Carlyle Withdraws Thyssenkrupp Marine Bid Over German Government Hesitation

After several months of negotiations, U.S.-based private equity firm Carlyle Group has withdrawn its bid to acquire a majority stake in Thyssenkrupp Marine Systems (TKMS). The decision came after German ministers expressed hesitation over involving private equity in a critical defense contractor, citing national interests and the prospect of an alternative German-led solution. Carlyle’s exit highlights Germany’s complex approach to private sector investments in its defense industry and the strategic challenges facing Thyssenkrupp as it seeks stability for its naval division.

Stalled Negotiations and Government Concerns

Carlyle entered talks to acquire a controlling share in TKMS in March 2024, aiming to expand its defense portfolio with a German leader in submarines, frigates, and naval electronics. However, negotiations stalled as German officials, particularly from the Ministry of Economic Affairs, voiced reluctance over private equity’s short-term investment outlook. Germany reportedly requested that Carlyle commit to a longer-term holding period, contrasting with Carlyle’s standard three- to five-year investment horizon.

At an October meeting with German ministers, Carlyle anticipated a decision but faced further delays as the Ministry of Economic Affairs preferred to explore German-owned alternatives. These delays, coupled with political uncertainties, ultimately led Carlyle to withdraw.

Germany’s Pursuit of a “National Champion”

Berlin’s resistance to Carlyle’s involvement underscores a broader goal: creating a German “national champion” in the naval sector capable of competing with established European players, such as France’s Naval Group and Italy’s Fincantieri.

Merger with German Lürssen Group

One proposed alternative involves merging TKMS with other German shipbuilders, potentially with family-owned Lürssen Group, a significant civilian and military shipbuilder. This solution could consolidate Germany’s fragmented naval industry and reduce dependency on foreign investment in a strategically sensitive sector.

Rheinmetall Going Naval?

Rheinmetall, a leading German defense contractor specializing in munitions and land-based systems, also showed interest in TKMS despite limited experience in the naval sector. The idea of an all-German naval powerhouse, possibly with Rheinmetall’s financial backing, appealed to the government as a way to strengthen Germany’s defense autonomy.

Union and Political Reactions to Carlyle’s Withdrawal

The German metalworkers’ union IG Metall, representing TKMS’s 7,800 employees, expressed concern over Carlyle’s departure. The union had engaged in preliminary talks with Carlyle and emphasized that any stake sale to private equity investors should involve state participation to secure naval shipbuilding as a key technology in the long term.

Political resistance to private equity involvement is not new in Germany, where sectors like healthcare and sports have previously rebuffed private investment offers. In 2005, former SPD leader Franz Müntefering notably referred to certain private equity practices as “locust investors.”

Thyssenkrupp’s Ongoing Struggles and Strategic Outlook

Thyssenkrupp’s broader restructuring challenges add another layer of complexity. CEO Miguel López Borrego, who took over after his predecessor failed to divest key subsidiaries, has faced similar difficulties in his attempts to split off Thyssenkrupp’s steel and naval businesses. This month’s collapse of Carlyle’s bid to acquire TKMS is the latest setback for the German industrial giant, once emblematic of the country’s manufacturing strength but now grappling with strategic realignments to remain competitive.

TKMS, led by CEO Oliver Burkhard, has continued to thrive in terms of orders, including a €5.5 billion contract for six Type 212CD submarines for the German and Norwegian navies. Despite this solid order backlog—reportedly valued at €13 billion—the company faces internal and external pressures to secure stable ownership and financial backing to ensure long-term growth. Following Carlyle’s withdrawal, Thyssenkrupp announced plans to make TKMS an independent entity, a move intended to facilitate more funding and position the division for future German or European consolidation.

Next Steps and Strategic Options for TKMS

With Carlyle out of the picture, TKMS will likely explore alternative avenues for growth and consolidation. Thyssenkrupp has resumed talks with the German government about a potential federal stake in TKMS, possibly through the state-owned development bank KfW. This partnership could offer the long-term stability required by the German government while addressing concerns about national security.

Industry analysts speculate that a German-led consolidation, incorporating companies like Lürssen or Rheinmetall, could yield the “national champion” Germany envisions. Yet questions remain about how to achieve a competitive, financially robust naval group that can fulfill Germany’s defense needs and reduce fragmentation in the domestic industry.

TKMS is back to square one in its search for a strategic partner, as the government re-evaluates its priorities. For now, TKMS leadership is tasked with keeping the shipbuilder competitive in a rapidly evolving defense market while balancing national and economic interests.

Conclusion

The Carlyle-TKMS case exemplifies Germany’s cautious approach to private equity in the defense sector, a stance driven by strategic priorities to maintain control over essential national security assets. As Thyssenkrupp navigates its strategic future, the German government’s involvement will likely shape the next steps for TKMS, either through state investment or a domestically led consolidation. The decision on TKMS’s future could also set a precedent for Germany’s broader stance on defense and private sector collaboration as Europe seeks to strengthen its defense industrial base in response to global security challenges.

Sources: Reuters, Financial Times,