<click here> DER BETRIEB on 8 January 1948 (PDF)

Buhlmann's Corner "questionable balance sheets" Thus, DER BETRIEB on 8 January 1948 overwrites its title story in Volume No. 1 and Issue No. 1 with the subtitle "Vermögensdarstellung oder richtige Erfolgsmitteilung" (presentation of assets or correct notification of success). At that time, the magazine was published under licence No. 42 of the British military government and in the aforementioned article, the company considered the problem of a congruence between the principles of creditor protection and accountability. Is the magazine (https://www.der-betrieb.de/), which still exists today, still up-to-date with the topic? Deutsche Bank shares had a market value of 55 billion in 2000. Since then, the bank has raised more fresh money on the stock exchange than its current market value - so it would have been rational in retrospect to liquidate the bank back in 2000. At Wirecard, the balance sheet margin was "only" one third of the balance sheet total or just the entire equity capital. At the last Annual General Meeting, I asked in this respect, among other things, why there were no reserves, but only provisions, and how much of the auditor's fee has already been repaid or would still be paid because of this mistake?  <more in Buhlmann's Corner>

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VIPsight - 3rd Quarter 2020 <click here>

VIPsight - News

 

July 2020

Wirecard AG: Everybody talks about Wirecard,

...and so do we.

Although there is still a lot of smoke covering the details of what happened, at least one can say that the Financial Times was right that unusual things were going on with Wirecard. The information uncovered so far points into the direction of criminal activities of several people, including members of the Management Board.

Amidst the volumes involved, the case enjoys its share of public attention, and it is discussed from various perspectives, including the usual suspects from politics and lobby groups. Therefore, I am convinced that everything that can be done to uncover what happened and correct mistakes will be done, scapegoats identified and law and order can be expected to be reestablished soon. Except for, well, it looks like two questions need a little more attention:

How could this happen?

Leaving aside the volumes involved, Wirecard is not an isolated event. What happened is a systemic problem of the German financial system and the result of a general lack of responsibility. Or could it be, that BaFin did not know how to address doubts and concerns, but refrained from a clear warning about its limitations? Let´s take a look at the smallest listed company in Germany, KREMLIN AG. In 2016 it turned out that the company had lost control over its assets several years ago, ad hoc-releases and corporate publications where either wrong or misleading, and for several years the company did not even have a managing director. Trading in the shares continued nonetheless, and the auditors issued unqualified audit statements for non-existing accounts for at least two business years. Consequences? Yes, BaFin sent questionnaires. For legal reasons, DPRG could not act, and the prosecutors rummage in this mud even till today without any visible consequences. The way things are, it doesn´t even ring a bell that Wirecard and KREMLIN shared the same notary in 2016. But it should worry about those responsible at BaFin that these problems did not only arise in one large case.

Follow the Money

For obvious reasons, everyone is currently looking for the missing 1.9 bn EUR. But think about the likely fate of Wirecard from the perspective of somebody involved in the dubious transactions. Why would you try to take a share of the 1.9 bn EUR? The risk that the authorities would find this money is far too high. It doesn´t take much mind to take a different and safer path. Secure your share in this money through indirect transactions that cannot be linked to you at first glance. Does anybody look into the short-selling activities in the past years from this perspective?

 

Commerzbank AG: Everything has it´s Time

Wirecard currently dominates the news. But somewhere in the past few days, Commerzbank, which recently dropped out of the DAX, sent a call for help. It is not clear to the outside observer whether the announcement made by the bank on July 3^rd was this call, or perhaps already the previous letter from Cerberus pushing for a change.

Many investors were shocked when they heard on July 3^rd that the Chairman of the Board of Managing Directors and the Chairman of the Supervisory Board would step down. Martin Zielke, the Chairman of the Board of Managing Directors, offered to resign early on the basis of mutual termination of his Board membership if such resignation is in the interest of Commerzbank. On July 8^th, the Supervisory Board of Commerzbank has agreed to the mutual termination of the appointment and contract. Mr. Zielke did agree to continue to perform his duties until a successor has been appointed. He will step down from his office at the latest on 31^st December 2020. Stefan Schmittmann, the Chairman of the Supervisory Board, has announced to resign from office with effect from August 3^rd, 2020.

The timing of the letter from Cerberus and the bank´s subsequent publications probably came as a surprise to most observers, the content, however, less so. Since the strategically and economically disadvantageous takeover of Dresdner Bank, Commerzbank has taken a leisurely path under the care of the German government. A small step here, a little correction there, and from time to time a rebranding of the same thing. The results were a disaster. A course correction was urgently needed. And as it turned out later, the German Finance Ministry maintained close contacts with Cerberus.  But the question remains, why only now and not much earlier?

 

Continental AG: Is this Braking or the Pause Button?

With carefully selected bits and pieces of information and advice, Continental achieved to get a fair amount of attention for the planned spin-off of its powertrain business Vitesco Technologies. But investors who want to buy the stock now have to wait even longer, since Continental´s Executive Board decided in late April that the planned listing of the powertrain business shall no longer take place this year due to ongoing economic uncertainty. The idea behind this decision is that the plans for Vitesco Technologies to become independent thus can be implemented with greater flexibility in response to market conditions.

The Board also decided to continue preparing the powertrain business for the intended spin-off at a later point in time, thus ensuring that this step can be implemented with the shortest possible lead-in time and great flexibility once the market conditions change.

Consequently, the company no longer pursued the approval of this years´ AGM regarding the planned spin-off. While many shareholders might not have missed this item on the agenda, other COVID-related topics had a direct impact, such as the lowering of the proposed dividend to 3.0 (initial proposal: 4.0) EUR per share and the information about a salary waiver by the Executive Board members and for executives in March 2020. For the members of the Board, the waiver resulted in a reduction of the fix salary for the Months from April through July by 10 percent. This initiative was made in solidarity with employees who have been affected by short-time work and other curtailments.

 

K+S AG: Adjustment of the Dividend Proposal to maintain the Eligibility for KfW Support

The handling of the effects of the COVID pandemics also places new demands on CFOs and shareholders. A good example is K+S AG, which had to adjust the dividend proposal for 2019 to the legal minimum dividend of 0.04 EUR per share. The previous dividend proposal was 0.15 EUR per share. The decision to adjust the proposal was made to maintain eligibility for a KfW state-secured loan.

At first glance, this is a good and convincing argument. The effects of the COVID pandemic are obvious, and a cautious approach is appropriate. This applies all the more when looking at the balance sheet ratios. And the continuing uncertainty on the capital and financial markets about the economic consequences of the crisis is probably not helpful for the planned sale of the American salt business either. But there is light to see at the end of the tunnel. At the AGM, the CFO confirmed that the sales process is going well so far and the company still is expecting to sign a contract in 2020, while the closing will take more time. Shareholders still have to hold their breath for a while.

 

April 2020

Deutsche Lufthansa AG: First restructuring Package decided, what´s next on the Agenda?

Although the COVID-19 crisis has been going on for a while, strategic decisions for the time after that are seldom heard yet. This is probably because so many companies are still busy communicating postponements of AGMS, profit warnings, and dividend cancellations.

No wonder that only a few companies think about tomorrow in this situation. A positive example is Lufthansa. The airline industry had a particularly heavy blow from this crisis, and it is still open if any airline can survive in 2020 without government help.

But Lufthansa is already one step further with the recent decision on a first restructuring package. The company expects a significant decline in air travel for the period after the crisis, while a return to pre-crisis levels is not expected in the foreseeable future. Based on this assumption, Lufthansa decided to reduce the capacity of flight operations and administration long term. Parts of the fleet will be permanently decommissioned, while other planes will be withdrawn from short-haul operations. Further reductions apply to Lufthansa Cityline and Eurowings, while the already initiated restructuring plans at Austrian Airlines and Brussels Airlines will be further intensified, including steps to reduce the fleets, while SWISS International Airlines is expected to take similar initiatives.

The flight operations of Germanwings will be discontinued to speed up the already planned bundling of all flights of the Eurowing Group in one unit. Also, the Lufthansa Group airlines have already terminated almost all wet-lease agreements with other airlines. There was also a clear message for the employees: The aim is to offer as many people as possible continued employment within the Lufthansa Group. In this respect, talks with unions and workers` councils are to be arranged quickly.

At first glance, Lufthansa´s decision on a first restructuring package as part of the preparations for the time following the crisis comes as a positive surprise. But then again, there are these ongoing rumors of a government bailout. With state money in the accounts, if definitively would become much harder to restructure the business for later times. Could it be that the package may not be aimed at the time after the crisis, but rather serves to prepare for a more substantial step?

 

OSRAM Licht AG / ams AG: No Reason to question the Acquisition Financing

Investors in OSRAM can take a deep breath: No reason to worry about the financing of the takeover attempt. But perhaps the banks involved in this transaction now have a strong interest in the wellbeing of ams also in the long term.

This story started already on January 24^th, 2020, when the extraordinary meeting of shareholders of ams approved a rights issue of up to 1.649 million. The proceeds of this issue should be used to repay a portion of the EUR 4.4 billion acquisition bridge facility for the public offer for OSRAM.

The preparations for the rights issue proceeded as planned. On February 11^th, 2020, ams successfully placed its entire treasure stock of 3.350.688 shares at a price of CHF 44.25 per share with institutional investors. On the same day, the Management Board of ams decided on the terms of the right issue. In the capital increase, 189,869,454 new shares were offered by way of a discounted rights offering at an offer price of CHF 9.20 per share. For each existing ams share, shareholders received one subscription right. Four rights entitled to purchase nine new shares at the offer price during the subscription period, which ended on March 30th, 2020.

On March 19^th, 2020, ams informed the market about the outlook for the public offer and the status of the capital increase. The company expects that the public offer for OSRM will be closed in the second quarter of this year. Also, the capital was proceeding on the terms set out in the prospectus published on March 13, 202, the statement confirmed. Accordingly, the only remaining closing condition relates to the receipt of the required regulatory approvals. This was good news to the OSRAM shareholders, but not so much for the banks, since the rights issue was fully underwritten by a syndicate consisting of the same banks that had also underwritten the fully committed acquisition bridge facility of up to EUR 4.4 billion.

With the completion of the rights exercise period on March 30, 2020, subscription rights for 117,451,512 new shares were exercised, corresponding to 62% of the 189,869,454 offered shares. 15,023,697 of the remaining 72,417,942 shares could be placed with investors at a price of CHF 9.20 in a second step. Accordingly, a total of 132,475,209 shares have been taken up by investors, corresponding to approx. 70% of the 189,869,454 shares offered in the rights issue. The remaining 57,394,245 shares no sit on the books of the syndicate banks according to their underwriting quota.

 

December 2019

Proxinvest publishes its twentieth third report: “Annual General Meetings and shareholder activism – 2019 season”

(Hans-Martin Buhlmann and Jose Ignacio Sanchez Galan after VIP remarks in 2019 Iberdrola AGM)

Restrained General meetings

While the “Place de Paris” (i.e stakeholders on the French listed market) wonders about the potential framework regarding shareholder activism, Proxinvest’s report on General Meetings displays that in fact General Meetings of French companies remain very controlled. In point of fact, 57.6% of voting rights exercised in the 315 General Meetings analyzed by Proxinvest were in the hands of reference shareholders (36% in the CAC 40), explaining why only 0.64% of resolutions were not adopted.

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