One of the main tasks of the India-born British businessman will be to convince the German company’s local workers, who prefer government intervention. Gupta says his Group will never let people go as they re-skill and re-employ them. Germany’s own Salzgitter and Sweden’s SSAB are also in the race. Thyssenkrupp is expected to choose up to two bidders by the end of November.
LIBERTY Steel has reached out to local governments and labour unions in Germany as it looks to engage important stakeholders in its pursuit of Thyssenkrupp's steel business.
It is a critical part for LIBERTY, which earlier this week made official its non-binding indicative offer to acquire the steel activities of the German conglomerate. Support from both the administration and the unions will be crucial for a successful bid.
“At this point of time, we are allowed to reach out to the different stakeholders. We will use the opportunity to explain our plans,” LIBERTY Steel Executive Chairman & CEO Sanjeev Gupta told Moneycontrol.
LIBERTY Steel’s current proposal is a non-binding indicative offer, and the two sides have held non-exclusive talks. In its statement earlier this week, the company said it is keen to “intensify the dialogue with Thyssenkrupp, and would like to engage in further due diligence to present a potential binding offer.”
It will be crucial for Gupta to convince the unions of his plans, as the workers have till now shown hostility to any change in ownership of the German company. They prefer the local government to take equity in the steel maker, which is the second-largest in Europe after ArcelorMittal. They hope this will keep their jobs secure.
It is probably one of the most sensitive issues. Gupta, in his conversation with Moneycontrol, repeatedly emphasised that his plans for Thyssenkrupp don't include reduction in workforce.
“We have never done any redundancy. In fact, across the world, wherever we have bought units, we have saved jobs,” said Gupta.
LIBERTY Steel has annual revenues of about $15 billion and has 40,000 employees in more than 200 locations in four continents.
“I want to explain to the unions that the combination of LIBERTY and Thyssenkrupp can help preserve jobs,” says the businessman who rose from relative obscurity as a commodities trader to making headlines across the world by picking up stressed assets. In India, he has made a presence by buying Adhunik Steel in February this year.
The Thyssenkrupp acquisition will be his most ambitious. While he is tight-lipped on the valuation, industry experts pin it north of $10 billion. And he faces competition from Sweden’s SSAB and Germany’s own Salzgitter.
Thyssenkrupp is expected to pick up to two bidders by the end of November. Final negotiations and the eventual result “are a few months away,” said an industry veteran closely following the deal.
Gupta wants to be one of the suitors who will get invited to the next round. Much of it depends on how his plan is accepted.
The plan for Thyssenkrupp
Known for its high-quality steel that are used by the big names in the German auto industry, which includes Audi and BMW, “Thyssenkrupp sets the price for auto steel in Europe. And they are known to pay exceptionally high salaries to their workforce,” says a senior executive from the steel industry.
But that business has been under stress for the past few years. In August, the company said it may incur an operating loss of $1.2 billion this year. The COVID-19 pandemic has dented demand for cars, and the European steel market continues to be inundated with Chinese imports even as raw material costs remain high.
Gupta says his plan for Thyssenkrupp will reduce the company’s risk in such a market. There are two parts to his proposition.
In the first, he will feed LIBERTY Steel’s downstream facilities in Europe with basic steel from Thyssenkrupp. “We have 10 million tons of capacity in Europe, and can source 3 million tons of steel from Thyssenkrupp,” said Gupta, talking about the integration of the two operations.
Second, the combined entity’s product portfolio will be more diverse and thus less vulnerable to market volatility. “LIBERTY Steel makes construction steel, which has been hit by the weak market, but not as much as auto steel that Thyssenkrupp makes. Together, the businesses will be more resilient,” says the billionaire businessman.
Plan for redundant workers
It is not that workers in LIBERTY Steel haven’t lost jobs till now. The company has laid off employees in the UK and Australia. In June, the Gupta family’s GFG Alliance, which includes the steel business, said it wants to cut costs by 30 percent and reduce the cash burn in a tough market.
But Gupta reiterates that the Group doesn’t let people go. “If someone’s job is under threat, he will be placed in GFG Workforce Solutions, which will re-skill him and make him employable again, within the group or outside,” says Gupta. GFG Workforce Solutions was set up this year.
GFG Workforce Solutions is a non-profit entity of the group.
The entrepreneur said the Alliance also plans to set up academies that will train people. “The idea is to attract young talent in the steel industry, as the average age of a worker in a European mill is early to mid-50s. Which means, for years, no one has joined the steel industry,” says Gupta.
He cites the example of his business in Italy. The turnaround in the unit there has led to a 40 percent increase in production. “And the workforce has increased by 20 percent. All the new hires are below the age of 25. That's what we want to do in other locations too,” says Gupta.
Thyssenkrupp and the green steel vision
Gupta’s ambitions for the steel industry go beyond changing its demographics. With each new acquisition, he has talked about pushing his vision for green steel, which centres around replacing blast furnaces with electric arc furnaces.
Blast furnaces use coke - a byproduct of coal - to reduce iron from iron ore. The process makes steel the most polluting industry, globally. But an electric arc furnace can use scrap to make steel. Or, it can use gas, a cleaner fuel than coke, to reduce iron ore.
Gupta wants to replace Thyssenkrupp's blast furnaces with the cleaner technology of steel making. “In Thyssenkrupp, we have an opportunity to acquire critical mass and push and influence policy towards green steel,” he says.
While a greener steel sounds ideal at a time when then world is obsessed with the issue of carbon footprint, experts warn that it won't be easy. “It needs huge investment over a long period of time,” says the industry veteran quoted earlier in the story.
Even before Gupta gets capital to set up electric arc furnaces, he needs to find willing banks to finance his multi-billion-dollar acquisition. “We have the support of the banks” is all that the entrepreneur says.
While the support of the financial institutions will be crucial, Gupta has got a shot in his arm after Premal Desai, a former Thyssenkrupp veteran, joined GFG Alliance as Group Chief Operating Officer, Business Development. Interestingly, the announcement of the appointment was made on October 16, the same day when LIBERTY Steel made official its interest in Thyssenkrupp.
While Gupta makes it clear that Desai, who was last CFO and Executive Chairman in his 14 years at Thyssenkrupp Steel, has not been brought in specifically for the proposed acquisition, he accepts that “his knowledge and expertise at the company will be of great use.”
Desai's understanding of the German company and the local culture can make all the difference for Gupta.
The businessman is anyways spending a lot of time in Germany.