VIPsight - January 2012

COMPANIES

Exchange merger in the balance

The merger of Deutsche Börse with the New York Stock Exchange (NYSE) is possibly threatened with failure. The EU’s competition authorities signaled their concern that a dominant provider of derivatives might arise from the proposed merger in Europe with Eurex and Liffe. Although the merger partners had already agreed in November to sell more parts of the equity-derivatives business if necessary, this offer in turn met with criticism by the Hessian Economics Ministry. According to uncommented reports, Liffe’s European business in derivatives on individual stocks is to be sold off. Hessian Economics Minister Dieter Posch must give his approval for the merger, and has let it be known that he would veto the proposal if jobs at the headquarters of Deutsche Börse in Eschborn could be lost through the sale of the derivatives business. Originally, the merger of the two exchanges was to be in place by the year’s end. After the offer by the two merger partners, the EU Commission now has time until 9 February to take a decision. Then Hesse will decide on a possible veto. But the clock is ticking: on 31 March the joint merger agreement lapses, and would have to be renegotiated from scratch if it did not come about. Reto Francioni, CEO of Deutsche Börse, has already stated that he does not want to fight the merger through at any price.

Deutsche Post has too much money

At the end of September, Deutsche Post had €2.8 billion in cash reserves. Operating cash flow amounted to €1.1 billion. Following extensive restructuring, CEO Frank Appel also raised the profit forecast in November to €2.4 billion. Actually, good news, but the bubbling finances are bringing the Bonn-based company into trouble, because a rise in the rating from the current BBB+ to a higher level would create problems. While the former State company could refinance cheaper, it would then have to keep up a degree of liquidity to secure the rating. Chief Financial Officer Larry Rosen is therefore supposedly considering distributing parts of the cash in the form of a special dividend to shareholders.

MAN tidies up

After years of dispute with the Arab state fund IPIC over its 70-percent stake in the plant builder Ferrostaal, the parent company MAN agreed in late November to take back the Ferrostaal shares from IPIC and pay the investors from Abu Dhabi 350 million euros for this.The Arabs had bought the 70 percent of MAN’s subsidiary in 2008, but had, contrary to the agreement, refused after the announcement of the MAN corruption scandal to take the remaining 30 percent as agreed. MAN is passing on the Ferrostaal holding almost free of charge to the Hamburg-based trading house MPC, which is a much smaller company building major petrochemical plants. In addition to the MPC owner Axel Schroeder and his sons, an investor from Abu Dhabi is taking up to 50 percent of Ferrostaal’s shares, reports Financial Times Deutschland. The sale proceeds are estimated to total €160 million, €110 million of it fixed. However, MAN will place an equal amount of €110 million into Ferrostaal’s funds. The liberation will cost the MAN result some 450 million euros. MPC also expects a loss of €60 million for the current year at Ferrostaal. MAN is currently tidying up energetically. In November, the Munich group had already got rid of the insolvent printing-equipment company Manroland. The background to this is also the merger of the truck maker with Volkswagen subsidiary Scania and the related incorporation in the VW group structure.

Bidding race for Kaufhof

After the Metro Supervisory Board at its last meeting on 16th December accepted none of the three bidders, the race for the department-store chain Kaufhof is still open. The Metro subsidiary’s 100 department stores and 16 sports shops, with a turnover of 3.6 billion euros and an operating profit of €138 million in 2010, are estimated at a value of two to three billion euros, mainly because of the valuable downtown property. Besides Karstadt owner Nicolas Berggruen and the private-equity group Blackstone, which had rectified their joint offer even in the runup to the Supervisory Board meeting, is an offer from Austrian investor René Benko and one from a consortium headed by ex KarstadtQuelle chairman Wolfgang Urban.  Benko and his real-estate company Signa were recently accused of money laundering. An assessment by the Austrian Federal Office of Criminal Investigation before Christmas refuted the suspicions as untenable, however. Benko is pushing for a timely agreement on his binding offer for Kaufhof, rumoured to be 2.05 billion euros. In Benko’s Signa Consortium sits former Porsche CEO Wendelin Wiedeking, who after a possible takeover wants to work in the Kaufhof Advisory Board. The outgoing Metro CEO Eckhard Cordes told the Frankfurter Allgemeine Zeitung the sale of the Kaufhof chain will likely drag on for some time.

MTU wants Volvo Aero

The Munich engine company MTU Aero Engines is planning an indicative bid for Sweden’s Volvo Aero, which is involved in the construction of a new fuel-efficient engine for the Airbus A320 Neo, reported Financial Times Deutschland in early December. The value of this first non-binding bid is estimated at €800 million. MTU thus aims for the third time to take over Volvo’s engine activities. In 2007, Munich’s billion-euro bid failed in the Volvo Supervisory Board, and in 2009 a second takeover attempt also failed. In November, the Swedes had announced they would hive off the aircraft-engine division and concentrate on truck operations. With sales of €837 million, the engine division was at three percent of total Volvo sales. MTU is, however, targeting a doubling of its own revenues to six billion euros by 2020. CEO Egon Behle announced that there would be no takeover at all costs.

SAP takes over SuccessFactors

In early December, software giant SAP announced it wanted to take over the international market leader in cloud-based human-capital solutions, SuccessFactors. In mid December SAP submitted to the U.S. company’s shareholders a €3.4 billion offer, which runs for 20 business days, and in its train the Germans want to take a 50.1 percent majority of SuccessFactor. The CEO of the cloud provider, Lars Dalgaard, should after approval by the SAP Supervisory Board in early 2012 move up to the Walldorf board and continue to run his company as an independent subsidiary. By optimizing processes, SAP wants together with the Americans to become market leader in the market for cloud applications. The acquisition must still be approved by the antitrust authorities. A California shareholder dissatisfied with the price has filed suit against the takeover.

German Telekom remains active in the U.S.

The agreed takeover of the U.S. subsidiary of Deutsche Telekom, T-Mobile USA, by AT&T has failed. Both the U.S. Department of Justice and the telecommunications regulator FCC had registered objections that through the $39 billion takeover AT&T will extend its leading position on the U.S. market and become unreachable for the competition. In order to break the blockade by the U.S. competition authorities, AT&T was willing to sell radio frequencies or assign customers to smaller rivals. But then on 24 November AT&T withdrew the transfer application to the FCC, to await the outcome of a parallel lawsuit on the sale first. But after this withdrawal, the judge threatened, the court proceedings would become irrelevant. A cancellation or postponement of the court decision, scheduled for February, would have thrown the merger timetable into turmoil. It stipulated that the sale had to be completed by 20 September 2012. Against the background of these unbridgeable hurdles, both parties then proclaimed the final end of the deal on 19 December, after the close of trading in the U.S. The failed sale is a blow for René Obermann, the CEO of Deutsche Telekom. Although under the contract he still receives compensation of three billion U.S. dollars in cash in 2011, plus multi-year agreements for roaming services and a package of wireless frequencies to the value of a further three billion U.S. dollars, Obermann must now take problem child T-Mobile USA back onto the balance sheet and give up the planned debt reduction.

ThyssenKrupp sells civilian shipbuilding

The Essen-based steel group ThyssenKrupp has sold the civil division of its Hamburg shipyard Blohm + Voss to British private-equity firm Star Capital. The purchase contract for the deal, estimated at a three-digit million euro sum, was signed by both sides in mid-December. Civilian shipbuilding in the Blohm + Voss Shipyards, Blohm + Voss Repair and Blohm + Voss Industries companies along with their subsidiaries, with the construction of luxury yachts, is currently loss-making for the Essen-based company and thus falls victim to a group restructuring proclaimed in May. After the sale ThyssenKrupp is focusing on naval shipbuilding. The submarine builder HDW, Blohm + Voss Naval with its naval ships and a Swedish shipyard with expertise in military ships are to remain in the group. The deal is subject to approval by the Supervisory Board and the competition and foreign-trade authorities. Closing is targeted for the first quarter of 2012.

TUI wants to get rid of Hapag-Lloyd

TUI CEO Michael Frenzel wants to withdraw permanently from the shipping business, and made use of his enshrined exit right at Hapag-Lloyd in mid-December by offering the Albert Ballin consortium 33.3 percent of the shares. After the tourism group already reduced its capital commitment at Hapag-Lloyd in 2011 by a billion euros, exercising the right to purchase is the next logical step, says Frenzel. Both parties now have 30 days to agree on the value of the holding. If this fails, the market value will be determined by an auditor. The share package is estimated to be worth one billion euros. By the end of September 2012, a purchase agreement then has to be negotiated. Should this fail, TUI can sell the shipping company to investors. The Frankfurter Allgemeine Zeitung had reported that Kühne and the city of Hamburg could buy at least another 20 percent of the shipping company, to prevent TUI using its selling option. Already in spring Kühne bought a further 11.3 percent of the Hapag shares for 315 million euros. Whether he can, together with the heavily indebted city of Hamburg, offer TUI the target price for the package of shares is questionable. Should the consortium finally decline the 33.3-percent package, it must in turn sell TUI 12 percent of its own shares. Frenzel would then have the majority he could eventually sell to a third party. The consortium’s right to a say, which to date provides for a 75 percent majority of owners for significant decisions, would end.

Vossloh family remains steadfast

Between the family of the founder Eduard Vossloh and the owner of the Munich rail and truck brake manufacturer Knorr-Bremse, Heinz Hermann Thiele, a race for the majority of the Vossloh rail technology group is emerging. Thiele has applied to the antitrust authorities for approval for the purchase of 25 to 30 percent of the Vossloh papers. At the same time the 100-member Vossloh family, who have brought their votes together in a pool, indicates that some family members are currently increasing their voting shares. Before Christmas the race for votes was running 36 to 15 percent for the family. The Vossloh clan constantly stresses that they always take decisions unanimously and do not want to be booted out by Thiele. A meeting between Thiele and the family spokesman in summer was inconclusive.