Krupp calls truce in steel merger battle with Thyssen

Germany's warring steel giants buried the hatchet last night and appeared to be on the verge of a merger on peaceful terms. If they succeed, the deal will create Europe's third-largest steel and engineering conglomerate.

After week-long talks mediated by business leaders and politicians, Krupp- Hoesch announced the withdrawal of its hostile takeover bid for Thyssen. Instead, both companies pledged to "explore possibilities for co-operation".

A merger between Krupp and Thyssen would create a formidable rival to British Steel, with combined annual sales of DM63bn. Krupp has said a full merger of the two companies would create cost savings in other areas as well, such as engineering and automotive components.

In a joint statement issued last night, the two rivals said their talks had gone well, and there was agreement that they had to find a solution ensuring the survival of the German steel industry. Further discussions were necessary to hammer out the details, particularly the crucial question of what role Krupp would have in the future alliance.

There was no word, either, on what this would mean to the 190,000 people currently employed by the two firms, but unions have warned that tens of thousands are in danger of being rationalised out of their jobs.

Thyssen's works council has called on some 50,000 workers to stage a protest today in Frankfurt's banking district as top politicians, including Chancellor Helmut Kohl, called on both companies to show social responsibility.

"We are going to Frankfurt because we fear that our future cannot be helped by the democratically elected government in Bonn but will instead be decided by the banks," said Georg Bongen, the leader of the Thyssen works council.

Krupp, the smaller of the two firms, had been advised by adviser banks and its own market analysts that it could not survive beyond the year 2000 on its current scale of productions. Repeated overtures to Thyssen had all been rebuffed, however, leaving no option but an almost unprecedented hostile bid.

The takeover attempt sparked spontaneous work stoppages by thousands of steel workers in the Ruhr, forcing the intervention of politicians.

Wolfgang Clement, the economics minister in the state of North Rhine- Westphalia where the two groups are based, said he expected a co-operation deal to be reached. Mr Clement, a rising star in the Social Democratic Party, described the talks as very constructive. "I do not think the differences are dramatic," he added. "I want to see a merger in the end and not a hostile takeover.''

Mr Clement's views were echoed by Hans-Olaf Henkel, president of the Federation of German Industry, who said he also believed Krupp and Thyssen would find a way to unify their steel operations to remain competitive but avoid massive job losses.

"I would say a merger would be good for both companies, particularly in the long term," Mr Henkel said. A study by Deutsche Bank, Dresdner Bank and Goldman Sachs showed a merger could bring positive results by as early as spring 1998. According to the bankers' report, commissioned by Krupp at the cost of DM200m, both companies would be able to sell off a number of units and Krupp could repay the takeover debts by the year 2000.

As Frankfurt's business district braced for an invasion by thousands of steel workers, the Deutsche Bank board member who played both sides in the Thyssen takeover battle hinted yesterday that he would soon resign from the steel-maker's supervisory board.

Ulrich Cartellieri was forced to issue a "personal statement" to defend himself against accusations of a conflict of interest. Mr Cartellieri had known about Krupp's hostile takeover bid prepared by his bank, but had failed to inform the company he was advising, Thyssen.

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