US investor Carlyle pulled out of bidding for Thyssenkrupp’s naval unit after facing indecision and scepticism in Berlin about the involvement of the private equity group in a critical German defence player.
After more than 18 months of discussions, the Washington DC-based firm had hoped to finally secure a decision on its offer to buy a majority stake in Thyssenkrupp Marine Systems (TKMS) at a meeting with German ministers on October 8, according to people familiar with the negotiations.
The German government last year signalled that it was prepared to back a sale of the maker of submarines, frigates and naval electronic systems by taking a supporting stake.
But Carlyle’s lead negotiators were instead met by further indecision, according to two people briefed on the discussions. The economy ministry led by Green vice-chancellor Robert Habeck wanted more time to explore the option of creating an all-German naval giant at a time when Europe was striving to revitalise its defence industry.
One area of contention between the two sides was the timeline of ownership. The German government wanted the private equity group to commit to holding the company for around 10 years, rather than Carlyle’s preferred 3-5 year window before making an exit, according to two people familiar with the talks.
On Tuesday, the buyout group announced it was quitting the process. With due diligence expected to take months, Carlyle concluded it had run out of road to finalise the deal before the start of campaigning for Germany’s elections next year, at which point the chances of a tie-up were deemed minimal, one of the people added.
Thyssenkrupp was once a symbol of German industrial might, but its struggles to remain competitive over the past few years have become emblematic of the woes looming over Europe’s largest economy. The loss of a serious bidder delivers yet another blow to its long-running plans to split up the company and divest its naval and steel businesses.
The collapse of the talks reflects the deep resistance among some in German business and politics towards the private equity sector. While the nation has seen growing PE investment in recent years, health minister Karl Lauterbach in 2022 lashed out against “locust investors” buying up medical practices. Last year, the country’s top football clubs voted against selling a stake in the Bundesliga’s media and commercial rights to private equity firms.
The need for a new solution at Thyssenkrupp presents a fresh challenge for chief executive Miguel Lopez, who joined the Essen-based company last year after his predecessor Martina Merz was pushed out by the board — partially due to her failure to spin off the subsidiaries.
The former Siemens executive has successfully sold 20 per cent of Thyssenkrupp’s steel business to Czech billionaire Daniel Křetínský, but his reputation has been tarnished by tensions surrounding the disposal. In August, the conflicts spilled out into the public when the CEO of Germany’s largest steelmaker and the chair of its supervisory board resigned in protest over Lopez’s handling of the sale process.
At TKMS, which owns Germany’s largest shipyard in the Baltic port of Kiel, chief executive Oliver Burkhard had backed the plan to bring in Carlyle as a key step in a process of consolidation. The aim was to solve the problem of a fragmented warship industry and create a powerful “national champion” capable of competing against the likes of France’s Naval Group or Italy’s Fincantieri.
He wrote on LinkedIn on Wednesday that company executives “very much regret” Carlyle’s decision to withdraw, adding that it had not been due to “business management [or] the financial performance of our company”.
In 2021, the shipbuilder received the biggest order in its history — worth €5.5bn for six Type 212CD submarines for the German and Norwegian navies. It has a backlog of orders with a value of close to €13bn.
The IG Metall union also lamented Carlyle’s exit, telling the regional newspaper Westfälische Rundschau on Friday that it would have supported a majority shareholding by Carlyle provided the federal government had held a blocking minority and if the buyout firm had made binding commitments towards the company’s roughly 8,000 workers.
The union said it had been holding talks with Carlyle on that issue as well as on future investments. “A solution was within reach, but has now apparently failed due to resistance from the federal ministry of economics,” it added.
Carlyle first expressed an interest in the business in March 2023. German defence minister Boris Pistorius later confirmed that Berlin would consider taking a stake in the submarine maker, most likely through state development bank KfW. State involvement was proposed as a way to ensure liquidity at a company where orders can amount to several billion euros and take years to complete, and where customers are offered multibillion-euro guarantees.
However, Habeck’s ministry was keen to consider homegrown options. Those included Lürssen Group, a family-owned builder of civilian and military vessels that is interested in merging its naval arm with TKMS and other shipbuilders, according to the people familiar with the talks.
Rheinmetall, the German tank and artillery maker, also expressed interest in taking a stake. It has no track record in the naval sector, but has seen a surge in munition orders as western nations race to rearm and to support Ukraine’s armed forces in their battle against the Russian military.
Ministers considered a German industrial solution to be “promising”, a person familiar with the government’s thinking said.
Faced with the prospect of further waiting, and the political uncertainty around Germany’s looming elections, Carlyle felt it had little choice but to pull out.
Following the withdrawal, Thyssenkrupp said it would push ahead with plans to make its submarine business independent, which it said would unlock more funding and growth as well as providing a “good starting position for a possible national and European consolidation”.
“We will also continue unabatedly with our talks with the German government on a federal stake in the marine segment,” the company added.
A spokesperson for the German economy ministry said that TKMS was “of great importance for the security and defence industry” and said that talks about its future continued.
TKMS, Carlyle, Lürssen Group and Rheinmetall declined to comment.
Thyssenkrupp’s marine unit and its chief executive are now back to square one. “At this point the ball goes back to Burkhard,” said one person involved in talks on the future of the shipbuilder. “His original plan didn’t go anywhere. So what is his plan B?”