Klaus Deller Knorr-Bremse Waits For Green Light on Haldex Takeover

Knorr-Bremse may have won its battle for Sweden's Haldex, but it will not be able to go for proper growth until it gets regulatory approval for the deal. Its chief executive tells Handelsblatt he is still optimistic.
With a clutch of acquisitions planned, a brakes specialist steams ahead without the brakes on.

Global market leader in truck and train brakes, Knorr-Bremse, is stepping on the acquisitions accelerator to get through some boggy terrain. After years of growth, the company saw revenue drop by 5.8 percent to €5.5 billion ($5.8 billion) in 2016. But this should change, after the company outbid larger rivals ZF-Friedrichshafen in a protracted battle to obtain Swedish brake manufacturers Haldex.

The company's chief executive Klaus Deller, spoke exclusively with Handelsblatt about where the company goes from here.

Handelsblatt: Mr. Deller, after the battle to obtain Haldex, do you feel like the victor?

Klaus Deller: One feels like a victor when one crosses the goal line. The deal has not yet been closed. We've achieved each of our planned lead-up phases and we're moving step by step towards the goal. We will be going through the next steps of the anti-trust investigations and aim to conclude that as quickly as possible. The question is “how” and “when,” not “if.”

Knorr-Bremse has had expertise in pressurized air for more than 112 years. You can't replicate that by snapping your fingers. Klaus Deller, Chief Executive, Knorr-Bremse

How long do you expect that to take?

The authorities are setting the pace and we have no influence over that. We're working well with Haldex management and we're striving towards having clarity for the employees and shareholders as quickly as possible. An overwhelming majority accepted our offer and are enthusiastic about our strategy.

Is it simply because you offered more than your bigger competitor ZF-Friedrichshafen?

Last August I and our chief financial officer Lorenz Zwingmann visited a large number of investors. When we entered their offices, they often seemed doubtful. By the time we left, we had convinced them. The fact that over 86 percent of shareholders accepting the offer shows that pretty clearly. We will make a success of the acquisition.

Do you think €600 million may have been too high a price?

Haldex has been on our long-list for some time. We are especially – but not solely – interested in their trailer brakes business. Tractors and trailers are not married to each other. In every-day operations, trailers are frequently swapped around. But for automatic driving functions, such as for example driverless operations for loading and unloading in depots, we must make sure they work together. Therefore the trailers are strategically important for us. We want to offer our clients system solutions for truck and trailer, and that's why the Knorr-Haldex combination is ideal.

But you're competing with companies ten times your size, and with far higher financial resources.

Size alone is not a recipe for success. Since the mid 80s, Knorr-Bremse has grown more than 11 percent a year, on average. There aren't so many companies that can tell a similar tale of success. We're keeping our speed up. And with our profitability comes the strength to develop further. Cooperation makes sense, when it adds value.

Are you afraid the big players could push you out of the market?

I see it differently. The big companies see our two core businesses as niches. Every year there are 2.5 million buses and trucks being built with air brakes. Rail vehicles are exclusively project based. At the same time, the technology is highly complex. To step into this business field is challenging and it's not high production volume that's important for the bottom line, as it is with passenger cars for example, but rather know-how, innovation and the capability to manage variety efficiently. Knorr-Bremse has had expertise in pressurized air for more than 112 years. You can't replicate that by snapping your fingers.

We can believe that. ZF almost succeeded in buying you up five years ago. And ZF is surely not the only company that's wanted to acquire Knorr-Bremse.

You're barking up the wrong tree. Maybe one or two concerns have been eyeing us. Success makes us attractive. But there's also the risk that success can make one sloppy and complacent. We realize that and we continually strive for progress. We put close to six percent of turnover back into research and development. We're strengthening ourselves, if necessary inorganically. In 2016 alone, we initiated seven acquisitions. After closing, we will add another billion in revenue.

Where will you be in five years?

We're going to build up our systems competence. Our goal is to keep improving our performance.

With your growth tempo to date that means you could be heading for a turnover of more than €10 million.

Yes, you could look at it like that.

In 2016 you couldn't quite maintain that tempo. What happened?

In the last year we increased our market share and revenues dropped by 5.8 percent. Some markets were weaker than we had anticipated. In the U.S.A. there was a marked weakness in freight traffic, both by road and rail. In China the dynamic with high-speed locomotives was lower. Europe was only partly able to compensate for this. But if one is active in the investment goods sector, one has to ride out these slower cycles.

It sounds a little unnerving...

Goethe’s poem Holy Longing describes it very well, it's about change, transition, the striving for something higher. It's calming to know that the markets will recover and this year we're expecting to grow again.

Will you go it alone?

Knorr-Bremse is an independent and successful company. And we have the strength to expand into new areas of business, and new regions. In markets like Asia there are great growth opportunities until at least the next century.

You're the market leader in China. But the country is becoming more restrictive. Competition from Chinese suppliers is growing. Are you in danger?

We add value locally. We have over 4,000 employees there, and only about 10 are expats. We're seen as a Chinese firm. Of course we're in competition, but so far we've managed that successfully. We've known these markets, these vehicle manufacturers and providers for decades, and we're valued there. Our regional growth shows that.

You have a reputation that a Knorr-made brake has never failed.

Yes, we have a great responsibility. Everyday more than a billion people put their trust in a Knorr-Bremse product. If a train anywhere in the world has a problem, it's on my table straight away. Trust is a great asset and we must work hard to maintain it.

Globalization seems to be on shaky ground – Brexit, Trump – what does it mean for you?

In all of our markets, we have a high added value and no big factories from which we supply the whole world. We have three works in Mexico from which we supply our U.S. customers. It would be bad indeed if companies weren't able to sell what they do best in all markets, and the customers no longer had the choice. The Americans drive German cars because they're better. And we buy iPhones because the Americans build better smart phones.

And if NAFTA collapses?

We have no reason to be nervous and to alter our business strategy.

Mr. Deller, thank you for your time.


Martin-Werner Buchenau reports from Stuttgart as Handelsblatt's Baden-Württemberg correspondent. To contact the author: Markus Fasse currently specializes in aviation and automobile industry news. He has been an editor at Handelsblatt since 2000, and a correspondent in Munich since 2005. To contact the authors: [email protected] and [email protected]