PARIS --- German shipbuilders Lürssen and German Naval Yards want to merge their military divisions, and have agreed in principle to combine the businesses in a joint venture, the companies announced on Wednesday. The two groups would thus replace Thyssen-Krupp Marine Systems (TKMS) as the leading German naval shipyard, the German daily Handelsblatt reported May 13.
Commercial shipbuilding activities are excluded from the planned merger. In the coming weeks, the two companies will work out the details of the joint venture, and according to some sources the management will be at Lürssen.
Consolidation of German naval shipyards is long overdue, according to many experts, as compared to other countries too many suppliers are fighting for the few orders that are awarded each year. Alone, Lürssen, German Naval Yards and TKMS are too small to survive against other European heavyweights like France’s Naval Group.
"We are convinced that consolidating our shipyards in naval shipbuilding makes sense and is beneficial in order to strengthen their competitiveness in the long term," explained Friedrich Lürssen, a partner of the Lürssen group. Iskandar Safa, owner of the German Naval Yards umbrella company Privinvest, emphasized that the reorganization of the shipyards was overdue. "Our customers need partners who are large and capable of fulfilling large, strategically important orders."
The federal government is currently planning investments of over ten billion euros to strengthen the naval forces, and the biggest share will go to the new MKS 180 multi-purpose frigate. The federal government recently awarded the order to the Dutch Damen Group because the German shipyards could not meet the requirements of the Ministry of Defense. German Naval Yards, which was unsuccessful when the contract was awarded, has taken legal action against the Dutch bid.
The former industry leader is left out
It is now foreseeable that Iskandar Safa's company will withdraw its complaint, Handelsblatt reported, as the Kiel-based company could now become involved in the deal through a back door. The four to six MKS 180 ships are to be manufactured in the Lürssen shipyard, which will generate the lion's share of the billion-euro deal.
Thyssen-Krupp Marine Systems, the former industry leader, falls by the wayside. Lürssen and Safa had originally negotiated a three-way merger with representatives of the Essen parent company. However, the three could not reach a final agreement.
There are two main obstacles to a three-way merger with TKMS, Handelsblatt reported: First of all, TKMS is primarily active in the underwater area, and neither Lürssen nor German Naval Yards are interested in this business because of the enormous financial risk involved in building submarines.
In addition, Thyssen-Krupp is listed on the stock exchange while both Lürssen and German Naval Yards are family-owned companies. "They run their business differently and therefore speak a common language," said a manager familiar with the processes. The talks with Thyssen-Krupp made this difficult.
TKMS’ exclusion, however, is not final. At some future date, the surface warship business of TKMS could be integrated into the new joint venture, the two companies said, but it is necessary to first complete the initial merger of the two shipyards.
Competition authorities still have to approve the project, the two companies noted.