This elevator manufacturer wants to keep TK Elevator's businesses in Spain and Portugal, a move that will test the EU's stance on supporting European industry giants.
Finnish elevator maker Kone and German TK Elevator (TKE) are attempting to retain their respective operations in Spain and Portugal while preparing to divest certain assets in order to secure approval from EU regulators for their massive 29 billion euro merger.
The deal is viewed as a significant test case of whether the EU is willing to back domestic industry champions to compete against American rivals.
According to people familiar with the matter, Finland's Kone agreed in April of this year to acquire German competitor TK Elevator and now plans to sell assets worth 4 to 5 billion euros to obtain antitrust clearance.
Kone intends to divest some of TK Elevator's European operations in order to gain approval to create the world's largest elevator manufacturer, headquartered in Europe.
The combined entity would generate annual sales of approximately 21 billion euros, bringing together Kone's strengths in Asian markets with TK Elevator's advantages in the United States.
The EU has already signaled that its attitude toward large corporate mergers is becoming more permissive.
Lawyers and corporate executives believe that the Kone-TK Elevator merger might not have won antitrust approval in the past.
People familiar with the matter said that Kone is asking potential buyers to submit preliminary bids within the coming weeks for a narrower package of European assets that excludes TK Elevator's operations in Spain and Portugal.
These people added that Kone will also solicit offers for a broader asset portfolio that includes the Iberian Peninsula businesses.
The move is designed to preserve flexibility so that a final decision can be made based on the EU regulator's ruling and the bids received.
Spain's elevator market is dominated by domestic player Orona, which competes with Kone, TK Elevator, and two other international rivals.
At present, Kone has not yet decided on the final scope of asset sales, and the outcome will depend on negotiations with EU competition officials in Brussels.
Kone stated: "We have always been clear that divestments in certain regions may be necessary to obtain regulatory approval."
The company also reiterated its goal of achieving 700 million euros in annual cost savings through the transaction.
Kone added: "We remain confident in obtaining all necessary regulatory approvals while preserving the strategic value of this merger."
People familiar with the matter said that potential buyers include international private equity firms and Japanese companies.
Among them, private equity firms CVC and Paris-based PAI are expected to consider participating in the bidding, with EQT and Clayton Dubilier & Rice (CD&R) also expected to join.
CVC previously teamed up with Kone in 2020 to bid for TK Elevator but ultimately failed.
Some people familiar with the matter said that Japan's Mitsubishi Electric, which manufactures elevators and escalators, is also seen as a potentially strong contender for these assets.
EQT currently holds Japanese elevator manufacturer Fujitec.
Some potential buyers may also form joint bidding consortiums, and other bidders have not been ruled out.
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