German development bank KfW and private equity firm Carlyle are considering jointly purchasing Thyssenkrupp's submarine unit, according to three sources familiar with the matter.

This development represents another example of how the conflict in Ukraine is changing the European defense industry.

Berlin wants to keep control of important military technology, so it plans to collaborate with Thyssenkrupp Marine Systems (TKMS) and acquire a major share of the company. According to the persons, negotiations are underway between the three parties to give Carlyle a majority ownership in TKMS, with state-owned lender KfW holding a blocking minority. They indicated that Thyssenkrupp would hold a minority interest. Both KfW and Carlyle declined to comment.

Right now, Thyssenkrupp is debating between two TKMS possibilities. The division that produces frigates, submarines, and equipment for mine and sensor hunting may be sold or split off. Miguel Lopez, the CEO of Thyssenkrupp, is working to simplify the company. This is a significant step—selling a portion of the steel division to Daniel Kretinsky, the billionaire from the Czech Republic.

KfW has finished evaluating a possible deal in its preliminary capacity. They are currently getting ready for a more thorough assessment of the asset, which has a potential value of between $1.3 and $1.7 billion (or 1.2 billion and 1.6 billion euros). These are knowledgeable sources on the topic. Berlin wants to fund TKMS through KfW, but further information about the division's business plan is required.

Carlyle has been looking into TKMS for a few months and recently expressed interest in a letter to Thyssenkrupp's supervisory board, asking for more detailed discussions. According to the persons, Carlyle and KfW delegations visited TKMS locations in Germany lately to continue negotiations.