Sanjeev Gupta’s Liberty House has tabled a bid to buy the lossmaking steel operations of Germany’s Thyssenkrupp, an audacious swoop that, if successful, would propel the deal-hungry businessman to the top ranks of European industry.
The UK-headquartered group confirmed on Friday morning it had made a non-binding indicative offer for its rival.
Shares in Thyssenkrupp jumped more than 20 per cent in early trading on news of a possible deal, before settling at 16 per cent higher at €4.83 by late morning in Frankfurt.
A tie-up would merge the activities of the continent’s fourth and second-biggest producers of the grey metal, which operate sites that form a bedrock of Europe’s manufacturing sector.
However, a merger proposal would probably encounter stiff opposition from unions, who fear job losses and are lobbying for the German state to take a stake in the beleaguered unit.
The three contenders to succeed Angela Merkel at the head of Germany’s governing Christian Democrat party all come from North Rhine-Westphalia. They will face political calls to secure Thyssenkrupp’s future in the region.
Liberty’s interest in the steel division, which was first reported by Der Spiegel magazine, follows a dizzying run of acquisitions by Mr Gupta in areas ranging from metals and mining to renewable power and banking.
The Indian-born magnate’s ascent within a few years from obscure commodities trader to globe-trotting industrialist running a $20bn business empire has sparked scrutiny of the finances of GFG Alliance, the family-owned collection of investments to which Liberty belongs.
Thyssenkrupp has made no secret of its desire to find a way out of the steel business, which is suffering from its exposure to the shrinking car industry and the impact of Covid-19, with the company warning it could lose as much as €1bn this year. The sprawling conglomerate is being broken up by management following pressure from shareholders.
This year, the German industrial group sold its elevators division for €17bn to private equity investors and preliminary talks have been held on a tie-up with Swedish steelmaker SSAB and Indian group Tata. A merger with domestic rival Salzgitter has also been considered.
Any approach by Liberty will inevitably lead to questions on how it would finance a takeover. Its rapid growth has largely relied on often expensive forms of borrowing related to unpaid customer bills, while Mr Gupta has also leaned on public authorities for funding.
Liberty said on Friday it had support from “a number of financial institutions” without naming any, adding that it wanted to engage in further due diligence to present a potential binding offer but that there was no certainty of any agreement or transaction.
A number of Liberty’s mills have come under fire for late payments to suppliers and, following criticism over a lack of financial transparency, the privately controlled company has promised to publish consolidated accounts.
Although a combination between the two steelmakers could help reduce costs in a sector that has struggled for years with foreign competition and overcapacity, European regulators may prove another obstacle. Brussels blocked a proposed steel merger between Thyssenkrupp and Tata Steel’s European arm last year over concern it would reduce competition.
Liberty and Thyssenkrupp declined to comment.