Citi Turns Bullish on Kone as Share Slump Leaves TKE Deal Risk Underpriced
Citi has turned more positive on Kone as the Finnish elevator maker's share-price decline has left investors pricing in only a limited chance of its proposed TK Elevator (TKE) acquisition succeeding.
Citi Research upgraded Kone to Buy from Neutral and set a €63 price target, compared with a previous target of €65. Kone's Class B shares closed at €51.72 on October 6, meaning Citi sees substantial upside even after lowering its valuation assumptions because of higher bond yields and a more cautious long-term growth outlook.
The investment case is unusual because Citi is not simply betting on a stronger standalone Kone. It argues that the market has become so skeptical about the TKE transaction that a meaningful portion of the potential deal value is effectively being ignored.
That creates an important question for investors: Is Kone now being valued as if the acquisition is unlikely, while the company still has a credible chance of completing the deal?
Why Citi Changed Its View on Kone
Kone shares have weakened significantly since the company announced the TKE transaction in April.
Citi's latest analysis suggests that the decline has left the stock reflecting only a very low probability that the acquisition will ultimately happen. The bank values Kone at approximately €55 per share if the deal fails, including an assumed €1.5 billion break fee. Against that, Citi's €63 target implies a 21.8% potential share-price return from the October 6 close, or about 25.6% including dividends.
Citi has nevertheless become more conservative in its valuation.
The bank cut its long-term growth assumption to 3% from 3.5% and raised its discount rate to 7.8%, reflecting higher bond yields. In simple terms, a higher discount rate reduces the present value investors assign to future cash flows.
So the bullish call is not based on an increasingly optimistic set of assumptions. Instead, it reflects what Citi sees as a favorable risk-reward setup at the current share price.
The TKE Deal Is the Central Variable
Kone agreed in April to combine with TK Elevator in a cash-and-share transaction with an enterprise value of approximately €29.4 billion.
Under the announced structure, Kone would pay €5 billion in cash and issue up to 270 million new Class B shares to the sellers. TKE also has substantial existing debt, with Kone's original transaction announcement putting interest-bearing net debt at approximately €9.2 billion.
The transaction would create a much larger global elevator and escalator company.
Kone says the combination would bring together complementary geographic footprints, service operations and modernization businesses. It estimates approximately €700 million in annual run-rate pre-tax cost synergies, with the full profit-and-loss impact expected by the end of the third year following completion.
For investors, synergies are important because they can make a large acquisition financially attractive even when the initial purchase price looks demanding.
But they are not guaranteed. The combined company would have to integrate two large businesses while dealing with regulatory remedies, financing requirements and potential operational disruption.
Why Antitrust Concerns Matter
The biggest obstacle is regulatory approval.
Kone and TKE operate in a highly concentrated global elevator market alongside companies such as Otis and Schindler. Combining two major competitors naturally raises competition concerns in certain countries and product segments.
Reuters reported last week that Kone is preparing to sell most of TKE's European operations to address antitrust concerns. TKE generated around €2.5 billion, or 27%, of its 2025 revenue in Europe, according to the report.
The potential European divestments could therefore be substantial.
Citi estimates that European assets requiring disposal could represent around €1.6 billion in revenue, while Reuters has reported analyst estimates that the assets could raise approximately €2.1 billion.
This is a critical part of the investment case.
Selling assets may reduce the size and strategic benefits of the transaction, but it could also make regulatory approval more achievable and generate proceeds that help offset the cost of the acquisition.
Citi Still Sees Significant Deal Upside
According to MarketScreener's summary of Citi's research, Citi assigns roughly a 60% probability to the transaction being completed.
Under its deal-success scenario, Citi values Kone at around €68 per share, compared with approximately €55 if the transaction fails. It also believes Kone's €700 million annual synergy target is credible.
Citi expects the deal could produce a double-digit percentage increase in earnings per share by the third year, with a pro forma operating margin of around 17%. It estimates service-related synergies alone at €250 million to €300 million.
These figures explain why the market's reaction to the transaction matters so much.
If investors believe the acquisition is unlikely, Kone trades primarily on the standalone business.
If regulatory approval becomes more likely, the market could begin assigning value to the future synergies and larger installed base.
Kone's Standalone Business Is Stronger Than the Share Price May Suggest
The TKE transaction has dominated the investment story, but Kone's existing operations have continued to perform.
In the second quarter of 2026, Kone's orders increased 10.6% to €2.56 billion, while sales rose 3.1% to €2.94 billion. Adjusted EBIT increased to €369.9 million, producing a 12.6% adjusted EBIT margin, compared with 12.2% a year earlier.
For the first half, orders increased 4.2%, while sales rose 2.2%. Kone generated €936.5 million of operating cash flow before financing items and taxes, up from €851.1 million a year earlier.
The company maintained its 2026 outlook of 3%–6% sales growth at comparable exchange rates and an adjusted EBIT margin of 12.3%–13.0%.
This matters because investors are not evaluating a distressed company waiting for a takeover to rescue it.
Kone has a functioning standalone business with strong exposure to recurring service and modernization demand.
Modernization and Service Are Key Strengths
Kone's longer-term growth opportunity is increasingly linked to its service and modernization businesses.
Modernization involves upgrading existing elevators and escalators rather than installing completely new systems. As buildings age and owners seek better energy efficiency, safety and technology, demand for modernization can remain relatively resilient even when new construction slows.
Kone said modernization growth was strong globally during the first half of 2026, while service markets also developed positively across regions. China remains a significant weakness in new-building solutions, but Kone's exposure to modernization and service provides some diversification from the construction cycle.
This is also where the TKE combination could create strategic value.
A larger installed equipment base means more elevators and escalators that can eventually require maintenance, modernization and digital services. These recurring activities can be more attractive economically than one-time equipment sales.
The Share Dilution Risk Cannot Be Ignored
The bullish case has an obvious counterargument: Kone shareholders will pay for the acquisition through both cash and newly issued shares.
Up to 270 million new Class B shares could be issued under the transaction structure. Kone's June extraordinary general meeting approved the required share-issuance authorization and other resolutions related to the deal.
Share issuance can dilute existing shareholders' ownership percentage.
That does not automatically destroy value. If the acquired earnings and synergies grow faster than the share count, earnings per share can eventually benefit. But if the deal underperforms, shareholders could be left with a larger company that generates less value per share than expected.
Financing is another consideration because TKE carries significant debt.
Higher interest rates also make large acquisitions more expensive to finance, which helps explain why Citi has raised its discount rate in its valuation.
When Could the Deal Close?
Kone's own transaction documents indicate that completion is expected at the earliest during the second quarter of 2027, subject to the required conditions and regulatory approvals.
That means investors still face months of uncertainty.
The regulatory process will probably remain the most important catalyst. Any clarity on required divestments, potential buyers for European assets or approval timelines could materially change the market's assessment of the transaction.
Kone has already said regulatory filings have been submitted or are underway in key jurisdictions, while integration planning has begun.
What Investors Should Watch
For investors tracking Kone, the next major developments are less about one-day share-price movements and more about whether the deal's risk profile is improving.
Key factors include:
The scope of European and other regulatory divestments
Progress toward regulatory approval
The final value of any assets sold
Kone's financing and post-deal leverage
Whether the €700 million annual synergy target remains intact
Kone's standalone EBIT-margin performance
Service and modernization growth
New-building demand in China
The number of new Kone shares ultimately issued
The timing of the expected 2027 closing
Kone is also scheduled to report its January-September 2026 results on October 28, providing another opportunity for investors to assess the standalone business before the deal reaches its expected closing window.
Bottom Line
Citi's upgrade suggests that Kone's recent share-price weakness may have gone far enough to make the TKE acquisition's potential upside insufficiently reflected in the stock price.
The investment case does not depend entirely on the deal succeeding. Citi estimates roughly €55 per share for Kone without the transaction, while its successful-deal valuation is around €68. The €63 target therefore reflects a balance between Kone's standalone value and the probability-adjusted benefits of combining with TKE.
The opportunity comes with meaningful risks, particularly regulatory remedies, dilution, financing costs and the possibility that projected synergies take longer to materialize.
For investors, the key question is therefore not simply whether Kone can complete the TKE acquisition. It is whether the value created by a larger service and modernization platform will ultimately outweigh the cost, dilution and regulatory compromises required to build it.
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This article is for informational and educational purposes only and should not be considered investment advice.