGEL: You're not being pressured by the public, but by the condition of the company. Your equity capital continues to shrink and is now at the lowest level among all DAX companies. This can't go on for much longer.

Hiesinger: It was clear, after we had recognized the scope of the cleanup operation, that we would be placing an extreme burden on equity capital. The loss of €1.2 billion ($1.6 billion) that we just announced is exclusively the result of inherited problems. It's something we have to endure, and the team, which is now working hard and effectively, can't do anything about that. However, we did prepare our investors for these cuts.

SPIEGEL: Last week, your investors had firmly expected you to successfully sell off the unprofitable mills in Brazil and the United States. They were deeply disappointed. Why is the sale taking so long?

Hiesinger: There are several reasons. First, one blast furnace in Brazil isn't fully operational. No one wants to invest in something unless he can see that everything is up and running. Second, there are several parties at the table in the negotiations in Brazil. And third, long-term commitments were made in the past that need to be restructured in the course of the sale.

SPIEGEL: There was more than half a year to do that. Do you seriously believe that you can still sell the mills at a reasonable price?

Hiesinger: We are in intensive negotiations with a leading bidder. And the negotiations continue to make sense as long as we are making progress on resolving the matters in dispute.

SPIEGEL: The two mills have already cost ThyssenKrupp more than €10 billion. How could such a massive bad investment have happened in the first place?

Hiesinger: Of course mistakes were made in the planning and construction of the mills. But they could have been fixed. The important issue is that the entire environment has changed radically -- and more quickly than would have been the case in the past -- since the decisions were made. No one could have predicted how dramatically the price of iron ore would increase. This made the entire business plans no longer feasible.

SPIEGEL: So the basic decision to build the mills was correct at the time?

Hiesinger: I'm not saying that the decision was correct. Perhaps a different executive board would have decided not to invest so much money in steel and more in other businesses. What I'm saying is that, in this case, the actions that were taken were not predictably wrong or negligent.

SPIEGEL: Could the old executive board have pulled the plug at some point?

Hiesinger: I don't have to time to dwell on the past. We have to develop the company in a strategic manner, just as we intended. A great deal of progress has been made in the areas that our team can influence. For instance, we are seeing 8-percent growth in facility construction and the elevator business, which is not common at other companies in the current economic climate. We're proud of that.

SPIEGEL: With all due respect to your optimism, the company has a debt load of €20 billion. How do you expect to ever reduce that much debt?

Hiesinger: That number is too high. About eight billion of it consists of long-term pension commitments, which can't be changed in the short term. We have made progress on our net debt, reducing it by €500 million in the current fiscal year. We will complete another step with the sale of the American steel business. In 2011, we launched a program that provided for a reorientation of the group and the sale of a quarter of the company. We have made progress on that front. If we hadn't, the situation would be very different today.

SPIEGEL: Nevertheless, there has been speculation for weeks that the company could be broken up and the steel business sold. Is there anything to it?

Hiesinger: That's complete nonsense. This is not an issue that is being considered or discussed. We embarked on our mission to restructure the company, not to break it up. What we are doing is the biggest restructuring of the company since the merger of Thyssen and Krupp in 1999. We see tremendous potential in all parts of the company…

SPIEGEL: …which was apparently wasted in the past.

Hiesinger: At any rate, we are in the midst of a massive comeback. Many things at ThyssenKrupp have not been at industry standard.

SPIEGEL: To expand the new future business portfolios, you will need money that you don't have.

Hiesinger: I disagree. We have invested more in almost all forward-looking departments and have spent more on research and development than in previous years. Our automotive division, for example, is building four plants in China and one in India. We are getting rid of old burdens while simultaneously investing in the future, and we don't shy away from tough decisions. Seventy percent of top management was replaced, and our cost-cutting program is saving €2 billion.

SPIEGEL: Then you don't even need the increase in capital that is currently the topic of discussion?

Hiesinger: I didn't say that. An increase in capital is a possible option for us. It will certainly be easier if we can also solve our problem in the Americas soon.

SPIEGEL: Do you believe that investors would then be willing to invest in the company? Where does your optimism come from?

Hiesinger: We have been contacted by a number of interested parties that would like to be part of it. But the executive board hasn't made a decision on the issue yet.

SPIEGEL: In the past, the Krupp Foundation, which owns about 25 percent of ThyssenKrupp, was a stumbling block when it came to capital increases. Do you believe that it will be easier to implement such measures now that Berthold Beitz, the longstanding chairman of the foundation, died three weeks ago?

Hiesinger: That isn't quite correct. Mr. Beitz -- and this is very important to me -- paved the way for this step while he was still alive. In March, he said in an interview that he would not oppose a capital increase if the company had convincing reasons. It was a clear statement of intent. There was no obstruction.

SPIEGEL: Beitz and his foundation had considerable influence on developments in the company in the past. How will the vacuum be filled?

Hiesinger: I'm familiar with all of those stories. But the role of Mr. Beitz as someone who actively intervened in daily operations is incorrect. Until his death, I never received a single letter or phone call from him on business-related issues. As the honorary chairman of the supervisory board, he attended the board meetings, but all he did was listen. The company was near and dear to him.

SPIEGEL: Do you mean to say that the great patriarch was not involved in decision-making processes at all?

Hiesinger: Yes, he was, but not in the way some have claimed. For instance, after we had decided on the sale of the stainless steel division, a transaction worth billions, we went to see him and explained to him why we felt it was necessary to sell off the traditional business.


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