tkMS with a new uncertain (?) future

Last week's public holiday with the christening of two submarines and the presence of two heads of government at the shipyard ended with a touch of melancholy for the Kiel-based submarine builder tkMS - thyssenkrupp Marine Systems. According to information published by Handelsblatt, the management is in talks with financial investors about possible shareholdings. This could point to a spin-off of tkMS. The Handelsblatt newspaper outlines the path to a spin-off from the Thyssen-Krupp Group with an IPO via the acquisition of a minority position by an investor. According to the Handelsblatt, candidates could be the European investors CVC and Triton as well as KKR and Carlyle from the USA. The business and financial newspaper does not yet see any convergence in the valuation of the submarine builder. In financial circles, tkMS is valued at one billion euros, with the Essen-based parent company assuming two billion euros.

For Oliver Burkhard, who has been the CEO of tkMS since May 2022 and is also a member of the Executive Board of thyssenkrupp AG, a partial sale to financial investors and a subsequent IPO are not the only options. In previous statements, he had not ruled out a merger with other shipbuilders. Talks between thyssenkrupp Marine Systems and Fincantieri about a possible merger were recorded in mid-2020. Coordination between the then Lürssen Werft, German Naval Yards Kiel and tkMS to create a German warship construction alliance came to nothing. The only thing that remained from the initiative was a declaration of intent from Bremen-based Lürssen Werft and German Naval Yards Kiel in May 2020 to merge their naval divisions.

Well positioned

With his dual role, from which he can strategically manage the further development of tkMS, Burkhard sees the shipyard division in a strong position. A management conference he initiated at thyssenkrupp Marine Systems focussed on "Road 2 Independence" and "Growing Together".

The submarine builder is also doing well economically. The shipyard should be working at full capacity until at least 2034. Six submarines from the Norwegian-German cooperation project U212CD are on the order books. In January 2022, tkMS reached an agreement with the Israeli Ministry of Defence on the framework conditions for the purchase of three "Dakar" class submarines as the third batch of "Dolphin" boats.

The insolvent MV Werft shipyard in Wismar was recently taken over. The Kiel-based company had initially focused on expanding production capacity in the hope that further submarine orders could be generated from the Bundeswehr special fund. This is not foreseeable in the short to medium term. Nevertheless, tkMS is opening up options in this way, as maintenance and repair orders for the existing fleet must also be taken into account in addition to the new construction projects. In his speech at the christening of the Singaporean submarines "Impeccable" and "Illustrious" on 13 December 2022, Federal Chancellor Olaf Scholz acknowledged thyssenkrupp Marine Systems' commitment to expanding its production in Germany and "to also start production at the Wismar site from 2024".

Déjà vu

If this were to happen, the development would not be surprising. In addition to the merger considerations mentioned above, thyssenkrupp's Essen headquarters already made such attempts in 2020. The EU's taxonomy, which marginalises "non-green" industry, and its impact on the financing of defence projects brought the Group management in Essen close to a sale of the Kiel subsidiary. At the Annual General Meeting in February 2022, CEO Martina Merz announced her intention to divest the marine division. The course changed with Oliver Burkhard's move to Kiel.

For those in the know, the announced intention of a financial investor is a déjà vu. In 2002, Babcock AG sold its majority stake in HDW to the American financial investor One Equity Partners (OEP). Under the influence of the German government at the time, the shares were bought back and HDW was merged with ThyssenKrupp. In January 2005, HDW became a subsidiary of thyssenkrupp Marine Systems AG. The construct has been trading as tkMS GmbH since December 2012.

Atlas Elektronik was fully integrated into the thyssenkrupp Group at the beginning of 2017. The Essen-based company previously held 51 per cent. In October of the same year, the tkMS subsidiary Atlas Elektronik founded a joint venture, kta naval systems, with the Norwegian company Kongsberg. Half of the shares in the joint venture are held by both parent companies.

tkMS is cooperating with Italian shipbuilder Fincantieri in submarine construction. In December 2020, thyssenkrupp Marine Systems reached an agreement with the Trieste-based shipbuilder for the licence construction of two U212A class submarines for the Italian Navy. Between 2006 and 2017, Fincantieri already delivered four U212A class boats to the Marina Militare with the support of thyssenkrupp Marine Systems. Now two new-generation submarines are being added.