Credit: REUTERS/THILO SCHMUELGENAdds details, context
FRANKFURT/DUESSELDORF, Germany, Nov 19 (Reuters) - Finland's Kone KNEBV.HE has proposed paying a multi-billion euro breakup fee to Thyssenkrupp TKAG.DE in an effort to improve its chances in an auction for the German conglomerate's elevator business, two people familiar with the matter said.
Kone, in a partnership with private equity firm CVC CVC.UL, is among suitors for Elevator Technology (ET), which has been put up for sale in a bid to pay down pensions, debt and invest in restructuring its other struggling businesses.
Kone, the only strategic bidder remaining in the auction, faces regulatory hurdles since a combination of Kone with ET, the world's third- and fourth-largest elevator makers, would create a new global champion, raising antitrust concerns.
Kone's offer is being reviewed alongside offers from private equity consortia which do not face lengthy antitrust reviews, giving Thyssenkrupp greater certainty about a successful sale.
Paying the break-up free - which one source put at 3 billion euros ($3.3 billion) - upfront would make it easier for Thyssenkrupp to accept a Kone deal, which could face an antitrust review lasting up to a year.
The group needs cash fast to repair its stretched balance sheet, aching under 8.5 billion euros in pension obligations as well as net debt of 5.1 billion, which is more than twice its equity.
If the Kone-CVC tie-up succeeds with its bid, the paid fee would count towards the final purchase price, which could be as much as 17 billion euros, the people said. If the deal is blocked on antitrust grounds, Thyssenkrupp would keep the cash.
No decision has been made as talks are at a preliminary stage and could still fall apart, the people said. The elevator sale is not expected to take centre stage at a supervisory board meeting on Wednesday, one of the people said.
Thyssenkrupp and Kone both declined to comment.
Thyssenkrupp, which is due to hold its annual press conference on Nov. 21, is also pursuing a partial listing as an alternative to a sale.
Kone and CVC have submitted an indicative bid for ET, along with other bidding groups, including Blackstone BX.N, Carlyle CG.O and the Canada Pension Plan Investment Board. A consortium of Advent, Cinven CINV.UL and the Abu Dhabi Investment Authority is also in the race, among others.
Bidders for the final auction round will be selected in the coming weeks.
To further mitigate antitrust concerns, Kone has teamed up with private equity firm CVC, which could buy parts of the Thyssenkrupp elevators units that would have to be sold to overcome antitrust concerns.
"Although not always with legitimate economic grounding, competition authorities have been applying stricter scrutiny to "four to three" mergers," according to a study by the International Center for Law & Economics (ICLE).
"This heightened scrutiny can result in outright rejection of proposed mergers or demands for costly divestitures that can delay closure of the merger by a year or more."
T-Mobile US TMUS.O and Sprint S.N, the No.3 and No.4 U.S. wireless carriers, this month received government approval for a planned merger which was first announced in spring 2018. They still face a lawsuit seeking to stop the deal.
($1 = 0.9025 euros)
(Reporting by Arno Schuetze, Edward Taylor, Christoph Steitz and Tom Kaeckenhoff Editing by Michelle Martin)
((christoph.steitz@thomsonreuters.com; +49 69 7565 1269; Reuters Messaging: christoph.steitz.thomsonreuters.com@reuters.net))
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