By Christoph Steitz and Edward Taylor
FRANKFURT (Reuters) - Thyssenkrupp's foundation has pledged to stop a break-up of the steel-to-submarines conglomerate, but sliding profits, activist investors and a leadership crisis have forced it to acknowledge the need for deeper reforms.
The Alfried Krupp von Bohlen und Halbach Foundation, Thyssenkrupp's biggest shareholder with a 21 percent stake, has been in the spotlight since the July resignations of CEO Heinrich Hiesinger and chairman Ulrich Lehner created a leadership vacuum at the company.
Investors have been trying to determine the foundation's thinking as they debate reforms that management had balked at: a partial listing of Thyssenkrupp's elevators division, a sale of its materials trading unit and creation of a holding structure.
Thrust into engagement with Cevian and Elliott, who jointly hold about a fifth of the group, the foundation must reconcile its mandate to preserve Thyssenkrupp's unity with the desire of the two activist investors' desire for drastic reform.
The charitable status of the foundation prevents it from initiating strategic proposals itself, but it does have the power to veto major strategic decisions by pooling its two votes on the 20-member supervisory board with the 10 seats held by Thyssenkrupp's labour representatives.
"The question is whether the foundation can back a strategy that is revolutionary, since management's evolutionary approach was rejected," a source familiar with the company's strategic thinking said. "And whether a revolutionary approach can be reconciled with the idea of no break-up."
This month the foundation's chief signalled her openness to deeper reforms provided they ensure the group's well-being, citing the body's support for previous landmark deals.
"In all instances it becomes clear that unity is not an end in itself, but needs to be oriented 'dynamically' towards the long-term health of the group," Ursula Gather told the board's trustees in a letter seen by Reuters.
The foundation has, in fact, quietly backed all of Thyssenkrupp's major restructuring steps, including the takeover of rival Hoesch AG in 1992, the merger with Thyssen AG in 1998 and its steel joint venture with Tata Steel this year.
But its role as a shareholder has been obscure because it has tended to follow the lead of management.
Critics fear that Gather, a mathematics professor and rector at the University of Dortmund, lacks the business acumen needed to scrutinise activist proposals at a time when Cevian may seek an additional seat on the supervisory board.
The foundation also lacks the funds to build out its voting stake to a so-called "blocking minority" of 25 percent or to participate in a rights issue if major strategic opportunities arose, critics say.
NOT SO PASSIVE Gather, however, has shown that she wants to be more involved as the foundation -- named after the last member of the Krupp family to own the group -- looks to improve the dividend payments it needs to fulfil its mandate of funding projects in the areas of science, education, health, sports and culture.
Thyssenkrupp's payout has been a meagre 15 cents per share for the past three years.
The 65-year-old foundation chief has has also flexed her muscles since joining the supervisory board in January, most notably by questioning the rationale of the Tata Steel deal, ending years of rubber stamping management's proposals, people briefed on the talks said.
Gather also drew fire for meeting with the top shareholder of Finnish elevator group Kone, which is considered a potential bidder or partner for Thyssenkrupp's elevators business, a person familiar with the matter told Reuters.
That irked both Hiesinger and Lehner, who had always ruled out a sale of the business, but with management out the company is now seeking a new way forward.
"Thyssenkrupp needs to change not only for all the shareholders, it needs to change for all the stakeholders," said Tomas Johansson, portfolio manager at SKAGEN Funds.
"The foundation is an important voice, one can only assume that they're figuring out a solution."
($1 = 0.8568 euros)
(Editing by David Goodman)
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