VIPsight - 1st Edition 2020

 

COMPANIES

 

Continental AG: Don`t do Things by Halves

Effective January 1^st, 2019, Continental concluded the realignment of its powertrain business into an independent group of legal entities now called Vitesco Technologies. But just in October 2019, the Executive Board of Continental AG decided to spin-off Vitesco Technologies from Continental with a subsequent listing. Subject to the approval of the Supervisory Board of Continental, the planned spin-off shall be submitted to the AGM on April 30^th, 2020, for approval. The listing of Vitesco could take effect within the same year.

Initially, the company had planned a partial sale and a subsequent listing of the business. The decision to rather spin-off the division as a whole instead can be interpreted as a signal that challenging times are ahead. In this regard, Continental talked about taking the offensive and tackling the accelerating trend towards powertrain electrification. But Continental is also reacting to the at present largely unpredictable conditions for a potential partial IPO in 2020.

 

METRO AG: Another exclusive Attempt to sell Real

Anyone looking for a German soap opera will find great entertainment at METRO. The most recent U-turn took place on December 5^th, 2019 with the termination of the negotiations with the bidder consortium led by redos real estate gmbH and the agreement with a consortium of The SCP Group S. á. r. l. and x+bricks AG (“consortium”) on a memorandum of understanding and exclusive negotiations regarding the sale of its hypermarket business and related business activities (“Real”). The aim of the parties to this memorandum is to conclude a sale agreement for the hypermarket business until the end of January 2020.

Exclusivity is a relative property these days. About six months ago METRO concluded an agreement on exclusive negotiations regarding the sale of the hypermarket business with the consortium led by redos. Now, a revised offer submitted by the consortium on October 31^st, 2019, formed the basis for the new exclusivity agreement. According to METRO, the consortium aims to fully acquire Real´s operating business and the real estate portfolio of 80 properties. As regards operations, a nucleus of stores shall be continued, while a large number of stores will be transferred and others shall be closed. The transfer of stores to other retailers shall take place subsequently and is independent of the sale of Real to the consortium. In case of a transfer of a store to another retailer, it is the intention of the parties to contractually oblige these retailers to take over the Real employees. Similar to the previously contemplated transaction with the consortium led by redos, METRO expects a net cash effect from the transaction of 0.5bn EUR.

 

 

 

---

 

 

Buhlmann's Corner

 

35 years of tools, 20 years of examples ... the world just one month ago

Who knows today what NOBO/OBO voting is? Until the 1980s, the question of Non-Objecting Beneficial Owner (NOBO) or Objecting Beneficial Owner (OBO) was about the secret power of uncontrolled brokers.

More details can be found here:

https://www.investopedia.com/terms/n/nobo.asp

In the USA, the much larger voting platforms of today owe their genesis to the irritation they have caused.

In 1985 ENRON was born in Houston through a merger. Until 2001, the company under CEO Keneth Lay was considered the greatest investor favourite: "The World's Greatest Company". With well-tested financial statements and unlimited credit standing.

With just a few techniques of creative accounting (derivatives, offshore, mark-to-market of exotics) the dream of the all-rounder came true until his CFO Andrew Fastow and his chief accountant Richard Causey got tangled up. A balance sheet hole opened up in which the company disappeared together with Arthur Anderson LLP (after 88 years of membership of the Big Five Global Auditors). The pension assets (invested in ENRON) of over 22,000 employees went up in smoke.

Bernie (Bernard) Ebbers will remember this. He was one of the few CEOs who grew up even faster and even bigger than ENRON. Whether the telephone company learned Worldcom from ENRON is not known. The fact is that Worldcom was listed on the stock exchange for only 5 years and shocked the investment world with its MSCI bubble.

Both bankruptcies made it clear that more governance and greater transparency were needed - worldwide. This was a major milestone for today's corporate governance and regulations such as the EU's Shareholder Rights Directive II.

Bernie Ebbers, who regained his freedom just over a month ago, can judge whether this helps or has helped; he has served half of his 25-year sentence. Now the so-called "Marlboro Man", born in Edmonton (Canada), can wear his Stetson and cowboy boots again. Will today's governance, spurred on by mega-accidents and extreme fraud, make the world a better place?

Executives earn a multiple (not only in exceptional cases) after two decades, for supervisory boards /NED's the multiple is even higher and the metaphor once described by Hermann Josef Abs (one Josef Ackermann's predecessors): "It is more difficult to make a supervisory board liable than to hold a sow by its soapy tail" still applies.

I am afraid that not much has changed.

Carlos Goshn still manages to drive Renault, Nissan and the judiciary through the ring with his double bass box - his waiver of 12 million bail and travel expenses to Lebanon is at least as high as he earned and received in half a working day as their CEO. For years, my friend Pierre-Henri Leroy in Paris publicly accused him of some of his misdeeds with blame and shame.

Here is an example:

http://www.proxinvest.fr/?p=3615&lang=en

Today we know how much more happened, not only about the famous time-out of a Ghosn's Board meeting of 20 minutes. Read here:

https://www.vipsight.eu/index.php/vipsight-south-africa-npos-lend-a-helping-hand-2-may-2015

As so often in life, the beginning is the most difficult, the famous first time.  Also the Catholic Church now publishes a set of rules for ethics and more. You can find some excerpts here:

Currently the Bafin as regulator is looking more and more at 35 /135 pension funds - whether looking is required, whether (potential) pensioners are informed - nobody knows.

At the moment everybody is looking at Australia, where coal and forests are relentlessly mined -

but ... and who invests, as repeatedly suggested and demanded, in projects for the benefit of the African population, or is working on the ENRONs and Worldcoms of today? 

 

 

 

 

---

 

 

ACTIONS CORNER

 

COMMERZBANK AG: Why opt for an easy Solution if complicated is a valid Option?

A key element of the banks Strategic Program COMMERZBANK 5.0 is an increased focus on the expansion of its mobile banking capabilities, including a possible merger of comdirect bank AG into Commerzbank. Amid this background, it´s fully-owned subsidiary Commerzbank Inlandsbanken Holding GmbH released an acquisition offer on October 30th, offering 11.44 EUR per outstanding comdirect share. The acquisition offer was subject to the condition of a minimum acceptance threshold of 90% of the share capital (including 82.31% of comdirect shares already held by the bidder).

As required by Section 27 of the German Securities Acquisition and Takeover Act (WpÜG), the Management Board and the Supervisory Board of comdirect published a Joint Statement on the public takeover offer. In this statement, the Boards conclude that the amount of the offer price is appropriate, and therefore recommend short-term oriented shareholders to accept the offer. However, concerning shareholders with an interest in long-term development of comdirect, the boards decided that they cannot assess the strategic orientation comdirect will receive together with the bidder and COMMERZBANK and therefore refrained from giving a recommendation.

By the end of the offer period on December 6^th, 2019, the number of shares tendered amounted to 457,343. Including shares already held, the shareholding of the bidder amounted to 82.63% of all shares outstanding. Consequently, the acceptance threshold of 90% has not been reached and the offer was not executed. However, COMMERZBANK already announced that it plans to integrate comdirect through a direct merger into Commerzbank. The indicated acquisition of additional shares from Petrus Advisers Ltd. might help to lift the COMMERZBANK`s holding above the 90% threshold and facilitate a later merger.

 

DELIVERY HERO SE: Expansion in Korea

Delivery Hero signed agreements with shareholders, including senior management, of Woowa Brothers Corp. Woowa operates the largest online food delivery service in South Korea, Baedal Minjok, which generated approximately 100m orders in Q3 2019. In the financial year ending December 2018, Woowa grew revenues by 96% year-on-year to 242m EUR, with GMV reaching 4.0bn EUR and an EBITDA of 46m EUR. Apart from its Korean operations, Woowa also operates a successful business in Vietnam.

The transaction is valued at an enterprise value of USD 4.0bn on a cash and debt-free basis (before adjustments). Delivery Hero is expected to achieve a 100% ownership in Woowa for a consideration of approximately 1.7bn EUR in cash plus 1.9bn EUR in shares. At closing, Delivery Hero will acquire up to 88% of the share capital of Woowa from institutional investors, while the remaining 12% currently held by Woowa board members shall be exchanged in Delivery Hero shares over four years. The new shares issued by Delivery Hero from the existing authorized capital will be equivalent to 17.5% of Delivery Hero´s share capital post-transaction.

The closing of the transaction is subject to certain conditions including financing and regulatory approvals and is expected to occur in the second half of 2020. In this regard, it should be noted that according to the Korea Times Delivery Hero is already running Yogiya and Baedaltong food delivery services in Korea, making it the dominant player in the country´s food delivery market. Nielsen Korea expected that Yogiyo´s market share reached 33.5 percent last year, while Baeldaltong controlled 10.8 percent. Woowa would add its Baedal Minjok´s food delivery service, i.e. the outstanding 55.7 percent market share. Hence, the fate of the transaction will most likely be decided by the Fair Trade Commission.

 

ADO Properties S.A.: Consolidation Train under full Steam

ADO Properties decided to make a voluntary public offer to the shareholders of ADLER real estate AG in the form of an exchange offer for the ordinary shares in ADLER. The plan is to offer 0.4164 new shares in ADO as consideration in exchange for each tendered share of ADLER.

In connection with the offer, ADO and ADLER entered into a business combination agreement, covering the strategic objectives of ADO and ADLER concerning portfolio diversification, the intended future governance structure for the combined group´s business and the integration process, the timeline and the conditions of the offer. The combined company shall be named ADLER Real Estate Group. Also, ADO entered into irrevocable undertakings with major shareholders of ADLER – including inter alia the Co-CEO of ADLER, Thomas de Vargas Machuca – representing 52.21% of the shares and voting rights in ADLER, whereby such shareholders committed themselves vis-á-vis ADO, subject to certain conditions, to submit their share within the acceptance period of the offer.

Based on current figures, the business combination of ADO´s Berlin-based portfolio and ADLER´s Germany-wide portfolio will create an 8.6bn EUR residential portfolio. As of the time of publication, the planned transaction offered ADLER shareholders a 17.33% premium to ADLER´s closing share price before the announcement. The combined company with an estimated free float capitalization of approximately 1.8bn EUR is considered to be a likely MDAX-candidate.

Concurrently with the conclusion of a strategic cooperation agreement, ADO will acquire a 22.18% stake in the German residential developer CONSUS for a cash consideration of 294m EUR. Including shares already owned, ADO´s will control approximately 25% of CONSUS. As part of the agreement, the two companies will work closely together on residential development projects. Furthermore, a call option has been agreed with Aggregate Holding SA, CONSUS` 51% shareholder. The option can be exercised within the coming 18 months with the consideration being paid in new ADO shares, at an exchange ratio of 0.239 ADO shares for each CONSUS share. In case of a change of control at ADO, Aggregate also has a put option to sell its 51% stake in CONSUS to ADO.

 

First Sensor AG: Another one bites the Dust

In July 2019, First Sensor received a voluntary public takeover offer from TE Connectivity. By the end of the acceptance period on September 2^nd, First Sensor Shareholders hat tendered a total of 7,376,321 shares in return for a consideration of 28.25 EUR per share. This outcome was no surprise given that at the time of the offer the bidder had already concluded irrevocable agreements with various anchor shareholders of First Sensor who held approximately 67% of the total outstanding shares between them. These shareholders undertook to accept the takeover offer for all shares in their position.

The offer did not establish a minimum threshold level. Therefore, at the expiry of the initial acceptance period, all non-regulatory offer conditions had been fulfilled. Nonetheless, shareholders who did not accept the offer within the initial acceptance period could do so during the additional acceptance period which ran until September 19^th, 2019. By the end of this additional period, the total number of shares tendered increased to 7,380,905 shares, which corresponds to 71.87% of the total share capital and voting rights of First Sensor.

On December 10th, 2019, TE Connectivity approached First Sensor to discuss its intention to establish a domination and profit and loss transfer agreement pursuant to Section 291 ff AktG.

The Executive Board of First Sensor has decided to enter into discussions on the conclusion of a domination and profit and loss transfer agreement. However, these discussions are subject to the completion of the public takeover offer of TE Connectivity, which still is subject to the conditions of the foreign investment clearances in the United States of America and in the Federal Republic of Germany. In a prior publication, First Sensor expected the acquisition to be completed by mid-2020 at the latest. Shareholders of First Sensor may have to put Berlin on this year´s Summer vacation agenda…

 

Aroundtown SA / TLG IMMOBILIEN AG: Consolidation Wave at full Swing with Real Estate Companies

In September 2019, when TLG bought a 9.99% holding in Aroundtown, the company announced its intention to commence discussions concerning a potential merger. These discussions resulted in a business combination agreement with Aroundtown SA on November 19th, 2019, followed by a voluntary public exchange offer to all TLG shareholders by Aroundtown on December 18^th, 2018.

With this offer, Aroundtown offers 3.6 Aroundtown shares for each TLG share. The exchange ratio was derived from TLG´s and Aroundtown´s EPRA NAV per share, in each case as of June 30, 2019. Based on the XETRA closing prices (Frankfurt Stock Exchange) for the shares of both companies as of November 18, 2019, the implied price per TLG share amounts to 27.66 EUR, representing a premium of 3.2% to TLG´s last closing price. The largest TLG shareholder, Ouram Holding S.á.r.l., has already entered into an agreement with Aroundtown to tender, under specific conditions, approximately 28% of TLG shares into the exchange offer. The offer will expire on January 21^st, 2020.

The Management Board and the Supervisory Board of TLG support the exchange offer amidst expected efficiency improvements and cost reductions of the joint operations and the management of the combined property portfolio. The business combination is expected to create a leading pan-European platform for commercial real estate assets with a portfolio size of more than 25bn EUR. According to TLG´s management, the synergy potential could lead to an improvement in the pre-tax operating profit of between 110m EUR and 139m EUR per year within five years.

So far this sounds like a typical merger transaction, but there is an interesting additional element involved. The business combination agreement stipulates certain governance rights for TLG which reflect the principle of joint leadership in the controlling company of the combined group. In particular, Aroundtown shall introduce a new management body consisting of five members, of which TLG may nominate the CFO, if Aroundtown holds more than 50% of all TLG shares. Aroundtown will nominate the CEO. In case Aroundtown holds at least 66% of TLG’s shares, TLG may nominate one of the remaining three members. One of the TLG-nominated members shall be Co-CEO. If Aroundtown exceeds the 50% threshold, its board of directors shall comprise up to 8 members, including Aroundtown’s current three executive members and three or four independent members within the meaning of Luxembourg listing rules. If Aroundtown holds 40% or more of TLG’s shares, the chairman of the board shall be nominated by TLG and have a casting vote in case of a tie. Upon receipt of the requisite merger clearance, TLG may, in addition, nominate two out of four members in a newly formed integration committee at the level of Aroundtown, the primary objective of which is the discussion of the necessary steps to integrate both businesses. Further, TLG may nominate an additional member to Aroundtown’s advisory board.

 

 

 

---

 

 

Politics

 

CTS EVENTIM AG & Co. KGaA: When the Minister of Transport and Digital Infrastructure dreams of big Money

Following the unilateral termination of the operating agreement regarding the infrastructure levies with effect as of September 30th, 2019, by the German Federal Ministry of Transport and Digital Infrastructure, autoTicket GmbH, which is a 50/50 joint venture of Kapsch TrafficCom AG and CTS EVENTIM AG & Co. KGaA, and its two shareholders decided in December that the contractually agreed payment claims against the Federal Republic of Germany amount to approximately 560m EUR and to assert claims.

These claims are based on the assumption that autoTicket GmbH and its shareholders Kapsch TrafficCom AG and CTS EVENTIM AG & Co. KGaA have a compensation claim due to the early termination of the agreement by the Federal Republic of Germany, equal to the loss of profits over the term of the agreement. Also, the agreement provides for compensation of the costs arising from the termination of the agreement which includes compensation claims of subcontractors, including Kapsch TrafficCom AG and CTS EVENTIM AG & Co. KGaA, as well as some of their affiliated companies.

The agreement provides for an efficient procedure for dispute resolutions: First, an independent auditor shall validate the amount of the asserted loss of profits. Thereafter, settlement negotiations with the Federal Republic of Germany are contemplated. In the event of failure of this procedure, the claim will be finally decided in arbitration.

 

 

 

 

---

 

 

People

 

SGL Carbon SE: Corrected Earnings Guidance, and more

SGL Carbon was never suspected of being a particularly profitable company. But the earnings guidance usually proved to be reliable information. Similar expectations apply to the outlook for the full year 2019, which was confirmed in early August 2019. But just a few days later a sharp correction became necessary.

SGL claims that the correction was due to lower than expected results of the business unit Composites – Fibers & Materials (CFM) in July 2019. As a consequence, the company took a closer look at the actual results and the plan of CFM and concluded, that the guidance for the unit and the Group needed to be corrected. The deviation to the preciously expected recurring EBIT of CFM can be attributed to two factors. Half of it is due to erroneous planning assumptions within the framework of a high-volume contract in the market segment Wind Energy, while the rest reflects a more cautious view of the outlook for the market segment Industrial Applications. Consequently, SGL lowered its recurring Group EBIT and net result guidance for 2019 and clarified that the guidance for the following years was no longer sustainable.

As a consequence, the CEO Dr. Jürgen Köhler informed the supervisory board in mid-August about his resignation, effective August 31^st, 2019. The supervisory board decided to fill the vacant position externally. However, recent news about continued weakness in the CFM segment is not helpful in this respect. The further earnings deterioration at CFM, which is caused by a weaker outlook for the Textile Fibers and the Industrial Applications units, also triggered an impairment testing, resulting in a non-cash impairment charge of approximately 75m EUR.

 

CECONOMY AG: Where is the Strategy?

For several reasons, CECONOMY is going through a difficult phase. Apart from the challenging business environment, the most obvious obstacle is the group´s corporate governance structure. How can you create a solid business strategy if you do not have full control over a substantial part of your business?

Jörn Werner met high expectations when he took over the CEO position in March 2019. And indeed, a few months later a series of positive signals regarding the critical relationship with the minority shareholder in its main operating subsidiaries emerged. This found an abrupt end a few weeks later when CECONOMY informed the public on October 15^th, 2019 about the agenda of a scheduled extraordinary meeting of its Supervisory Board, which included the discussion of early termination of the appointment of the CEO. Two days later the company informed that the Supervisory Board and Mr. Werner decided by mutual agreement to part with immediate effect. At the same time, the Supervisory Board appointed Dr. Bernhard Düttmann, member of the Supervisory Board, for a term of twelve months as CEO. Jürgen Fitschen, Chairman of the Supervisory Board, explained the decision as follows: "We would like to thank Mr. Werner for his commitment and the work he has done. He played an active role in the strategic development of CECONOMY. With regard to managing the company, however, there are different views between him and the Supervisory Board, so that the separation is a logical step".

No CEO, no strategy, no plan in sight, but just another interim solution.

 

 

 

---

 

 

Capital News

 

Daimler AG: Cleaning the Diesel is not an easy Task

In September 2019 Daimler AG informed about a fine in the amount of 870m EUR related to its diesel cheating scandal. This settlement concluded the public prosecutor´s administrative offense proceeding against Daimler AG.

Despite the fine, Daimler continued to deny any wrongdoing. Nonetheless, the Diesel scandal continues to burden the company. In January, the Financial Times reported that more than 200 institutional investors are seeking 900m EUR in damages from Daimler, alleging that the Mercedes-Benz owner failed to disclose the use of diesel emissions cheat devices. The underlying claim is that shares once worth more than 90 EUR a share fell to approximately 60 EUR in 2018 after regulators accused the carmaker of installing illegal software in its vehicles. Hence, the company is accused of violating its obligations under capital market law by not mentioning the existence of the devices in its financial reports or in ad hoc announcements. In contrast to previous connotations by Daimler, German officials said that 700,000 Daimler cars in Europe had been fitted with systems designed to defeat pollution tests.

 

Quiagen NV: Shareholders did not receive a Christmas Present

This biotech company looked ripe for a takeover. Hence, it did not come as a surprise when QUIAGEN N.V. announced in November 2019 the start of a review of potential strategic alternatives after having received several conditional, non-binding indications of interest for the acquisition of all issued and outstanding shares of the company. At the same time, Quiagen announced that the Supervisory Board and the Management Board started discussions with interested parties in this process. The aim of the discussions was to explore potential strategic alternatives that could provide greater value creation opportunities than stand-alone growth prospects. According to market rumors, Thermo Fisher Scientific, Inc. was one of the parties interested.

This was great news for the share price. While the stock just saw a record low around 22 EUR in October, the quotation jumped to over 38 EUR within a few days following the news release. But on December 24^th, reality struck with the publication of the company´s decision to terminate the discussions. This came as a reminder to shareholders of the company´s less-than-optimal recent business performance, resulting in a sharp decline in the share price.

 

Villeroy & Boch AG: Unrest in the China Business, or perhaps in Luxembourg?

The Management Board of Villeroy & Boch AG decided to revise the company´s forecast for 2019. While the revised expectation is a decline to between 825m EUR and 850m EUR for the consolidated revenue, while the forecast for the EBIT has been reduced to between 48m EUR and 52m EUR. In a press release, the company explained the need to revise the prior expectation in light of an unsatisfactory revenue development in the first half of 2019. At the same time, the release advised that preliminary agreements regarding the sale of a former plant property in Luxembourg have been concluded and that the Management Board expects the transaction, which was supposed to be completed in 2019, to generate a “high eight-figure non-recurring income”.

This was reason enough for shareholders to expect a positive signal towards the end of 2019. Instead, the company announced on December 30^th the resignation of the chairman of the Supervisory Board with effect from December 31^st, 2019, and on the following day the resignation of the Chairperson of the Audit Committee, effective February 29^th, 2020. Shareholders are assured that the vacancies will be filled shortly. But are the revised earnings guidance still valid, and what happened in Luxembourg?

 

Scout24 AG: Convincing Advice from Elliott

In May 2019, a voluntary public takeover bid by funds advised by Hellman & Friedman LLC and affiliates of The Blackstone Group LP for Scout24 AG failed to reach the acceptance threshold. Hence, the company had to take a fresh look at its strategy and came up with a new strategic roadmap to enhance long-term value creation for its shareholders, which included a strengthening of the two core business verticals ImmobilienScout24 and AutoScout24, which became the probably most short-lived long-term strategic roadmap in 2019.

About a week after the publication of its strategic long-term roadmap, the company received an interesting message from Elliott Advisors, which at the time advised funds that collectively held an interest representing more than 7% of the share capital of Scout24 AG. According to the letter, which still can be downloaded from www.scoutingforvalue.com, Elliott believed at the time that there are concrete and prudent steps that the management of the company should be taking that could drive the share price to more than 65 EUR per share, including a comprehensive strategic review focused on achieving a full separation of the AutoScout24 business, and a more ambitious share buyback program. The advice was supplemented by the statement that “Elliott looks forward to continuing to engage with the Boards of Scout 24 to help deliver this outcome.”

In December 2019 Scout24 announced the sale of AutoScout24 and another entity to Hellman & Friedman. The consideration (before potential adjustments) of 2.892bn EUR exceeded the market expectations and shareholders are now looking forward to the next step, i.e. the “more ambitious” buyback program.

 

TUI AG: Updated Dividend Policy

TUI AG informed about an update to its dividend policy. The company´s Supervisory Board approved an update prepared by the Executive Board to the capital allocation framework, which included the Group´s future dividend policy. The new policy shall apply for the first time for the financial year 2020 (ending on September 30^th, 2020), i.e. for dividend payments from 2021 onwards. In this respect, TUI intends to pay a core dividend payout of 30 – 40% of the group´s “underlying EAT”, with the minimum payout defined as 0.35 EUR per share.

The company expects the new dividend policy to result in lower payouts, but pointed out that the dividend floor of 0.35 EUR per share guarantees shareholders a minimum payout irrespective of the market environment of the tourism industry and subsequent impacts on the “underlying EAT”.

At the same time, TUI defined the Group´s financial priorities as follows:

- Organic growth

- Payout of a core dividend

- Accretive mergers & acquisitions and portfolio optimization

- Excess cash to be returned to shareholders.

At the same time, a solid balance sheet shall be maintained and the gross leverage ration should be kept within the range of 3.0x – 2.25x.

While many German companies still underestimate the relevance of a transparent dividend policy for shareholders, TUI opted for an ad hoc release. Thank you!

 

Delticom AG: Finally financed

Delticom´s shareholders must be very patient people. The company has a business model, the shares are listed, and it had ambitious plans. But corporate governance is not a particular strength with this leading European online retailer for tires and car accessories, specialist in e-food, etc. In this respect, 2019 highlighted once more that the combination of a business model and some business activities by itself is not yet enough to create a solid corporate entity.

2019 started with a strange news flow. In March 2019, Delticom realized that there were delays in the preparation and audit of the financial statements 2018 and that it became apparent that Delticom and the auditor, KPMG, were too optimistic with regard to the time required for the auditing process. But it took until March 19^th for Delticom to note that the 2018 annual report could not be published as planned on March 21^st, 2019. Also, the AGM had to be postponed for this reason. Four weeks later, it became apparent that the company used the time to acquire advice on how to structure the further process. Therefore, in an ad hoc release dated April 26^th, the company explained to its shareholders: “As soon as it has been determined when the financial statements will be prepared and audited and approved by the Supervisory Board, Delticom will set and announce a date for the publication of the Annual Report and the Annual General Meeting.”

By the end of June, the uncertainty as regards the past was over, since the preparation and audit of the financial statements could be concluded by June 25^th, 2019. However, the accounts underwent a few minor adjustments during this process. In particular, the EBITDA declined to 9.0m (2017: 9.3m) EUR (preliminary result 2018 as announced in March 2019: 12.0m EUR).

On November 15^th, 2019 Delticom published an update on the company status, according to which a restructuring concept had been developed and the first implementation steps already been taken. More importantly, the company informed that it was negotiating with the financing banks a continuation of the existing financing. In addition, the release informed that on August 7^th, 2019, Delticom concluded a standstill agreement with its financing banks, which has since been extended already several times.

Funny enough, to scare naïve shareholders seems to require an ad hoc-announcement with Delticom, while the more positive conclusion of an agreement with the financing banks on the extension of the financing until the end of 2021 was published as corporate news. Anyhow, stranger things happen from time to time, such as the statement by the member of Delticom`s Managing Board Andreas Prüfer: “Now we are in calmer waters and can concentrate consistently on our business goals.”

Ups, same thing again?

 

Nordex SE: Technical Takeover Offer

Nordex issued 9,698,244 new shares under exclusion of subscription rights to its anchor shareholder Acciona S.A. by way of a private placement at an issue price of 10.21 EUR per share. The capital increase amounts to 10% of the share capital before the increase. The issue price corresponds to the volume-weighted average price of the Nordex shares on the last three trading days in XETRA trading on the Frankfurt Stock Exchange before the capital increase resolution. The gross proceeds of the issue amount to 99m EUR, and the share capital of Nordex will consist of 106,680,691 bearer shares after the increase.

The information regarding the use of the proceeds sounds like somebody hit the standard textbook modular for capital increases: “The proceeds serve to strengthen the company´s capital structure….” Fine, we heard that many times already. But the release contained an interesting bit of extra information. Due to the completion of the capital increase, Acciona´s shareholding in Nordex will exceed 30% of the company´s share capital. Hence, Acciona will be obliged to announce and effect a mandatory public takeover offer to all Nordex shareholders, or it could announce and implement a preemptive voluntary takeover offer, the release clarified.

On November 18^th, 2019, the voluntary public takeover offer to the shareholders of Nordex by Acciona was published. The bidder offered a cash consideration of 10.34 EUR per share of Nordex SE. This offer expired on December 18^th, 2019, with an additional acceptance period pursuant to Section 16 WpÜG ending on January 6^th, 2020. On January 9^th, 2020, the final acceptance level was announced and it turned out that until the end of the additional acceptance period, the offer has been accepted for a total of 149,399 Nordex shares. Accordingly, including the shares already held, Acciona now controls 38,845,395 Nordex shares corresponding to 35.41% of the share capital and the voting rights.

 

PNE AG: Successful Offer due to Waiver of initial Threshold Requirement

PNE shareholders are used to turbulences. In particular, the corporate governance of the company gave cause for concern. But perhaps these days are over now as a consequence of the outcome of the recent public takeover offer.

On August 26^th, 2019, the company confirmed market rumors concerning conversations with Morgan Stanley Infrastructure Partners on possibilities of co-operation and investments that would include a takeover offer for PNE. These negotiations resulted in the signing of an investment agreement with Photon Management GmbH, an indirect wholly-owned subsidiary of funds managed and advised by Morgan Stanley Infrastructure Inc., on October 10^th, 2019.

Based on this agreement, Photon announced its intention to make a public takeover offer at a price of 4.0 EUR per PNE share in cash on October 31^st, 2019. The offer price corresponds to an approximate 31% premium in relation to the unaffected share price on August 26th, 2019, and an approximate 21% premium on the volume-weighted average share price over the past three months. The initial offer provided for a minimum acceptance threshold of 50% plus one share. Also, the parties planned already to alleviate the annoying burdens of corporate governance by way of withdrawal of admission for trading of the PNE shares form the regulated market, subject to the acquisition of more than 50% of the voting rights in PNE.

Unfortunately, the acceptance of the offer fell short of expectations, not least due to shareholder criticism of the offer price. Hence, the bidder waived the minimum threshold requirement and the acceptance period was extended from November 28^th, 2019, to December 12^th, 2019, with an additional acceptance period according to Sec. 16 para. 2 of the German Securities Acquisition and Takeover Act ending on December 31^st, 2019. Until then, the offer had been accepted for a total of 9,322,325 PNE shares, corresponding to approximately 12.17% of the share capital and voting rights of PNE AG. Together with the 20,953,096 PNE shares already directly held by the bidder on that day, the total of approximately 40% of the share capital fell far short of the original threshold of 50%.

 

 

 

 

VIPsight - 3rd Edition 2019

 

COMPANIES

 

 Siemens AG: Portfolio Adjustment planned

As part of its measures to sharpen the focus of its portfolio, Siemens plans a carveout of the Gas and Power Operating Company as a separately managed company, as well as a spin-off of the new legal entity combined with a subsequent IPO in order to deconsolidate the new company, while retaining a significant influence. In conjunction with these measures, Siemens also announced the intention to transfer its holding in Siemens Gamesa Renewable Energy S.A. to the new company.

According to the announcement, the IPO is scheduled to be completed by September 2019.

 

Pfeiffer Vacuum Technology AG: Relationship Agreement with Busch Group concluded

Pfeiffer Vacuum concluded a relationship agreement for the strategic cooperation with the Busch Group, which owns more than 50% of the issued share capital of the company via its investment vehicle Pangea GmbH. Negotiations started already in November 2018 and covered the areas research and development, procurement, IT and services and sales. Along with the operational cooperation, the agreement also establishes uniform standards as regards compliance and risk management.

Pfeiffer Vacuum expects that the cooperation will have positive effects on earnings and facilitate annual medium-term synergies in a lower two-digit Euro million range.

 

thyssenkrupp AG: Fundamental strategic Realignment proposed

thyssenkrupp and Tata Steel decided that it is unlikely that the European Commission will approve the planned joint venture of their European steel activities. As a consequence, the executive board of thyssenkrupp reassessed the strategic options for the group and proposed to not go ahead with the planned split into two independent companies. Instead, the company shall fundamentally realign itself to significantly improve its operating performance. Planned actions include a value based and more flexible portfolio approach with greater freedom for the development of all businesses, a leaner holding structure and a stronger performance orientation. At the same time, the group shall strengthen its capital base in order to gain the necessary financial leeway for necessary restructuring measures and business development. A potential outcome of the strategic reorientation could be an IPO of the Elevator Technology entity.

 

Leoni AG: IPO or sale of Wire & Cable Solutions Division planned

Leoni AG is preparing a separation of its Wire & Cable Solutions Division through a stock market listing or sale, including the option of a partial sale. While no final decision has been taken as yet, the company underlined in a release that a separation would enable a focus on the development of the Wiring Systems Division.

The decision to prepare a separation of the Wire & Cable Solutions Division followed a review of the existing group structure with regard to the optimal future ownership structure of the divisions.

Leoni´s Board of Directors sees only very limited synergies between both divisions and intends to increase their operational independence. In this context, corporate support functions will be transferred from the holding company to the divisions.

 

 

 

---

 

 

Buhlmann's Corner

 

Are the German DAX companies getting dusty or is everything just coincidence?

What is really going on between the Rhine and the Elbe?

The large, blue German bank proudly presents a conversion concept. A sort of renovation and reconstruction concept after the passage of Anshu's Army. The concept should cost or to put it more correctly: consume and destroy over 7 billion €. Is it worth it?

With a current market value of €15 billion, €7 billion of program costs are currently being spent to generate quarterly revenues (Q1 2019) of €13 billion. In arithmetical terms, 7 billion is spent to receive 7 billion.

It would certainly be more efficient to set up a new bank without legacies with €7 billion, without inherited burdens, litigation risks and accumulated pension commitments, and to sell the old one for €1 to the baker from Berlin, who once was willing to buy the Schneider real estate package for this price. At that times they had mutated into NPLs because of a few "peanuts". The right question is: why didn't the supervisory board discover the Sewing concept in 2012, but only in 2019?

Then there's Bayer, the company whose market value of 10% is lower than its most recent successful acquisition. The Bayer Supervisory Board, which was elected by the stockholders, (presumably) approved the purchase of the Monsanto pearl in final analysis and, according to the old rule, was discharged for this resolution by a large majority. That was not achieved by the Board of Management, which today weakens its position in the fight against the lawyers.

The Supervisory Board is now taking over (because it has been discharged, sic!) the management of Glyphosat, although it is not actually allowed to do so. But some shareholders want it that way. Apparently the company is acting consistently and expensively according to the unwritten German rule: "und wenn ich nicht mehr weiterweiß, dann bilde ich einen Arbeitskreis" (if there is no solution, solve it with a working group)

But there are also board members who may surprise you:

BASF, for example, came around the corner and warned of declining profits - instead of +10%, they are now expecting -30% in 2019.  A swing of 40% in such a short time means either that the CFO has been on vacation for a longer period or that the accounting has been hacked or ... that things can get even worse.  As yet, the Supervisory Board has not reacted.

Change of scene to Daimler. At the shareholders' meeting, not all participants cheered for Dieter Zetsche, who retired on the same evening. At the behest of the Chairman of the Supervisory Board, Manfred Bischoff, he replied in spite of my public objection, all shareholder questions.  Even those concerning the future. And the new man, Ola Källenius, had to watch and remain silent.

After this childish theater, Zetsche went in the certainty after two years cooling-off to take over the chairmanship of the supervisory board and his successor came hand in hand with Harald Wilhelm (CFO successor of Bodo Uebber) ... and sent the shareholders immediately and twice on profit warning. That teaches me 3 things:

The newcomers have swept the past together.  The mistakes cannot cool down in 24 months, so that the old CEO can become the new Chairman of the Supervisory Board. Airbus not only builds better aircraft than Boeing, but also has what it takes to train good CFOs.

Facebook pays USD 5 billion for a misdeed and at the same time gets 2.4% more customers, similar to Volkswagen.

Even if VW, which despite Dieselgate is the only car manufacturer without profit warning in the trade war between nations and propulsion systems, sensibly reduces the brand expansion and even if Facebook is pursued and smashed by the state - the Deutsch Bank smashes itself.

The behavior is figuratively speaking just as stupid as that of the airlines, which turn passengers into pure flight victims. No matter if Ryanair, Air Asia or Deutsche Lufthansa, more and more often they take off with a delay of 30 minutes or more, which does not change the fact that the flight closes 30 minutes before the official departure time. 30 years ago, i.e. before ESTA, APIS and just as much harassing as useless check-in procedures, the plane was reached even if you drove half an hour before to the then still affordable parking lot ... was that a coincidence?

 

 

 

 

---

 

 

ACTIONS CORNER

 

Daimler AG: Second Profit Warning in 2019

Following a profit warning in June, Daimler informed about a Group EBIT for the second quarter significantly below market expectations and made another adjustment to the earnings outlook on July 12^th. According to this statement, the Group EBIT for the quarter amounted to minus 1.6 Billion Euro (Q2 2018: 2.6 billion Euro).

In addition to the facts already disclosed in the June release and adjustments to sales and earnings projections due to slower product ramp-ups and lower growth in automotive markets than expected, the following items have been identified as new major problem topics:

- New information leads to a revised risk assessment regarding provisions for an extended recall in connection with Takata airbags. Provisions had to be increased by around 1.0 billion Euro.

- The EBIT was further impacted by a reassessment in connection with ongoing governmental and court proceedings and measures relating to Mercedes-Benz Diesel vehicles, which leads to an increase in expected expenses by around 1.6 billion Euro.

- A decision by the Board of Management in the context of the product portfolio review and prioritization affected the earnings of the Mercedes-Benz Vans division by around 0.5 billion Euro.

 

Deutsche Bank AG: Strategic Transformation and Restructuring Initiated

In light of the ongoing operational underperformance, Deutsche Bank´s Management Board announced a series of measures to restructure the bank´s operations with the aim to improve long-term profitability and returns to shareholders.

Deutsche Bank will exit its Equities Sales & Trading business while retaining a focused equity capital markets operation. Also, the Fixed Income operations will be resized and the wind-down of the non-strategic portfolio shall be accelerated. In total, the bank expects to reduce risk-weighted assets allocated to these businesses by approximately 40%. These actions are designed to allow the bank to focus on and invests in its core businesses, which are Corporate Banking, Financing, Foreign Exchange, Origination & Advisory, Private Banking, and Asset Management.

Furthermore, a significant restructuring of businesses and infrastructure is planned, including a cost reduction program designed to reduce adjusted costs to 17 billion Euro in 2022 and targeting a cost-income ratio of 70% in that year.

Deutsche Bank expects to take approximately 3 billion Euro of aggregate charges in the second quarter 2019 to facilitate the restructuring, including a deferred tax asset write-down of approximately 2 billion Euro and impairments of approximately 0.9 billion Euro. Additional restructuring charges are expected in the second half of 2019, and subsequent years. In aggregate, the bank expects cumulative charges of 7.4 billion by the end of 2022.

 

Deutsche Lufthansa AG: 340 Million Euro extra for the Taxman

Lufthansa AG made a profit warning and adjusted its full-year outlook. The operating business is suffering from a deterioration in European markets, caused by market-wide overcapacities and aggressively growing low-cost competitors putting pressure on yields. Based on the expectation of low single-digit Group revenue growth, the Group´s adjusted EBIT margin is now forecasted to reach 5.5 to 6.5 percent, resulting in a Group adjusted EBIT amounting to between 2.0 and 2.4 billion Euro in 2019.

However, Lufthansa also announced that the company will make a provision for a tax risk in the amount of 340 million Euro due to a change in the case law established in prior years by the German Supreme Tax Court.

 

METRO AG: Substantial Impairment on the Hypermarket Business

METRO AG has concluded an agreement on exclusive negotiations regarding the sale of its hypermarket business and related business activities (“Real”) with a consortium led by redos. The agreement provides that Real shall be sold to redos, but METRO shall initially retain a 24.9 percent holding in the operative business of Real and has a put option that shall be exercisable at the earliest after three years. Based on the status of the negotiations in May 2019, METRO decided to impair the value of the hypermarket business in the amount of 385 million Euro in its interim accounts for the first half of 2019.

Following an in-depth due diligence, the signing of a sale agreement is expected later in 2019.

 

 

 

 

---

 

 

Politics

 

Deutsche Bank AG: Suspicious Activities with Mr. Trump?

The New York Times reported that anti-money laundering specialists at Deutsche Bank recommended in 2016 and 2017 that multiple transactions involving legal entities controlled by Donald J. Trump and his son in law, Jared Kushner, be reported to a federal financial crimes watchdog.

According to the article, the transactions set off alerts in a computer system designed to detect illicit activity. Compliance staff members who then reviewed the transactions prepared so-called suspicious activity reports that they believed should be sent to a unit of the Treasury Department that polices financial crimes. However, executives at Deutsche Bank rejected the specialists´ recommendations and the reports were never filed with the government.

The red flags raised do not necessarily mean that the transactions were improper.

 

 

 

---

 

 

People

 

Aurubis AG: CEO released from his Duties, effective immediately, and Investment Project stopped

The Executive Board and the Supervisory Board of Aurubis passed a resolution to stop the internal investment project “Future Complex Metallurgy”. Furthermore, the Supervisory Board decided unanimously to release the CEO Jürgen Schachler from his duties, effective immediately.

The originally planned investment amount was supposed to be 320 million Euro. However, the basis engineering results indicated significantly higher investment costs. Thus, the project no longer looked as cost-effective as originally planned. The investment costs of the project that have been capitalized so far will consequently plan an additional strain of approximately 30 million Euro on the Q 3 2019 result.

 

SAF Holland S.A.: Awaiting Voting Rights Notifications

In an effort to harmonize with the corresponding provisions of the German Securities Trading Act (Section 33 (1) WpHG), the Extraordinary General Meeting of SAF Holland decided on April 25^th, 2019 by way of an amendment of the Company´s Articles of Association, that shareholders who reach, exceed or fall below the voting rights´ threshold of 3% are required to promptly file a voting rights notification with the company. According to the CFO of SAF Holland, Dr. Matthias Heiden, this amendment to the Articles increases shall increase capital market transparency and support investors in making their investment decision.

In a recent press statement, the company clarified that shareholders who currently hold between 3% and 5% of the Company´s voting rights and have not reported this fact to SAF Holland are also requested to notify the company promptly.

 

Axel Springer SE: KKR intends to launch a Public Takeover Offer

Axel Springer SE entered into an investor agreement with a holding company controlled by funds advised by Kohlberg Kravis Roberts & Co. (KKR), as well as with holding companies controlled by Dr. h.c Friede Springer and by the CEO Dr. Mathias Döpfner. This agreement concerns the terms and conditions of a strategic investment of KKR in Axel Springer. In accordance with the agreement, KKR´s holding company announced that it intends to launch a public takeover offer to all shareholders of Axel Springer at an offer price of 63.- Euro per share in cash. The Executive Board and the Supervisory Board of Axel Springer welcome and support the offer, subject to the review of the offer document.

The offer represents a premium of 31.5% on the volume weighted average share price of Axel Springer shares over the period of the last three month preceding the announcement of the negotiations for an investment by KKR. In addition to other customary conditions, the offer shall be subject to a minimum acceptance rate of 20 % and obtaining of merger control clearance and other regulatory approvals.

 

 

 

---

 

 

Capital News

 

OSRAM Licht AG: Will AMS emerge as a second Bidder?

On July 4^th, 2019, OSRAM announced that the transaction offer for the public takeover presented by a bidding consortium composed of Bain Capital and The Carlyle Group for all the outstanding shares of OSRAM at the offer price of 35.00 Euro per share was considered to be attractive by the Managing Board and the Supervisory Board.

A few weeks later, the company received a non-binding preliminary expression of interest by AMS AG to engage in discussions about a public takeover of OSRAM by AMS. AMS values OSRAM at 38.50 Euro per share, subject to the outcome of detailed due diligence and success in securing the required financing commitments for the transaction. The Managing Board of OSRAM regarded the probability of this transaction materializing as rather low. Nonetheless, OSRAM informed that it will enable AMS to perform due diligence within strict compliance of anti-trust requirements to possibly remove the substantial uncertainties about the funding of the transaction intended by AMS.

 

METRO AG: Major Shareholders announce intention to conclude a pooling agreement

Meridian Foundation and Beisheim Group issued a joint press release, in which they inform about the intention to enter into negotiations regarding the conclusion of a pooling agreement, which would concern a combined holding in METRO AG of 20.55% of METRO´s ordinary shares. Furthermore, the release said that the partners intend to gradually expand their shareholdings in METRO in case appropriate buying opportunities should arise.

The main objective of the partners seems to be to consistently exercise the voting rights of the METRO shares held by them and to act unanimously vis-à-vis METRO AG and its other shareholders in material matters, with the aim to secure a positive development of METRO AG.

The initiative increases the pressure on EPGC to amend its take over bid and follows the recent rejection of this bid by METRO´s Management Board and Supervisory Board.

 

Volkswagen AG: Negligent Breaches of Supervisory Duties result in a substantial Fine

Following penalties against AUDI and VW, the Stuttgart prosecutors imposed a fine of 535 Mio. Euro on Porsche AG. 531 Mio. Euro shall be paid to compensate for profits arising from the cheating in diesel emission tests and the sale of diesel cars that spewed excessive pollution levels, while the remaining 4 Mio. Euro represents the penalty.

Porsche confirmed the fine and said that the conclusion of the prosecutors´ proceedings come to an end with this decision. However, the fine will probably not hinder the prosecutors´ ongoing proceedings against individuals involved in the questionable practices.

 

First Sensor AG: Voluntary Public Takeover offer is on the Way

First Sensor announced the signing of a business combination agreement with TE Connectivity. Following the signing, TE Connectivity announced its decision to make a voluntary public tender offer with a cash consideration of 28.25 Euro per share, representing a premium of 14.6% to the closing price as of May 24^th, 2019, which is the last trading day before First Sensor confirmed the negotiations with TE Connectivity.

The transaction, including the assumption of First Sensor's outstanding net debt and minority interest, is valued at approximately EUR307 million. The publication of the offer document, which will initiate the commencement of the acceptance period, is expected to take place in early July.

The offer shall not have a minimum acceptance threshold. It is, however, subject to the required antitrust and other regulatory clearances and other customary closing conditions. Shareholders holding approximately 67% of the outstanding shares of First Sensor have already irrevocably agreed to accept the offer. Both, the Executive Board and the Supervisory Board of First Sensor support the tender offer.

 

METRO AG: Management Board feels undervalued

EP Global Commerce VI GmbH plans to make a voluntary public takeover offer for all of METRO´s shares at a price of 16.- Euro per ordinary share and 13.80 Euro per preference share.

The Management Board of METRO stated in this context that it strongly believes that the offer prices substantially undervalue the company and do not reflect the value creation plan of METRO. The company is going through a phase of continuing actions to transform the wholesale and food specialist and position it for the changing market environment. Therefore, the Management Board advised shareholders not to take action prior to the reasoned statement with respect to the offer to be issued by the Management Board and the Supervisory Board.

According to the bidder, however, EP ensured already full support by METRO´s key shareholder Haniel and holds a call option from Ceconomy.

 

 

 

 

---

 

 

M & A

 

ADO Properties S.A.: Candidates for Senior Management Positions wanted (soon!)

ADO Properties S.A. informed about the extension of the appointment of the CFO Florian Goldgruber and the COO Eyal Horn on an interim basis until September 30^th, 2019, while the company is undertaking a search for a new CFO and COO.

The CEO of ADO Properties, Rabin Savion, is expected to leave the company with the scheduled expiration of his contract on July 22^nd, 2019. According to the announcement, the company is also in the process of searching for a new CEO.

 

Tele Columbus AG: Too many Candidates

While ADO Properties needs to cover its vacancies on the senior management level soon, Tele Columbus might have too many candidates for the upcoming elections to the Supervisory Board. Following the invitation to this year´s AGM on May 15^th, 2019, the company received a counter motion to item 7 of the agenda (Elections to the Supervisory Board) by United Internet, submitting its own proposal for the election on May 31st.

United Internet, which is Tele Columbus single largest shareholder with a holding of close to 30% of the shares in issue, expresses its concerns at the current status of Tele Columbus, highlighting share price and earnings declines and fluctuations in the management team. The key message to Tele Columbus was summarized as follows: “We are convinced that the candidates we propose have the expertise and experience required in technology and business management to perform the Supervisory Board´s duties optimally and assist the Management Board as far as possible in meeting the challenges ahead.”

While the initial reply by Tele Columbus has been a clear rejection of the proposal via a press release made on the same day, the company later postponed the AGM from June 21^st to August 29^th, 2019. The new AGM agenda shall be published in due course.

 

CTS EVENTIM & Co. KGaA: Caught in a Traffic Jam

The European Court of Justice decided that the planned German infrastructure charge – in combination with the relief from motor vehicle tax in Germany – constitutes an indirect discrimination on grounds of nationality and is in breach of the principles of the free movement of goods and of the freedom to provide services. On December 30^th, 2018, a syndicate of CTS EVENTIM and Kapsch TrafficCom was commissioned with the collection of the infrastructure charge by the German Federal Ministry of Transport and Digital Infrastructure. In this context, CTS EVENTIM informed that it is now reviewing the reasons for the termination and its implications. According to the press release, the contracts concluded with the German Federal Government contains protective provisions intended to prevent pecuniary damages for the operating company and its shareholders which also may be applicable in case the infrastructure charge will not be implemented.

 

 

 

 

VIPsight - 2nd Edition 2019

 

COMPANIES

 

BMW AG: One Billion Arguments

With respect to the EU antitrust proceedings, BMW will recognize a provision. This decision followed the information by the European Commission about a “Statement of objections”. The Commission is investigating whether German car manufacturers cooperated in technical working groups to restrict competition in development and rollout of emission reduction technologies.

BMW decided to contest the Commission´s allegations with all legal means if necessary. However, the statement leads BMW to believe that it is probable that the Commission will issue a significant fine. According to IFRS, this results in an obligation to recognize a provision. Therefore, following its review of the Statement of Objections, BMW will recognize a provision, which is likely to exceed 1 bn Euro. This effect will negatively impact the financial results in the first quarter of 2019.

 

Wirecard AG: External Investigations reveals no material impact on financial reports of Wirecard

In light of allegations by a whistleblower in Singapore and severe accusations and speculations in certain press magazines and publications, Wirecard mandated the law firm Rajah & Tann Singapore LL.P. to undertake an independent investigation into allegations relating to certain transactions and corporate governance issues of Wirecard subsidiaries in Asia.

The review did not identify inaccuracies with material impact on the financial reports of Wirecard Group. Revenue of 2.5m Euro was wrongfully recorded in 2017 which will be restated in the 2018 annual accounts and is compensated by positive restatements identified for the year 2017. Furthermore, an asset of 3m Euro was wrongfully recorded for one week in 2018 and will not be reflected in the 2018 annual accounts. In addition, draft contracts were prepared and signed on behalf of certain subsidiaries, and not fully executed. These events occurred in respect of agreements which may appear to not have underlying genuine transactions. Save for one transaction of approx. 63K Euro, none of the draft transactions were entered into respective ledgers nor did funds flow into or out of Wirecard group companies.

 

Commerzbank / Deutsche Bank: There goes the Politicians Dream

After careful analysis, the Management Boards of Commerzbank and Deutsche Bank have concluded that a combination of the banks would not have created sufficient benefits to offset the additional execution risks, restructuring costs and capital requirements associated with such a large-scale integration. As a result, the two banks have decided to discontinue discussions.

According to prior publications, it took the boards several weeks to get to this conclusion.

 

ThyssenKrupp: Is Time the Limiting Factor?

The European Commission informed that it extended the deadline for reviewing the planned joint venture deal between ThyssenKrupp and Tata Steel until June 17th, 2019.

Meanwhile, market speculations regarding the assets to be disposed in order to win antitrust approval focused on plants and activities in Belgium, the U.K., Spain.

 

Uniper SE: And here comes the next one…

KVIP International V L.P. requested to amend the agenda of Uniper´s AGM by adding the following item:

The Board of Management is instructed to prepare and submit to the General Meeting for resolution, as soon as possible and the latest by the date of the next AGM of the company, draft agreements and corresponding reports for the legally valid spin-off of the international power business segment for absorption into a newly formed or already existing separate legal entity selected in accordance with the duties of the Board of Management. The Board of Management is instructed to satisfy all necessary prerequisites for the implementation of the aforementioned spin-off at its reasonable discretion in accordance with this resolution.

In case that this resolution is not adopted by the required majority, KVIP proposed an alternative resolution concerning the spin-off of the operations in Sweden.

Uniper´s AGM will be held on May 22nd, 2019.

 

 

 

 

 

 

---

 

 

Buhlmann's Corner

 

About small minds and little effects

In the week after Easter, shareholders this year also practiced revolution beyond the German border.

On Tuesday, 62% of ING's shareholders voted against the discharge of the Management Board and Supervisory Board at the Annual General Meeting in the Muziekgebouw in Amsterdam. While the meeting building stands securely on piles above the water, it was apparently up to the neck of the entire board of executive and non-executives.

The Dutch ING Bank, which was rescued in 2009 and ranked 26th worldwide in terms of total assets, decided in the relevant previous year to increase the CEO's salary by 50%. Initially, the Supervisory Board agreed, but later withdrew its decision.

In September 2018, however, a compliance discussion with the public prosecutor's office and the regulator that lasted several years was concluded by the Board of Managing Directors with a settlement of € 775 million. More than just organisational breakdowns were established.

Anyone who first collects royalties from a breach of law and then lets ignorant owners pay the fine - by the way, in this connection the Chief Financial Officer was dismissed by the Supervisory Board with recognition and kind words - cannot actually expect any discharge. That didn't seem to have arrived at the board: until shortly before the Annual General Meeting, people were still playing poker by buying Commerzbank and moving to Frankfurt ...

VIP (only) refused to ratify the actions of the Supervisory Board (and of course refused to re-elect a Supervisory Board member in a mandate), not least because the compliance issue had been addressed since 2016 in a not conspicuous remark in the notes to the annual report. By the way, the aforementioned note 45 appeared immediately after a change of auditor - previously it was EY, now it is KPMG. These company names are interchangeable, but such changes are just as good as the proverbial brooms.

The result was not noticed except by the participants and the local press. For those concerned, the legal and economic impact is as insignificant as the public perception of the matter outside the Netherlands.

The revolutionary storm up the Rhine in the former capital of the Federal Republic of Germany was just as en passant and without consequences. For the third time Bayer invited to Bonn, for the first time with Monsanto and the boundlessly scolded glyphosate. Who cares that competitors all over the world produce and sell their herbicides on the same glyphosate basis - when the pack of American lawyers only hunts Monsanto?

The shareholders decided to hunt the Executive Board voting with a 55% majority against its discharge.  Here, too, the glass is half full and half empty - the controversial question about "how expensive will the lawsuit avalanche be" has not yet been determined.

The fact is that 2019 the ethically much more important question:

Is the pesticide dangerous?

And if so, how can it be replaced?

Has not yet become an issue after Easter. And even in a second essential question there is hesitation: are the priced in legal costs sufficient for damages, expenses, negotiation pains and management strategy. Or conversely, is the incorporation of Monsanto damaging Bayer's existing stockholder, just as it happened with the acquisition of Schering.  At Bayer, the Executive Board was hastily not discharged, the Supervisory Board received an educational finger with 33% No and ... the much more important motion for a special audit to deal with the factual issues was rejected. Opportunity missed!

Nothing happened, standing comfortably and continuing.

The first non-discharge of a DAX Supervisory Board happened at Lufthansa in 2003, the first one of a DAX Executive Board now in 2019, let's see what happens next in 2035. Without any consequences and unrecognized outside Germany, so much for the diversity of perception and decision-making.

How long will the barriers and border perceptions continue to exist ... even in Europe?

Will there then be effects on the effects? 

 

 

 

 

---

 

 

ACTIONS CORNER

 

Deutsche Lufthansa AG: Foreign Shareholdings reach 40% Threshold

Deutsche Lufthansa informed that its share register shows a shareholding of 41.7 percent non-German shareholders. In accordance with section 4 paragraph 1 of the German Aviation Compliance Act (LuftNaSiG), the company, therefore, is authorized to buy back own shares.

However, the release added that following careful analysis, the company does not believe that there is any immediate danger of an increase in the non-German shareholdings which would endanger the company´s ability to meet the requirements for retaining its licenses, rights, and prerogatives under aviation law. Therefore, it currently does not intend to exercise its right to buy back its own shares under section 4 paragraph 1 LuftNaSiG.

 

Wirecard AG. Strategic Partnership with SoftBank

Wirecard and SoftBank Group have signed a binding term sheet under which an affiliate of SoftBank shall invest approximately 900m Euro in Wirecard via a convertible bond mechanism. For this purpose, Wirecard shall issue convertible bonds with a term of five years to SoftBank, convertible into 6.923.076 Wirecard shares (currently corresponding to appr. 5.6% of the common stock in issue) at 130 Euro per share. The issue is subject to approval at the AGM to be held on June 18th, 2019.

In connection with the investment, the parties also have signed a memorandum of understanding on a strategic partnership for digital payment solutions. According to the memorandum, SoftBank will also seek to support Wirecard´s geographic expansion into Japan and South Korea and shall provide collaboration opportunities within the SoftBank Group´s global portfolio in digital payments, data analytics/AI and other innovative digital financial services.

 

Allianz SE: Looking beyond the BREXIT?

According to a report on Sky News, Allianz is in advanced talks to buy Legal & General´s home insurance business.

In December 2018, Sky News informed that Direct Line had indicated its interest in making a 400m pound bid to buy the British insurer´s unit. The new report said that Allianz was in exclusive talks to buy the unit, which was put up for sale last year.

 

Uniper SE: Request by Cornwall GmbH & Co. KG for the convocation of an AGM

Cornwall GmbH & Co. KG, a company advised by Elliott Advisors (UK) Limited, requested the convocation of an extraordinary AGM of Uniper SE with the agenda item: “Resolution of an instruction to the Board of Management to prepare the conclusion of a legally binding domination agreement between Uniper SE as the dominated company and Fortum Oyi or one of its subsidiaries as the dominating company.” Alternatively, Cornwall requests to amend the agenda of an annual shareholders meeting still to be convocated.

According to the ad hoc announcement, the Board of Management of Uniper assesses the request and works on a statement in respect thereto.

 

Leoni AG: Part I, Restructuring Program

In light of the greater costs incurred due to ramp-up difficulties at the plant in Merida, persistently poor operating performance in the Wiring Systems Division and a further downturn in the market, the Board of Directors of Leoni decided that it is no longer able to maintain its outlook for fiscal 2019 presented on February 7th. The detailed guidance issued in the annual report for 2018 is therefore no longer valid, while it is still too early to provide updated new guidance. Leoni now estimates a 50m Euro burden due to Merida for 2019. In addition, anticipated performance improvements at other plants have not materialized. Overall, the company is facing a further challenging market environment, particularly in China. In addition, certain OEMs have significantly reduced their delivery expectations for the next months with respect to the Wiring Systems Division.

Furthermore, the Board of Directors decided to implement its “VALUE 21 performance and strategy program” with the objective to improve both profitability and cash flow as well as to align the Company to promising and profitable business areas. The program entails restructuring costs amounting to about 120m Euro, around half of it related to headcount and most of which expected to incur in the 2019 and 2020 financial years.

In addition, the Board of Directors has identified business areas with annual sales of up to 500 m Euro for which the Company is considering all options. Furthermore, Leoni intends to change its corporate structure into a financial holding company that is lean and geared to functions relevant to the capital market with two divisions that operate entrepreneurially and are managed on a stand-alone basis.

 

 

 

---

 

 

Politics

 

Deutsche Bank: Trump is back on the Agenda

U.S. president Donald Trump, and several of his relatives and companies, decided to file a lawsuit against Deutsche Bank to block it from complying with federal subpoenas issued on April 15th.  The subpoenas demand the handover of documents with information on Mr. Trump’s finances.

According to the lawsuit, the subpoenas were issued to harass Mr. Trump, while the spokespersons for the Financial Services Committee and the Intelligence Committee confirmed the position that the potential use of the U.S. financial system for illicit purposes is a very serious concern, which is why the Committee is exploring these matters, including as they may involve the president and his associates.

The potential use of the U.S. financial system for illicit purposes is a very serious concern. The Financial Services Committee is exploring these matters, including as they may involve the president and his associates, as thoroughly as possible.

 

 

 

 

 

---

 

 

People

 

Knorr-Bremse AG: The Captain leaves the Ship

On April 30th, 2019, Knorr-Bremse AG informed that its CEO Klaus Deller left the company as of the same day by mutual agreement. According to the ad hoc release, the supervisory board has already initiated the search for a successor.

According to the release, the supervisory board fully supports the successful strategy of Knorr-Bremse AG and current business is fully in line with expectations. Mr. Deller's departure is said to be due to different views regarding leadership and cooperation.

 

Leoni AG: Part II, Resignation of the CFO

Immediately preceding the news release regarding the restructuring program, Leoni informed via an ad hoc announcement that its CFO, Karl Gadesmann, resigned as a member of the Board of Directors immediate effect.

The CEO, Aldo Kamper, will take over his responsibilities until a new appointment is made.

Somehow one wonders why the company made two announcements.

 

 

 

---

 

 

Capital News

 

Deutsche Börse AG: Concrete negotiations with Refinitiv concerning the potential purchase of certain FX business units

Following current market speculations, Deutsche Börse confirmed that it is currently in concrete negotiations with Refinitiv group concerning the potential purchase of certain FX business units. The negotiations and assessments of a potential transaction are ongoing. However, the company added that the purchase price of 3.5 billion USD and the imminent signing of binding contracts mentioned in some market speculations are entirely unfounded.

 

RWE AG: Option to purchase RWE`s stake in Czech grid operator exercised

In mid-February, RWE acquired a majority holding in the Czech distribution system operator Innogy Grid Holding (IGH) form innogy SE. An agreement had been reached as part of the transaction with E.ON that E.ON would purchase this interest in IGH from RWE within the scope of the envisaged acquisition of Innogy SE.

The execution of the agreement with E.ON triggered a right of first refusal for the co-shareholders in IGH, i.e. the Macquarie Infrastructure and Real Assets /MIRA) managed consortium of investors, which has been exercised. Therefore, the MIRA managed consortium will acquire the stake under the terms and conditions applicable if RWE sold it to a third party, which would be E.ON in the present case.

Completion is subject to merger control proceedings and the transfer of RWE´s stake in Innogy to E.ON. The purchase price is approx. 1.8 bn Euro.

 

Deutsche Bank AG: Merger Plan B

According to the Financial Times, the asset management arm of Deutsche Bank, DWS Group GmbH & Co. KGaA, and UBS are in so-called “serious” merger talks.

According to the newspaper, the talks have been going on for several months. If the deal were to materialize, the combined business is expected to have assets of approx. 1.4 trillion Euro under management. In an earlier report, Bloomberg already indicated that UBS was evaluating options for its asset management business, including a partial sale or merger.

 

Merck KGaA: Delivered a “Superior Proposal” for Versum

In February, Merck commenced a cash Tender Offer to acquire all outstanding shares of Versum Materials, Inc. (NYSE: VSM) for $48 per share. Two months later, the initiative resulted in a definitive agreement to acquire Versum for $53 per share in cash.

The agreed-upon price reflects an enterprise value (EV) for Versum of approximately €5.8 bn Euro, implying an EV/2019 EBITDA multiple of approximately 13.7x based upon consensus estimates and a pro forma multiple of 11.6x including 75m Euro of identified annual run-rate cost synergies.

Versum’s Board of Directors has unanimously determined that this business combination constitutes a “Superior Proposal” as defined in Versum’s previously announced merger agreement with Entegris, Inc., and Versum has terminated the merger agreement with Entegris concurrently with the execution of the definitive agreement with Merck.

The transaction is expected to close in the second half of 2019, subject to the approval of Versum stockholders at a Versum special meeting, regulatory clearances and the satisfaction of other customary closing conditions.

 

Steinhoff International Holdings N.V.: Impairment of Goodwill and Intangible Assets

Just in time for the planned release of its audited financial statements for 2017 and 2018, Steinhoff informed on April 30th that it undertook a review of the carrying value of the Group´s goodwill and intangible assets. While the value of these assets was disclosed as being approximately 9 bn Euro as at September 2017 in the Group´s interim statement for the period ending March 31st, 2018, it now has been determined that the goodwill and intangible assets are to be further impaired by approximately 1.8 bn Euro to approximately 7.2 bn Euro. The amendment will feature in the 2017 Group financial statement, the audit of which is currently in progress. The publication of this statement is scheduled for May 7th, 2019.

This conclusion follows a reassessment of the value of the goodwill and intangible assets of Mattress Firm Inc. as at September 2017 which included consideration of the pre-Chapter 11 trading performance.

 

CECONOMY AG: Reorganization and Efficiency Program

The Management Board and Supervisory Board of CECONOMY AG as well as the Management Board and Advisory Board of Media-Saturn-Holding GmbH, a majority shareholding of CECONOMY, approved a reorganization and efficiency program, which aims at streamlining the group's processes, structures, and business activities and reducing costs. The optimization and restructuring particularly focus on central functions and administrative units in Germany. The program also includes reviewing the business activities of smaller portfolio companies. As a result of the program, CECONOMY expects expenses of around 150 – 170 m Euro in financial year 2018/19 and additional approx. 20m Euro of non-cash expenses, which relate to the write-down of assets due to portfolio measures. The expenses related to changes on the top management level of 34m Euro were already booked in the first quarter of 2018/19 and are not included in the aforementioned costs of the reorganization and efficiency program.

The expected sustainable annual savings run-rate form the implementation of the program amount to 110 – 130 m Euro.

 

Delticom AG: KPMG needs more Time

Delticom AG informed that the preparation of its annual financial statements and consolidated financial statements as of December 31, 2018, continues to be delayed and will not be completed by the end of April. Accordingly, the finalization of KPMG's audit of the financial statements will also be postponed. As soon as it has been determined when the financial statements will be prepared and audited and approved by the Supervisory Board, Delticom will set and announce a date for the publication of the Annual Report and the Annual General Meeting.

In a prior release, the company stated in March that in the course of the preparation and audit of the financial statements, it became apparent that Delticom and KPMG were too optimistic with regard to the time required for such work.