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German industrial group Thyssenkrupp is in advanced talks to sell a stake in its naval unit to US private equity group Carlyle, as investor interest in European defence businesses picks up amid growing geopolitical instability.
The company said in a statement on Tuesday that a sale to private equity was “one of several options” on the table for Thyssenkrupp Marine Systems, which makes submarines and ships for navies. It is also talking to the German government about taking a stake in the business, the company said.
The development highlights the growing interest from private equity groups in the defence sector since Russia’s full-scale invasion of Ukraine. Thyssenkrupp said that global demand for naval shipbuilding was increasing and a potential spin-off would better allow the unit to exploit those opportunities.
Private equity groups have been circling TKMS since it was put up for sale a year ago, but a deal has not yet been struck because of concerns about the large amounts of cash needed as a guarantee against potential delays during the expensive shipbuilding process. This prompted Berlin to consider taking a stake, in order to accelerate the spin-off from ailing parent company Thyssenkrupp.
Thyssenkrupp also said on Tuesday that TKMS would “provide a good starting point for possible national and European consolidation”. Italian shipbuilder Fincantieri last year said it wanted to work more closely with its German peer.
Founded in 1811, Thyssenkrupp was once a symbol of Germany’s industrial prowess. However in recent years it has struggled as demand for steel — the company’s largest business — from the country’s car industry has slowed.
A restructuring process has so far included the sale of its prized elevator business to private equity for €17bn, as well as its car parts and stainless steel operations.
TKMS owns the largest shipyard in Germany, which employs more than 3,100 people in Kiel. It produces both submarines and surface vessels. In the first quarter of its 2023/24 financial year, it reported increased orders of €529mn on the back of high demand for submarines. Its sales forecast for 2024 is “significantly above the previous year”.
The German government previously said it was “thinking about” taking a stake in TKMS, which last year started work on six custom-designed 212CD submarines for the German and Norwegian navies, worth a total of €5.5bn. Delivery is expected between 2029 and 2034.
Miguel Ángel López Borrego, a former Siemens executive, took over as chief executive of Thyssenkrupp in June after his predecessor was ousted, partially because of slow progress on offloading TKMS and the steel unit.
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