GERMANY – Thyssenkrupp AG has agreed to sell its elevators division to a consortium of Advent, Cinven and Germany’s RAG foundation for 17.2 billion euros (US$18.7 billion) in what could be the world’s largest buyout this year.
The bidding group prevailed against a rival consortium comprising Blackstone Group Inc, Carlyle Group Inc and the Canada Pension Plan Investment Board, which sources said submitted a lower offer.
The deal, which is believed to be Europe’s biggest buyout since 2007, values the division at roughly 18 times core earnings and is expected to close at the end of Q2, 2020.
Reuters reports that the price beats the most optimistic estimates and roughly matches a bid that had been submitted earlier in the process by Finnish rival Kone.
Kone dropped out of the race earlier this month over expected antitrust risks.
Thyssenkrupp said it would reinvest about 1.25 billion euros to take a stake in the unit, which, based on the purchase price, would result in a 7.3% share that would be used to partially fund its pension liabilities in a trust.
The group said it is aiming for an investment grade rating following the deal, while it is currently rated junk by credit agencies.
By far the German conglomerate’s most profitable business, Thyssenkrupp Elevator is the world’s fourth-largest lift manufacturer behind United Technologies Corp’s Otis, Switzerland’s Schindler, and Kone.
Bruno Schick, partner and head of Germany, Austria, Switzerland and emerging Europe at Cinven, said the private equity owners intended to invest in the business to drive growth “both organically and via acquisition.”
The auction leaves Thyssenkrupp with a much-needed cash injection at a time when the once mighty group has accumulated roughly 16 billion euros in debt and pension liabilities, more than twice its current market value.
As part of the deal, Thyssenkrupp Elevator will remain based in Germany and equal representation between shareholders and labour representatives will be safeguarded.
Thyssenkrupp will use the funds to cut debt, which will result in a significantly lower annual cash outflow for interest and pension payments, compensating for the loss of cash flow from the elevator business.
Funds will also be used to support Thyssenkrupp’s other struggling divisions, including steel, plant building and car parts. The group will unveil exact plans for distribution in May.
