OIDA Strategic Intelligence – Commentary

• Everyone is keen to push for the sale of TKMS activities (from politicians to shareholders) and ThyssenKrupp CEO Heinrich Hiesinger appears to be attentive to the market about TKMS activities;
• Without the Naval Surface Vessel division, the submarine activity is not profitable;
• If TKMS is sold, the buyer will benefit from synergies, from cutting-edge knowledge and from a non-competitive German market. The buyer will also collaborate with important naval equipment suppliers such as Atlas Elektronik GmbH and its main subsidiary AEUK.
• Losing the MKS 180 contract means that TKMS has lost potential sales abroad and credibility regarding the fact that it has not been chosen by the German Navy.

OIDA Strategic Intelligence – Our Offer

• Understanding and identification of potential industrial synergies (product portfolio), value chain tracking (with subcontractors and suppliers)
• Identification of past/present/future business opportunities and monitoring of order intake • Key figures on actors (company profiling on Abeking& Rasmussen, Atlas Elektronik GmbH, Fassmer, German Naval Yards, Lürssen, Meyer Werft, TKMS but also Damen, Fincantieri, Naval Group, Navantia, Saab, Thales Underwater Systems and Ultra Electronics) AND markets (submarine, surface vessels, etc)
• Key figures on partnerships and monitoring of export customers
• Monitoring interest of TKMS’ sales offshoots.

What is going on?

ThyssenKrupp is stepping away from the shipyard business after having lost the MKS 180 contract (3.5bn€ /£3.07bn). This decision comes from the German Federal Government, as it loses out on constructing the MKS 180 ship to its rivals German Naval Yards and the Dutch Damen (DSNS). The German Federal Government plans to spend 3.5 billion Euros on four units and then an additional 1.5 billion Euros (£1.32bn) for two more units later on. This ship will likely receive interest from other foreign navies. TKMS’ other contracts are now on the line such as Egypt’s order of frigates.

The MKS 180 frigate is the most expensive and prestigious construction in the history of the German Navy. This loss can be perceived as a first foot in the door for foreign constructers into the German ship making industry. This could be the beginning of the end for national German ship making. However, it is conceivable that TKMS might build parts, and deliver components for the MKS 180.

TKMS is a leading company in terms of military ship and submarine making for the German navy. Until today it has had a near monopolistic position fostered by the German government. However, this contract was advertised Europe-wide instead of being nationally awarded. Indeed, government members are now pushing for a European consolidation and seem to be ready to let TKMS go. Shareholders are putting pressure on CEO Hiesinger to dispose of the TKMS holding which weighs on ThyssenKrupp results.

Concerning the MKS 180 bid, TKMS presented the highest price and doubts had arisen about if the ship maker could build such a large ship at all due to recent logistical and financial set-backs (late delivery of the K130 Corvettes, massive defects on the F125 Frigate).

Following this commercial failure several scenarios are under discussion: collaborating with competitors, selling off the branch, or, if no agreement is reached, giving up completely the company. Discussions with Naval Group and Lürssen Group are being considered as well. However for experts, if the Naval Surface Vessel division is sold, the Submarine business will most likely be on the line. The ship market is small, and the two intertwine on an engineering and purchasing level. Negotiations with Rheinmetall failed some years ago due to elevated prices.

Damen (DSNS), German Naval Yards and Lürssen have shown signs of teaming up, not only for the construction of the MKS 180, but to also to work as a consortium for other future projects.

Written by Benjamin Voisin (Finance Analyst) & Alexandra Stafferton (Junior Analyst) for OIDA Strategic Intelligence

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