Hiesinger faces challenge to recast Germany's ThyssenKrupp ThyssenKrupp is in the midst of cutting 1,300 jobs from its European plants, which include this German steel factory on the river Rhine. Employees have also been asked to reduce their weekly hours amid weak demand from the automotive industry Legendary German industrialist Berthold Beitz, centre, oversaw the Krupp Foundation before his death this summer. The foundation holds a 25 per cent stake in ThyssenKrupp, but its influence could be diluted as it lacks the funds to take part in a possible capital increase for the group Villa Huegel in Essen: the Krupp family's former ancestral home will host a memorial service on Thursday for Beitz, the steelmaking patriarch who helped shape the country's postwar industrial course. The German president will be in attendance Heinrich Hiesinger took over as ThyssenKrupp chief executive in 2011 with a mandate for change. He has sold off a large portion of the group's assets and initiated the overhaul of the group's "old-boy network." Analysts, however, point to the exit of the group's troubled Americas expansion as key to his transformation strategy Steel coil from Brazilian steelmaker CSN: the troubled plant is not expected to find a buyer quickly. ThyssenKrupp is engaged in offloading many of its assets in the Americas, and this is one of its most problematic. If it is unable to do so, chief executive Hiesinger's whole strategy would be put in jeopardy, analysts say Workers disperse concrete on a Bilfinger Berger building site in Hamburg. Germany's second-largest construction group is among the companies in which Cevian Capital, the activist investor that has raised its stake in ThyssenKrupp, has taken an interest Cevian Capital holds a small stake in Daimler, the carmaker. In regards to ThyssenKrupp, the Anglo-Swedish activist investor says the share price undervalues the company's "strong fundamentals" Demag Cranes is another of Cevian Capital's previous investments and the activist group is known for taking a conciliatory rather than combative approach when pushing for change. The hedge fund has succeeded in gaining board representation on about half of the companies it has engaged with since it was founded in 2002 Cevian Capital this summer took a stake in G4S, the UK security contractor that came under fire for its role in the London Olympics. The hedge fund's UK arm is chaired by former City minister Lord Myners and bills itself as a "constructive activist" that looks to effect change by working with management and other investors A famous chapter in ThyssenKrupp's history will draw to a close on Thursday when Germany's president leads tributes at a memorial service for Berthold Beitz, the steelmaking patriarch who for decades helped shape the company's course and who died in July aged 99. ThyssenKrupp's chief executive Heinrich Hiesinger, the man to whom it falls to recast the steel and technology group for a new century, is also set to pay his respects at the palatial Villa Huegel in Essen, the Krupp family's former ancestral home. The calm and down-to-earth Mr Hiesinger will doubtless betray no hint of the pressure he is under as he seeks to repair ThyssenKrupp's finances, which were badly damaged by a misguided €12bn expansion in the Americas. Set against a background in which Europe's steel demand remains in the doldrums due to the recession and falling car sales, Mr Hiesinger's plan to offload quickly its troublesome Americas units has stalled, delaying a possible capital increase that would help replenish ThyssenKrupp's weakened equity. If that were not enough, Cevian Capital, the European activist investor, announced on Wednesday it had lifted its stake to 5.2 per cent, triggering speculation it may press for more far-reaching change at a company whose share price has fallen 50 per cent since June 2011. "Hiesinger and [CFO] Kerkhoff came in as two fresh faces with a mandate for change and investors have bought into that," a London-based equity analyst says. They generated a lot of good will but now they are now really up against it, because of factors beyond their control. They are in a difficult situation and investors are growing weary. After taking the reins in 2011, Mr Hiesinger sold off assets representing a quarter of group revenues, oversaw the departure of several top managers and began the overhaul of ThyssenKrupp's "old boy network" following a spate of compliance problems that preceded his appointment. He began changes previously viewed as unthinkable by ThyssenKrupp's old guard, such as spinning-off its core stainless steel unit. However, 16 months after starting a sale process for the troubled Americas steel assets, ThyssenKrupp has still not managed to sign a deal. Talks with Brazilian steelmaker CSN have dragged on amid disagreements over the price, technical troubles at a blast furnace and arguments over who should be liable if the plant suffers any further technical troubles. Although offloading a high-tech steel plant in Alabama may be possible in the near term, people close to the talks say the more problem-prone Brazilian plant is unlikely to find a buyer quickly. "We underestimated the time required, particularly in Brazil, the sale is taking longer than was originally expected," Mr Hiesinger conceded in an interview this week with the Frankfurter Allgemeine Sonntagszeitung. ThyssenKrupp values the Americas assets at €3.4bn, which is well above most analysts" estimates, meaning a further writedown is possible. "Hiesinger's strategy to transform ThyssenKrupp really depends on exiting Steel Americas," says Jeff Largey at Macquarie Securities. If they were to get stuck with these assets it would put in doubt his whole strategy. After continued losses at Steel Americas caused ThyssenKrupp's gearing - the ratio of net debt compared to equity - to jump to 185.7 per cent, ThyssenKrupp reiterated in August it might raise capital to help reassure its key steel customers. Analysts expect Mr Hiesinger to raise about €800m in new equity and about €1bn in hybrid capital to help improve its capital metrics, which will also eventually benefit from an cash infusion from the Americas sale. The timing of the possible capital increase is unclear, however. Without clarity on the sale of the risky Americas assets, new investors are likely to demand a premium. "If you try to do a capital increase without the Americas sale then clearly that's going to be more difficult," says Michael Shillaker at Credit Suisse. In spite of temporarily breaching banking covenants this summer on an undrawn €2.5bn credit line ThyssenKrupp is not in crisis. They are in a difficult situation and investors are growing weary ThyssenKrupp received a waiver from banks involved in the credit line and overall it has some €7.2bn in cash, cash equivalents and undrawn credit lines. Many analysts therefore remain bullish on the stock believing that once execution issues are solved there is plenty of upside potential for investors as Mr Hiesinger's turnround takes hold and volatile steel becomes a smaller portion of revenues. Cevian is among the believers, saying on Wednesday it considers ThyssenKrupp's stock as undervalued. Dirk Schlamp at DZ Bank says Cevian's move "could fuel speculation on break-up of ThyssenKrupp" but Cevian insists it fully supports Mr Hiesinger's strategy. The Krupp Foundation, which Mr Beitz oversaw until his death, currently holds a 25 per cent stake in ThyssenKrupp but it lacks the funds to take part in a possible capital increase. Its influence could therefore be diluted, giving Cevian and other investors a stronger say in future. A person familiar with Cevian's thinking say it is conceivable that it will also participate in any capital measures at ThyssenKrupp, thereby raising its stake further, but it is not seeking representation on ThyssenKrupp's board. ThyssenKrupp is cutting 1300 jobs of 27,600 at its European steel business and remaining employees have been forced to accept a reduction in their weekly hours as demand from automotive customers in Europe remains weak. But Mr Hiesinger has repeatedly denied that he plans to spin off ThyssenKrupp's European steel business to help the company better focus on less cyclical technology such as elevators. Analysts and investment bankers maintain such a move could well make sense in the medium-term. Mr Shillaker at Credit Suisse agrees: "If you want to have a less capital intensive, more dividend and cash flow friendly company, they ultimately you have to [partially] IPO the steel business. But it's very difficult to time the cycle right for such a move. Cevian profits from unloved groups Cevian Capital has quietly grown to become one of Europe's most influential equity investors - able to count Lord Myners, the former UK Treasury minister as its UK chairman, writes Sam Jones. The Anglo-Swedish fund manager, founded in 2002, has a reputation for taking big, concentrated positions in unloved companies - and then profiting handsomely from them. Insiders at Cevian, which manages about $12bn, blanch at the notion that they are an activist hedge fund, however, and will reel off the ways in which they differ from the likes of TCI, Third Point, Pershing Square or other, very public and often very awkward shareholders. Cevian's approach is "constructivist," they say, proved by the fact that the fund has gained boardroom representation in over half the companies it has invested in without having to fight for it. It is rare for Cevian to invest in companies whose strategy it fundamentally disagrees with either. And unlike other hedge funds, Cevian's holding periods are long too: the average company stays in Cevian's portfolio for three to five years. The pay-off has been a cumulative return of nearly 146 per cent for Cevian's current fund, launched in 2006, thanks to shrewd bets on companies such as Volvo, Old Mutual, Wolseley and Cookson.