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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 defense assets rises amid growing geopolitical instability.
The company said in a statement Tuesday that the sale to private equity is “one of several options” on the table for Thyssenkrupp Marine Systems, which makes submarines and ships for the navy. It is also in talks with the German government to take a stake in the company, the company said.
The development highlights growing interest from private equity groups in the defense sector following Russia’s full-scale invasion of Ukraine. Thyssenkrupp said global demand for military shipbuilding was increasing and that a potential spin-off would allow the unit to better exploit such 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 reached due to concerns about the large amounts of money needed as collateral against potential delays during the expensive shipbuilding process. This has prompted Berlin to consider a stake in order to speed up the spin-off of struggling parent company Thyssenkrupp.
Thyssenkrupp also said on Tuesday that the TKMS “will 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 counterpart.
Founded in 1811, Thyssenkrupp was once the symbol of German industrial prowess. But it has struggled in recent years as demand for steel – the company’s most important business – slows from the country’s auto industry.
A restructuring process has so far included the sale of its prized elevator business to private equity for 17 billion euros, as well as its automotive components and stainless steel businesses.
TKMS owns the largest shipyard in Germany, employing more than 3,100 people in Kiel. It produces both submarines and surface ships. In the first quarter of the 2023/24 financial year, it reported a €529 million increase in orders on the back of strong demand for submarines. Its sales forecast for 2024 is “significantly higher than the previous year.”
The German government had previously said it was “thinking” about taking a stake in TKMS, which last year began work on six custom-designed 212CD submarines for the German and Norwegian navies, worth a total of 5.5 billion of Euro. Delivery is expected between 2029 and 2034.
Miguel Ángel López Borrego, a former Siemens executive, took over as Thyssenkrupp’s chief executive in June after his predecessor was ousted, partly due to slow progress in unloading TKMS and the steel unit.