Dusseldorf/Frankfurt: Thyssenkrupp AG, already struggling to win over unions and lawmakers to a plan to merge its European steel business, is now facing growing scepticism from the investment community.

Analysts are worried management is only focused on the proposed steel venture with Tata Steel Ltd and hasn’t prepared an alternative, such as spinning off the operations or the company’s profitable elevator unit, in case talks fail, according to Kepler Cheuvreux’s Rochus Brauneiser.

“A greater number of investors judge it more sceptically," Brauneiser, an analyst at the brokerage, said in a phone interview. “The issue is that there’s no plan B."

The initial reaction to the negotiations with Tata on a venture to combine the companies’ European steel businesses was positive, with Thyssenkrupp shares gaining almost 5% on the day the news broke in April 2016 and adding almost 20% over the following weeks.

Despite opposition from Germany’s largest labour union and politicians fearing job cuts, investors welcomed the prospect of Essen-based Thyssenkrupp hiving off its cyclical and capital-intensive steel operations. Yet, with talks dragging on for more than a year, doubts are surfacing.

Chief executive officer Heinrich Hiesinger has staked his leadership since taking the reins in 2011 on transforming the steelmaker, which has roots dating back more than two centuries, into a diversified industrial group amid a global glut of the alloy. To succeed, he needs to win over investors and overcome resistance from IG Metall, Germany’s largest union, as well as politicians who maintain an influence over the biggest shareholder.

The company’s stock, which soared 23% in 2016 on a recovery in prices and hopes for a profit turnaround, has dropped about 1% this year, the fourth-worst performance on Germany’s benchmark DAX index.

“History has proven that steel mergers don’t always work well," Michael Shillaker, an analyst at Credit Suisse Group AG, said by phone. “Losing the free cash flow of the steel business is a risk when you sell it at the wrong point of the long-term cycle."

Thyssenkrupp’s predicament can be traced to its worst-ever investment decision in 2005, an expansion in the Americas that led to €8 billion ($8.7 billion) of losses. Adding to this is a flood of Chinese imports that weakened prices and forced the company to downgrade profit estimates.

The steelmaker’s elevator unit is its standout operation, contributing almost 60% of adjusted earnings before interest and taxes, and developing technology that uses magnets in place of cables. It also makes up part of Hiesinger’s strategy to build up industrial divisions and combine the weaker European steel businesses into the Tata venture.

Investors hoped that separating part of the steel operations from Thyssenkrupp would strengthen its balance sheet. Chief financial officer Guido Kerkhoff in January said he sought to double the company’s equity ratio to 15%, helping to bolster finances.

Lawmakers opposed

Still, the North Rhine-Westphalia government is against the steel merger, economy minister Garrelt Duin said this month.

The state’s Prime Minister Hannelore Kraft is on the trustee board of the Alfried Krupp von Bohlen und Halbach-Stiftung foundation, which owns 23% of the steelmaker. The foundation declined to comment when contacted by Bloomberg. Thyssenkrupp, due to report first-half profit Friday, also declined to comment, spokesman Robin Zimmermann said.

“The management seems to have gone all in on a steel joint venture," said Hans-Peter Wodniok, an analyst at Fairesearch GmbH & Co. The supervisory board would unlikely approve the main alternative of spinning off the profitable elevator unit, he said. “I wouldn’t like to be in Hiesinger’s shoes."Bloomberg

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