* ThyssenKrupp CEO to face shareholders at AGM on Jan. 17
* Pressure on CEO seen rising after three years in job
* Inherited problems have hampered restructuring
* Activist investor Cevian watching Hiesinger's moves
By Maria Sheahan and Tom Käckenhoff
FRANKFURT, Jan 12 Three years after taking the
helm at ThyssenKrupp, Heinrich Hiesinger is running
out of time to implement his ambitious plan to retool the
200-year-old German steelmaker as a high-tech engineering
Setbacks in selling weak assets - as well as costly
price-fixing scandals he inherited - have made Hiesinger's
promises of sweeping transformation look optimistic. At an
annual meeting on Friday, the former Siemens man will face tough
questions from shareholders who, for a second year, have
received no dividend.
"Some thought that he was the guy who can restructure
ThyssenKrupp and move it forward. But he hasn't really achieved
that yet," said Joerg Schneider, a fund manager at Union
Investment in Frankfurt. "He set the expectations too high."
Adding to pressure on Hiesinger are small but significant
shifts in the group's ownership since the last AGM. The family
trust, which long shielded managers from predators, has seen its
holding diluted below a blocking 25 percent. Meanwhile, activist
Swedish fund Cevian has built up an 11-percent stake.
Needing cash to expand higher-margin lines, such as
elevators and high-performance car parts, Hiesinger has already
sold assets accounting for a quarter of group sales. Yet delays
and other problems have sparked speculation - which the CEO has
consistently rejected - that he might yet pull out of
steelmaking altogether, ending two centuries of Krupp tradition.
A senior manager who has worked with the 53-year-old
electrical engineer told Reuters that sentiment would play
little role when the CEO determines what must be sold.
"There are," he said, "no sacred cows for Hiesinger."
Despite a 40-percent fall in the share price since he took
over, many investors say they are keeping faith in him, for now.
"I do believe that Hiesinger can still turn things around,"
said Schneider at Union Investment.
"But he needs to show shareholders and employees a clear
path so they can finally see a light at the end of the tunnel."
Public professions of confidence in Hiesinger's strategy
have also come from Cevian, whose founding partner Christer
Gardell was dubbed "The Butcher" in Sweden for pushing
aggressively for restructurings of underperforming firms. The
investment group has quadrupled its stake in ThyssenKrupp since
the middle of last year , giving it a significant voice at the
There has also been change at the Krupp Foundation. The last
family owner, jailed but later pardoned for his role in the Nazi
war effort, left his fortune to the trust to fund philanthropy.
His confidant Berthold Beitz oversaw the charity's influence
on the group for decades, before and after the 1999 merger with
Thyssen. Beitz's death last July at the age of 99 could lead to
shifts in its stance.
Last month, by not participating in a capital increase, the
Foundation let its stake slip below the 25 percent that gave it
a blocking minority at the company's AGMs.
The stake now stands at 23 percent, still a level that gives
it great sway over decisions which require the support of 75
percent of votes cast.
The scale of difficulties since he won support for his
restructuring plan in 2011 underlines how much there is still to
do for Hiesinger, whose contract is up in September next year.
Once synonymous with the rise of Germany's industrial and
military might, producing munitions, tanks and big guns from its
Ruhr valley base, today's ThyssenKrupp is a diversified global
conglomerate making products ranging from bulk steel to
elevators, automotive parts, fertiliser plants and warships.
When Hiesinger took over, the group appeared to be in decent
shape, with most of its businesses posting profits. But as he
started shaking it up, shifting the group away from the volatile
steel market, lurking problems came to light. ThyssenKrupp has
now posted three straight years of losses and racked up debts.
"Three years ago, many risk factors were only partly
visible," said a senior ThyssenKrupp manager who declined to be
named. "We couldn't yet see the consequences of investment
decisions. But the root of the problems was already there."
Its most profitable units are elevators, buoyed by a
construction boom in China, and industrial solutions, where the
U.S. shale gas boom has driven demand for petrochemical plants.
Hiesinger has sold off units with at least 10 billion euros
($13.6 billion) of annual sales - a quarter of group turnover.
But two of the biggest items on his to-do list have become
major headaches - the sales of stainless steel business Inoxum
and the loss-making company Steel Americas, comprising a steel
mill in Brazil and a processing plant in Alabama.
Almost a year after completing the sale of Inoxum to
Outokumpu of Finland, ThyssenKrupp announced in
November it would have to take back parts of that business - the
Terni steel plant in Italy and the VDM alloy unit.
And after repeatedly extending the deadline for a deal on
Steel Americas, Hiesinger was in the end able to sell just the
Alabama unit, leaving the Brazilian mill a drag on finances.
ThyssenKrupp is also trying to find buyers for other units
such as Berco, a supplier of undercarriages for construction and
mining equipment, and awaiting the outcome of a cartel
investigation into firms selling steel to carmakers.
The ill-fated investment in Brazil as well as a downturn in
the global steel market has weighed heavily on ThyssenKrupp's
finances, causing its debt pile to swell. At end-September, it
stood at about 5 billion euros ($6.8 billion), twice its equity,
and it had to ask banks to waive some loan covenants.
To ease the strain, ThyssenKrupp raised 882 million euros by
issuing new shares and will receive another 1.1 billion from the
Alabama deal once regulators have signed off. In a positive
development, the company posted positive free cash flow for the
first time in six years in 2013.
Hiesinger has asked investors to be patient.
"It seems the will is there," said Nomura analyst Neil
Sampat. "But the reality is that the failure to sell Brazil and
having to take back Terni and VDM is a step backwards."
One way or another, Hiesinger must convince investors that
his efforts to overhaul the company are worth the wait.
"The story with which ThyssenKrupp tried to enthuse the
capital market didn't work," said Union Investment's Schneider,
who believes Hiesinger can still pull off the turnaround but has
reduced his holdings of the stock.
"I don't believe in it as an investment story right now," he
said. "Management over-promised."