Fincantieri drops plan for controlling stake in Lloyd Werft

John McLaughlin - Tuesday 6 January 2009

FINCANTIERI has decided not to exercise its option to take a controlling stake in German ship repairer Lloyd Werft, citing conditions in the shipbuilding market and the wider economy. 

The Italian state-owned shipbuilder snapped up a 21.05% stake in Lloyd Werft in May, 2006, paying €8m and negotiating the right to boost its shareholding to 51% at a total cost of around €20m. That option expired on December 31. 

The Bremen government, which holds a 13.1% stake in the company, is now thought to be seeking alternative buyers for its shares. Management controls the remainder of the company. 

The decision marks a significant setback for Fincantieri’s expansion and diversification strategy. At the time of the initial purchase, and consistently since then, Fincantieri has described Lloyd Werft as a key building block in its plan to build a global ship repair and conversion presence in key cruise markets. 

This was also part of a wider scheme to diversify into businesses contiguous to its core cruise ship and large ferry operations, such as superyachts, military vessels and the offshore sector, as well as repair and conversion. 

A Fincantieri spokesman insisted today that the company would continue to collaborate closely with Lloyd Werft and that it remained committed to that expansion strategy for repair and conversion. 

But if it has not been abandoned, the strategy has certainly run into the mud as market conditions have worsened and Fincantieri’s financial freedom has become more constrained. 

Not only has Fincantieri stepped back from its plan to add control of a northern European yard to its Mediterranean presence in Palermo, but its efforts to secure a facility to serve the Caribbean appear to be going nowhere after several years of on-off talks focussed on the Grand Bahamas shipyard. 

Indeed, it is understood that, confronted with a choice of investing in the US military shipbuilding sector via a $120m purchase of Manitowoc and taking control of Lloyd Werft, which also needs heavy investment in a new dry dock, it viewed the military option as the more remunerative bet. It duly closed the Manitowoc deal last week. 

For Lloyd Werft, meanwhile, the impact of the Italian company’s decision remains to be seen. The yard has been discussing job cuts with the unions in recent months as work levels have fallen and firm orders have fallen through, often because buyers’ banks have walked away. 

Though the company now expects fewer redundancies than first expected and hopes to achieve most of them through early retirement, difficulties remain and the recent capture of a E50m refit contract from Tui Cruises is unlikely to ease the pressure. 

In addition, Lloyd Werft is working on the third of four heavy lift carriers for Danish-German concern Combilift, and is also building a super-yacht. Company executives have declined comment on market reports that the vessel is for Russian oligarch Roman Abramovich.
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