VIPsight - 1st Edition 2018

 

COMPANIES

 

Bilfinger: Aftermath of a management disaster

As a result of an investigation, the supervisory board of Bilfinger SE resolved to assert claims for damages against all of the former members of the executive board in office from 2006 through 2015 who joined the executive board prior to the year 2015. These former board members are accused of breaches of duty in the implementation of an orderly compliance management system. Also, it is assumed that some former executives also breached their duties in connection with M&A projects.

According to the current provisional calculation, the recoverable damage is expected to amount to a low three-digit million Euro amount. However, the precise amount of the damage claims and to what extent these can actually be asserted has not yet been determined.

The most prominent target of Bilfinger is Roland Koch, the former premier of Hesse, who acted as chairman of Bilfinger´s executive board from July 2011 through August 8, 2014. According to a report on Reuters, though, Koch said he is not aware of having done any wrong during his tenure and reacted with surprise to the decision by Bilfinger´s supervisory board.

 

Linde: Business Combination with Praxair might require

The board of directors of Praxair, Inc. recently postponed its 2018 AGM (initially scheduled for April 28^th, 2018) given that Linde and Praxair anticipate that the business combination will close in the second half of 2018. It is understood that the postponed AGM of Praxair would be held later in 2018 only if the business combination with Linde is not consummated.

A few days later Linde surprised its shareholders with the information that discussions with antitrust authorities have resulted in indications that merger clearance of the business combination of Linde and Praxair will be subject to requirements more onerous than previously assumed. Nonetheless, the news release also confirmed that the merger partners remain convinced of the merits of the business combination. Wouldn´t it be a nice idea to discuss this in more detail at an AGM?

 

Volkswagen Group: Dieselgate, Dieselgate and even more Dieselgate in the pipeline

After billions spent as a consequence of unethical business practices, ongoing promises to do it right from (insert day depending on the occasion) on, and efficient blabla one might have thought that Volkswagen would finally start to work on its corporate culture to clean up the effects of a poor corporate governance. Probably wrong, since still so much efforts are made to preserve the status quo as long as possible rather than to correct wrongdoings and most of all the corporate governance and corporate culture.

But even in Germany with its strong lobby groups promoting the car industry and its close ties with politicians this comes at a high price. This time, Audi was the target of the prosecutors, searching Audi´s facilities as well as the homes of several current and former Audi employees in an attempt to widen the inquiry into the manipulation of diesel emission tests. And it goes without saying that Audi ensured that it was cooperating with the authorities.

 

Daimler: Carmakers and politics don´t go well together, don´t they?

“Look at situations from all angels, and you will become more open.” doesn´t sound like the ultimate marketing slogan. But when Daimlers´ Mercedes-Benz brand presented a white car on a beach along with this slogan in an Instagram post, it hit the spot. Apparently, the message was not welcome by Chinas communist party. Not only the content created a problem, but much more so, that it came from the Dalai Lama, who´s thoughts are in general not well regarded with Chinese authorities. 

According to the Chinese Xinhua news agency, the Daimler CEO Dietmar Zetsche and a local company official even sent a letter of apology to the Chinese ambassador to Germany, regretting the hurt and grief that its negligent and insensitive mistake has caused to the Chinese people.

The incident demonstrates once more that ethics and moral are not the strongholds of German carmakers, while politics and lobbying continue to play an important role. And by the way, did you notice Zetsche´s warning about a growing trend towards the political right with Daimler´s workforce? The timing may be just coincidental and most likely is not due to the incident on Instagram. But carmakers and politics anyhow don´t do well together, don´t they?

 

CECONOMY: Ongoing struggle for control over Mediamarkt-Saturn

Following the death of the co-founder and minority owner of Media-Markt, Erich Kellerhals, some market participants thought that the long-lasting battle between him and the majority owner CECONOMY for the control over Media-Markt soon might come to an end. Wrong assumption, as it turned out.

According to an article in Spiegel online, CECONOMY aims to acquire the shares owned by the inheritors of Kellerhals to settle the issue. The article also informed that the minority owners refused to sign the accounts of Media-Markt so far due to questions on certain valuations made. Without signed accounts, Media-Markt cannot payout dividends to its shareholders, thus limiting the dividend potential for CECONOMY shares.

 

 

 

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Buhlmann's Corner

 

The silk road is what you make of it

2018 is up and running and seems to be making a go of it. This is today’s upbeat, constructive message. True, Deutsche Börse missed a beat on Friday, March 16th a gremlin-spooked day, when, snowed under a mountain of derivates, and reeling from the effects of Brexit and bonuses,  staff fumbled the button to signal the start of the day’s trading. Ironically the new (as it were) government in Berlin can now boast a Minister for Digital Infrastructure, a position filled by Andreas Scheuer.

So much the better, therefore that despite the hiccup, Healthineers turned into a resounding success and Siemens made it home and dry yet again. Low interest rates kept the effects of a  45 minute delay in a 4 billion-odd Euro IPO payment at reasonable levels, indeed far less than what Mickey Mouse had to fork out to bring home the bacon. At last year’s SAP AGM, the motion on emoluments squeaked by on a handful of votes. Walt Disney wasn’t so lucky. In Houston last March 8th a 52 percent majority voted the motion down, paving the way for something more  concrete. Those on salaries which, in per annum terms, have three zeroes before the millions column are about to learn all about bearing  direct responsibility towards shareholders. Thanks to Bob Iger.

Perhaps we have reached a moment of energy transition in managers’ salaries. These last eight years have been hard on RWE and e.on with a series of restructuring initiatives and no lack of costly litigation. The upshot was separation of distribution from production pending a ruling by the German monopolies commission. Red light, or red light and full speed ahead?

Daimler would have welcomed a traffic light or two along the silk road from China. At this juncture in automobile history when all eyes are on diesel, Dieter Zetsche made no bones about his envy of  Volkswagen, PSA Peugeot and BMW having their anchor shareholder. He and Bodo Uebber got busy only to find themselves forestalled by Geely Automobile Holdings of Zhejiane. Perhaps, then, top company management ought to learn Mandarin as a means for extolling the experience of rock solidity, acquired through Volvo and powered by the Lotus legacy of speed and agility not to mention the dynamism of the Asian market  seeing that Daimler headquarters are located in Stuttgart, a city itself off limits to cars. Could this be the first faltering step towards a revival of the old Deutsche Bank/Daimler entente, a new Germany PLC under the roof of one or more Chinese holding companies?

More important though are the steps that the recently appointed German Minister of Foreign Affairs, Heiko Maas will take regarding the Chinese. A country that invests abroad without the involvement of local partners must grant its prospective foreign investors the same right (Beijing and surrounding districts). So, Mr. Maas, how long before light is shed on the issue?

DWS, Deutsche Bank’s most recent IPO shows how to go about it under that particular roof. To begin with, its legal form will make it an extremely hard nut to crack in terms of issues of governance, and then before going on the trading floor, it has two anchors that provide a one-third guarantee. The first anchor is held by Tikehau Capital Partners in Paris and marking the spirit of harmony and good intentions towards the countervailing powers, the second anchor resides with Nippon Life. A year ago Antoine Flamarion, Tikehau’s managing partner in charge of foreign business wisely pointed out “La simplification de notre structure actionnariale et de notre gouvernance sera un atout dans le cadre de notre développement”. Considering that their starting portfolio of 4 million Euros has ripped through the 10 billion Euro ceiling, John Cryan and Marcus Schenck could take a leaf from this Parisian book in their quest to simplify their accounts or perhaps how to get Temasek on board as a shareholder.

<more> "DWS GmbH & Co. KGaA: A not so perfect start on the stock exchange" - Capital News

 

 

 

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ACTIONS CORNER

 

Fresenius: Doubts over planned acquisition of Akorn        

In a recent ad hoc-release, Fresenius SE provided guidance on its expectations for the year 2018 and its mid-term growth targets. The real surprise in this message turned out to be the information regarding an investigation into alleged breaches of FDA data integrity requirements at Akorn, Inc., relating to product development.

According to the release, the consummation of the (takeover-) transaction may be affected it the closing conditions under the merger agreement are not met. In a separate statement issued by Akorn on the same day, Akron added that the investigation has not found any facts that would result in an impact on Akorn´s operations and the company does not believe this investigation should affect the closing of the transaction with Fresenius. Nonetheless, the news sent the share price of Akron down by more then 30 percent.

 

Steinhoff International: Downgrade to SDAX level

It´s been a while since the negative news flow about Steinhoff International started. Recent bits and pieces included further irregularities with the financial reporting, ongoing changes on the management level, etc. Finally even BaFin became irritated and threatened to impose a fine.

And with its recent decisions on the indices composition, Deutsche Börse acted as well. In a press release, the company informed that Covestro will replace ProSiebenSat1 Media in the DAX index. In the same release, a side note mentioned that Steinhoff International will leave the MDAX index (downgrade to SDAX). 

The (late) decision is a consequence of the rule set governing the indices composition. Unfortunately, these do not reflect the relevance of corporate governance issues in case of a corporate governance crisis . Perhaps its time to consider an amendment to the rules?  

 

Deutsche Bank: Found a shortcut to affect its reputation

After a long phase of lousy results, a constant flow of bad news and the indication that 2017 will be the third consecutive year with an annual loss, Frankfurter Allgemeine Sonntagszeitung reported about Deutsche Bank´s decision to hike annual bonus payments to more than EUR 1 billion. According to the article, the move came amid concerns that otherwise investment bankers could be prompted to defect to more generous competitors.

In recent years, the dummy argument that good and loyal employees might leave the company without high bonus payments has been used too often to justify extraordinary payments. Indeed, high bonus payments are justifiable if an annual loss occurred as a one-off incident and the reasons for the weak performance of the company are clearly addressed and under control. However, high bonus payments despite the third consecutive year with an annual loss might rather be an indication for a memory problem with the bank. If even the best are not good enough to make a profit, are high bonus payments really the best answer to address the problems? And by the way, does the management pay attention to the bank´s reputation?

 

Continental confirms ongoing examination aiming at an increased organizational flexibility

The speed of the innovation process in the automotive supplier industry is amazing. However, there is a clear segment differentiation, with electronics leading the pack, while traditional automotive industries did not show substantial breakthroughs in recent years. It is probably this background, which triggered Continental to take a closer look at its portfolio.

Following earlier speculations in the press the company confirmed that it is in early stages of analyzing how its organization can become more flexible in response to the “fast changing environment in the automotive industry”. Although the statement made clear that the evaluation is in its early stages still, it might become an interesting discussion topic at this year´s AGM to be held April 27^th, 2018.

 

Thyssen-Krupp: Lively discussions at the AGM and ambiguous voting results

The restructuring plans of the thyssenkrupp management prompted a lively debate at this years´ AGM on January 19^th, 2018. Already several weeks ahead, some critical voices could be heard. For example, the second largest shareholder, Cevian, made clear that it was dissatisfied with the strategic directions of the group and looking for a radical break-up. While this was discussed in more detail at the AGM, thyssenkrupp used the opportunity to explain its position to the audience. Referring to the recent past of the Group and the management´s plans, the CEO pointed out the managements view that the group is already undergoing substantial changes.

At first glance, the outcome of the voting at the AGM indicates a clear tendency in favor of the management´s position, with roughly 73 percent of equity represented and more than 94 percent of votes counted for the company´s proposals to shareholders. However, a closer look reveals a slightly different picture. While the number of shares casted for the dividend proposal equals approximately 73 percent of the total shares in issue (i.e. nearly all shares at present at the meeting), this number dropped to approximately 53 percent with most of the following agenda topics. In other words: 20 percent of the share capital present did not cast a vote at this AGM on most of the AGM topics. Perhaps this is an argument for the management to take a second look at the demands of the critical shareholders?

Note: In most AGM-systems used in Germany, abstention from voting is reported in the same category as are “not present”, “technical error”, “inadmissible”, etc. (if reported at all). Shareholders, depositary banks and advisors are often not aware of this specific feature, resulting in misinterpretations and other problems. Hence, VIP is requesting a change in the reporting to improve the transparency and enhance the quality of the information provided to shareholders about the outcome of AGMs.

<Abstimmungsergebnisse (voting results) 2018 - click here>

 

Kering (PUMA): Increased strategic flexibility for PUMA

Kering, the French luxury group, which currently owns approx. 86 percent of PUMA, plans to propose to its shareholders to distribute shares equivalent to approx. 70 percent of the share capital of PUMA in the form of a dividend in kind.

The step will result in a substantial increase in the free float in PUMA shares, enhance the liquidity in the stock and potentially pave the way for a later inclusion in indices like the MDAX. However, Kering´s largest shareholder, Artémis SA, is likely to receive 29 percent of the PUMA shares. Accordingly, PUMA will still have a key shareholder after the distribution, and the remaining free float would amount to 55 percent.

It goes without saying that the management of PUMA welcomed this move, since it provides additional strategic flexibility.

 

 

 

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Politics

 

Linde: Temporary suspension of the review period for the business combination with Praxair                                                                                  

Linde AG announced that the European Commission suspended the review period for the merger clearance regarding the business combination of Linde and Praxair with retroactive effect as of February 24, 2018, until information requested by the European Commission will be provided. Later, the European Commission announced that it will publish its decision on the merger clearance on August 9^th, 2018.

According to Linde´s news release, the merger partners continue to work on completing the business combination as planned in the second half of 2018. The stakes are high. The combination with the smaller US-competitor would create a global market leader for this industry, and most market participants look forward to a successful completion of the transaction. However, the suspension of the review drew the attention towards a risk probably underestimated by many investors. The time left to complete the merger is limited. It needs to be completed soon, since the one-year-period to protect investors as prescribed by German law will end on October 24^th.

 

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People

 

RHÖN-KLINIKUM: Supervisory board puts up a fuss

The supervisory board of RHÖN-KLINIKUM AG unanimously revoked the appointment of Dr. Dr. Martin Siebert as member of the Management Board of the company with immediate effect on March 28^th, 2018, and unanimously appointed Dr. Gunther Weiß as additional member of the Management Board with effect as from 1 May 2018. After internal consultation, the chairman of the Management Board will submit a proposal for the future distribution of responsibilities within the Management Board to the Supervisory Board in a timely manner.

The ad hoc release did not provide further information regarding the background of the decision. Further clarification may be provided at the annual press conference of RHÖN-KLINIKUM on March 29^th, 2018.

 

 

 

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Capital News

 

DWS GmbH & Co. KGaA: A not so perfect start on the stock exchange

According to press reports, Deutsche Bank expected to receive about 2.0 bn Euro in return for the sale of 25% of the equity of DWS GmbH & Co. KGaA. Instead, it got 1.4 bn and sold 22.25% at a price of 32.50 Euro per share. What is more, it did not take long until the share price fell below the issue price.

So what is wrong with DWS? Definitively not the operating business, which seems to be getting along fine. But there seems to be some confusion in the market regarding the legal structure. DWS is a KGaA, which is a hybrid construction combining the structure of a private limited partnership with elements of a joint stock corporation. Since it is a private partnership, the legal structure of KGaA-shares can be constructed flexible. Theoretically, it would even be possible to grant investors governance rights similar to the position of owners of shares in a joint stock corporation. But for practical matters, more often the KGaA structure is simply used to bypass important corporate governance rights of investors.

Unfortunately, marketing and research people tend to shorten messages. “Well, it may not be a share in a joint stock corporation, but it still is a share in something and you can trade it like a share, can´t you? So just call it a share and it is easy to sell.” Looks like clever marketing at first glance – just don´t tell compliance about it.

<more> "DWS - The silk road is what you make of it" - Buhlmann's Corner

 

Deutsche Börse: Questionable remuneration to its former CEO

According to the recently released annual report for the year 2017, the former CEO Karsten Kengeter received in return for his investment of 4.5m Euro in Deutsche Börse shares under the terms of the Co-Performance Investment Plan of Deutsche Börse AG 68,987 so-called co-performance shares in the company. Unfortunately, it looks like this investment caused the prosecutors to start an investigation as regards a suspected insider trading.

After all, the reputation loss Deutsche Börse suffered from this transaction is high. In addition, it is still unclear what the economical and other consequences for Deutsche Börse are. But at least the supervisory board will be monitoring “further developments of the investigation against Mr. Kengeter for alleged insider trading and will take any such developments into consideration (if necessary) for further decisions”. The report also informs that the company recognized a provision of approx. 7.5m Euro as a pro-rated entitlement for Mr. Kengeter in this regard.

 

Vonovia launches public offer for BUWOG shares

Vonovia published the offer document for its voluntary public takeover offer to acquire all shares of BUWOG. The offer, which is supported by the management board and the supervisory board of BUWOG, provides for a cash consideration of EUR 29.05 per BUWOG share, while the holders of BUWOG convertible bonds may receive EUR 115,753.65 in cash for each convertible bond with a nominal value of EUR 100,000 during the acceptance period from Feb. 5^th, 2018 through March 12, 2018.

The completion of the takeover offer, which shall be financed via debt capital, is subject to reaching the mandatory minimum acceptance threshold of at least 50% plus one share of all BUWOG shares at the time of expiry of the acceptance period on 12 March 2018. With this transaction, VONOVIA intends to create advantages for shareholders and tenants via the combination of its residential portfolio of approx. 350,000 apartments with that of BUWOG (49,000 apartments).

 

Uniper: Fortum offer falls short of majority control

With only 0.47 percent of Uniper shares tendered on top of the 46.65 percent stake already acquired from E.ON, Fortums´ initiative to gain majority control of Uniper via a public take over offer failed. However, the transaction makes Fortum the largest shareholder in Uniper, once the deal closes later in the year. The transaction is still subject to regulatory and competition approvals.

Uniper`s interpretation that capital market participants believe in its strategy as an independent company may be correct. But will it really matter in the mid-term perspective?

 

Uniper: Shareholders hesitate to tender their shares

Fortum announced that during the initial acceptance period of its voluntary public takeover offer for the outstanding shares of Uniper 171,736,647 shares have been tendered. This corresponds to approximately 46,93% of the share capital of Uniper. The initial acceptance period ended on January 16^th, 2018.

Shareholders still may tender their shares during the additional acceptance period, which runs until February 2^nd, 2018. Fortum expects to report the total amount of shares tendered on February 7^th, 2018, and to finalize the transaction, which is still subject to competition and regulatory approval, in mid-2018.

It should be noted that the reported number of shares tendered probably includes shares owned by E.ON, which held approx. 47 percent of Uniper.

 

Steinhoff International: When bankers talk too much…

Until it becomes really bad, the publicly known impact of corporate governance issues is typically limited to the shareholders. However, the recent earnings releases of U.S. banks provided a seldom exception from this rule. According to a Bloomberg article, Bank of America suffered from a USD 292m single-name non-US commercial charge-off in the fourth quarter. The article indicates that the bank got stung providing a margin loan that used Steinhoff´s shares as collateral.

Also, JPMorgan Chase acknowledged that Steinhoff was the cause of a USD 143m mark-to-market loss as well as USD 130m credit costs according to the article. Citibank declined to provide more details about a client event except for that it triggered a derivative loss of USD 130m and was responsible for roughly 90 percent of credit losses of USD 267m, but according to the article a person briefed on the results indicated that this was Steinhoff.

Interesting. I thought banks should not comment on individual customers. So where does all this information come from? In any case this type of news is not helpful for Steinhoff, but it helps to reduce concerns with the banks´ shareholders. However, compliance might not to be the strongest competency of these banks. Does anybody remember the causa Kirch?

 

Wirecard: Just another short attack?

Here comes the next super intelligence report, this time launched by the “Southern Investigative Reporting Foundation”. This publication caused a temporary dip in the shares of Wirecard by more than 10 percent – faster than most people could even read the text. Although, this is easy to read stuff, and the news content is relatively limited. Accordingly, this was more a “story” for those not familiar with the company and its history.

Conclusion: With all its complexity, Wirecard is a difficult to understand business. Investors should pay attention to what´s going on, particularly when it gets to the effects on the accounting level. If you don´t know what´s going on, you better just leave the shares (better even, investments in securities at all) alone.

 

Biotest AG: Sale of U.S. assets paved the way for the approval of the takeover by the Chinese Creat Group

Biotech AG announced that with the trade approval by the U.S. Committee on Foreign Investment in the United States (CFIUS) the last remaining condition has been met for the takeover offer by Tiancheng (Germany) Pharmaceutical Holdings AG, an acquisition vehicle of the Chinese Creat Group Corporation. Accordingly, the unsolicited takeover bid announced on May 18^th, 2017, for the shares of Biotest AG became effective. The bid valued the outstanding ordinary shares at EUR 28.50 per share tendered, while holders of the so-called preferred shares without voting rights will receive EUR 19.00 per share tendered.

The approval is linked to the signing of a sale of the U.S. entities of Biotest. Until the sale closes, these assets have been transferred to a U.S. trust and qualify as discontinued businesses.

 

 

 

 

VIPsight - 4th Edition 2017

 

COMPANIES

 

Volkswagen AG: No suspension of special audit

According to a Reuter´s report, Germany´s highest court has rejected a bid by Volkswagen to suspend the work of a special auditor appointed to investigate management´s actions in the “Dieselgate” scandal.  In its request Volkswagen argued that the naming of a special auditor by a court violated its fundamental rights and asked for an injunction. While the judge panel stated that the complaint “is neither a priori inadmissible nor is it obviously ungrounded, it also added that the company had not convincingly made the case for an immediate decision. As a consequence, the special audit is likely to go ahead and shed some light on certain topics related to the “Dieselgate” scandal which could help shareholders to better understand what happened and what actions should be taken. 

 

RWE AG: Small claim, big impact?

The Hamm Higher Regional Court decided to proceed with a Peruvian farmer´s case against RWE. At first glance this looks like a marginal issue, given the amount in question (17,000 EUR) and the early stage of the process. But the relevance of the decision might extend well beyond the issue under consideration. The farmer claims that RWE´s contributions to global warming were threatening his hometown and is asking for money to fund flood defenses he plans to install. RWE argues that under the German Civil Code a single emitter cannot be held liable for processes with a global impact such as climate change, due to the vast diverse sources and amounts of global greenhouse gas emissions from both natural and manmade nature, the climate´s complexity and its natural variability. At this point in time, this is no more than a court decision to proceed with a case. But given the reasoning for the decision, it might indicate a shift in the way German courts look at similar issues in the future.

 

Innogy SE: Changes to the executive board

On 13 December 2017, shareholders had to digest a profit warning by innogy. According to the news, profits for 2018 are expected below prior expectations, and even 2017 had to take a hit due to the persistently difficult market environment in the UK retail business. In light of the forecast reductions, the CEO Peter Terium stated: “We are a trailblazer of change. We do not wait to see what happens – we set trends.” A week later action followed, with the announcement of his resignation form the executive board with immediate effect. While Mr. Uwe Tigges will assume the position of CEO on a temporary basis, no decision on the succession has been taken yet. The supervisory board thanked Peter Terium for his successful work. At the same time, though, the announcement stated that the supervisory board welcomes in general the corporate and finance strategy pursued, but sees the necessity for greater emphasis on cost discipline and a more focused growth and investment strategy.

 

QIAGEN N.V.: Birds of a feather flock together

QIAGEN N.V. announced that it is transferring the U.S. listing of its global shares to the NYSE from the NASDAY market. The transfer is expected to become effective on or about 10 January, 2018. According to QUIAGEN, many companies, including several of its laboratory customers and pharmaceutical industry co-development partners are listed on the NYSE. The transfer is expected to provide greater visibility within the healthcare sector and expand the companies´ shareholder base. The announcement did not provide information about the role of the sponsor in this move.

 

Siemens: IPO of Healthcare unit planned for the first half of 2018

At the beginning of this month, Siemens announced the appointment of Jochen Schmitz as the new CFO of Siemens Healthiness, effective 1 December 2017, while the former CFO Thomas Rathmann will be leaving his position by mutual agreement.

What came along like a typical personality news later turned out to be an important milestone for the planned IPO of Siemens healthcare, which was announced on 29 November 2017. For the public listing, a new company (Siemens Healthiness AG) will be established. According to the news release, the legal prerequisites for the listing - which is planned for the first half of next year - have largely been fulfilled, and the global coordinators have been engaged.

 

Daimler AG – Reorganizing the dinosaurs´ administration

Daimler AG announced plans to strengthen the divisional structure in order to “better focus on changing requirements of markets and customers”. The plan is to create legally independent entities for the divisions Mercedes Benz Cars & Vans and Daimler Trucks & Buses. Hence, the holding Daimler AG would have three pillars, including the already legally independent Financial Services division.

This decision follows intense internal discussion regarding the protection of employee rights, resulting in the extension of the agreement on safeguarding employment until the end of 2029 (»Zukunftssicherung 2030«), increasing the funded status of pension obligations, and an extension of the common profit-sharing bonus of Daimler AG. The decision on the implementation of the new divisional structures still needs to be taken by the Board of Management and the Supervisory Board, while the shareholders´ approval may follow at the AGM 2019 at the earliest.

Oops, this looks like a good idea to reorganize the dinosaurs´ administration, but when do you plan to start working on the concrete challenges ahead of the company?

 

Südzucker: News about the European sugar market liberalization finally reached Ireland

If you ever wondered about the meaning of a claim like “we aim to provide our clients with innovative, timely and commercial ideas based on a fundamental knowledge and understanding of the companies we cover and the industries within which they operate”, a recent publication by Davy Research may provide an inside view.

Since several years, Südzucker did inform its shareholders about the implications of the sugar market liberalization. The topic has been widely discussed at the AGMs and in corporate publications. Hence, one could not really imagine that there still have been investors who were not yet aware of the facts and the related risks and chances. Wrong assumption, as it turned out, very wrong. Under the heading

Südzucker: “New playbook required as European sugar market liberalizes” an amazing story has been published recently by Davy Research. The surprising conclusion: “As such, we are entering a period of uncertainty for European sugar processors.”, and the recommendation: “We revise our sugar segment assumptions and consequently move our rating to ‘Neutral’ from ‘Outperform’”

This is a great story, but perhaps a few years too late. Or did I get something wrong here: innovative, timely, knowledge and understanding, etc.?

 

Bayer AG: Positive side effects of the Monsanto acquisition

With the Monsanto takeover by Bayer approaching the planned closing date, the interest begins to focus more and more on the details and side effects of the transaction. With assets to be divested in the volume of potentially more than USD 5 billion in order to win the approval of authorities for the deal, the stakes are high, and open questions need to be answered soon. Rumors are that BASF may be interested to acquire a package of seed and chemical assets from Bayer.

Following the mergers of the industry giants forming so called integrated businesses with seeds and agrochemicals under one roof, such an acquisition could be the last sustainable market entry for BASF. In all, eliminating strategic options looks like a potentially a very attractive side effect of the Monsanto acquisition for Bayer and shows the clever architecture behind this deal. Bayer also announced the sale of additional 9.4 percent of Covestro, realizing Euro 1.2 billion with this transaction. Please note that this transaction enhances Covestros´ outlook for a DAX entry, thus creating additional value for the shares remaining in Bayer´s pockets.

 

 

 

 

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Buhlmann's Corner

 

Are we sure that there are always two sides?

Generally speaking, and as long as we stay within the bounds of how votes are cast in AGMs worldwide, there are two sides to choose from, that of ISS (International Shareholder Service) on the one hand and the proposals of GL (GlassLewis) on the other. That said, there are certain situations in which the two sides come alarmingly close.

Airbus sells ten or so aircraft and in return agrees to plough back approximately double the turnover in the client’s country. When this bizarre soupe du jour was being concocted in the perfidious kitchens of Parisian officialdom, nobody batted an eyelid. One does wonder, however what will keep the Supervisory Board on a sufficiently short leash  if not the entente of equality between the two founding countries.

The two mammoth German energy producers, E.ON and RWE, took six years to fall in line with the notorious Energiewende (energy transition requirements), devised overnight at the end of 2010. So far, nobody (nobody? really?) has come forward claiming full or partial compensation for confiscation. Legally speaking, compensation may be granted for loss of worth. In the case of RWE, the board of management disagreed on who should do what and, following the tenets of free love for all, the chair of the Supervisory Board kept the conflict under wraps.

At this juncture in the proceedings, however, the problem of  auditor impartiality, arises even for holdings of less than 77% which is when the situation deteriorated and a result of 100 Million Euros sent shockwaves through the system.

Luckily, things went better for E.ON, at least up to the point when to everyone’s surprise Uniper, E.ON’s sister company was not divested but taken from an elderly mother (E.ON)  and given to a younger one (Fortum). We are, however at a loss as to the 30% acquisitions premium and the upcoming generation who will be entrusted with the ups and downs of other peoples’ wealth..

Once upon a time Rockefeller invented petrol. Today his wealth is in good company in one of the biggest state funds that grew on oil and gas. Both invest their money but no longer in the CO2  business. They have withdrawn from positions of power and influence in the management of oil and gas and deprive these industries use of their assets.

Double moral standards and bilateral conduct, a policy emulated by our very own Grand old Deutsche Bank in its bid to have part of its asset management quoted and thence sold while still  keeping control of it.The new shareholders would have very little say and so, in order to keep the wheels turning the boss of the new and old DWS Vermögensverwaltung – Nicolas Moreau –management board member of the parent and the subsidiary company kept on a very loose leash-

Werner Brandt’s whistling can be heard approaching, a sign that he’s trying to loosen the same knots in the RWE spin off. Some say he’s doing it to get himself elected to the Supervisory Board of Siemens  which through Gerhard Cromme is basking in a financial  reappraisal.

The question remains whether, instead of only two sides, it mightn’t be a bad idea to upscale to a third way not unlike the ideas that young people propose when forms of government come up for discussion One of these third ways is called activism, and increasing numbers of activist shareholders are coming forward to fill the power vacuum. The number of their attacks in the US has risen 20% over the last five years and two new campaigns are being launched every day. Step by step the trend is making itself felt in Europe, sometimes via other regions.

The main drawback lies in their proposals and initiatives  being a lot less creative or rooted in accountability than would be desirable. They call for change at the top and strategies that produce instant results. Analysis and responsibiity, such as the universal right to vote during AGMs are a long way down the list of priorities.

The motion is approved; there are two sides to everything, just remember to keep both feet on the one side.

 

It always seems impossible until it’s done (Nelson Mandela)

 

 

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ACTIONS CORNER

 

CECONOMY: Strong year-end share price performance

With an increase by 3%, CECONOMY-shares are the top performer on the last trading day in 2017. The increase was triggered by the death of the co-founder of Media Markt, Erich Kellerhals, who died at the age of 78.

For many years the dispute between the two shareholders in Media Markt, which is majority-owned by CECONOMY, blocked the management flexibility and tied capacities. The death might pave the way for an end to a fierce battle over the control and management of Media Markt, as some investors hope that his heirs would be able to reach a solution.

 

Deutsche Börse AG: Programmed for trouble with BaFin?

In mid-November, the supervisory board appointed Mr. Theodor Weimer as CEO auf Deutsche Börse AG, effective 1 January 2018, for a period of three years. Mr. Weimer follows Karsten Kengeter, who resigned with effect of 31 December 2017. Unfortunately it looks like the media received word about the new appointment ahead of the rest of us, and in particular the ad hoc release in this context might have come a bit too late. Frankly speaking, one does not really understand why this information has been published in ad hoc-form, since the market expected a qualified replacement for Kengeter anyhow. So, rather than being a real legal issue, this incident looks more like a great opportunity for BaFin to share its ideas on what kind of information needs to be published ad hoc and what might go without. However, if for example the current supervisory board of Deutsche Börse where to decide to step down in light of the recent governance problems with Deutsche Börse, this could come as a surprise to the market and require communication via ad hoc-release.

 

Linde AG: Acceptance ratio for the voluntary public takeover offer of Linde plc to the shareholders of Linde AG reached 90% threshold

Linde AG announced that the acceptance ratio for the voluntary takeover offer in the form of an exchange offer of Linde plc to the shareholders of Linde AG in connection with the planned merger of equals with Praxair reached the 90% threshold. Accordingly, Linde plc could initiate a merger-related squeeze-out pursuant to section 63(5) of the German Transformation Act (Umwandlungsgesetz) in the event of a completion of the planned business combination.

This news followed the news that Praxair`s CFO Matthew White told investors that the plant-engineering unit, along with the U.S. medical gases division Lincare, could be divested. Mr. White is expected to become the finance chief of the combined group.

 

Lufthansa takes off

The recent acquisition of NIKI Luftfahrt GmbH and Luftfahrtgesellschaft Walter mbH, from Air Berlin Group, is a substantial capacity push for Lufthansa´s subsidiary Eurowings, adding 17 Bombardier Dash 8 Q400 and 33 Airbus A320 aircraft to its fleet. In the same 13 October press release Lufthansa announced that Eurowings plans to acquire additional aircrafts.

On 16 October, Lufthansa provided further clarification regarding their acquisition plans. The airline announced that it had submitted an offer letter expressing its interest in establishing a “NEWAlitalia”. The offer targets parts of the Global network traffic and European and domestic point-to-point business and is expected to further strengthen the market position of the leading airline.

 

Deutsche Börse AG: With a little help by my friends…

Deutsche Börse AG announced that the company will inform the public prosecutor that it would accept the fines announced in relation to accusations of an alleged violation of the prohibition against insider trading in December 2015 and of an alleged failure to publish an ad hoc announcement in January 2016. By doing so, the company agrees to pay two fines under separate proceedings pursuant to section 30 para. 4 sentence 1 of the German Regulatory offences Act (Ordnungswidrigkeitengesetz).

However, the company added that it does not share the public prosecutor´s view concerning the accusations raised. Also, the company assumes that the current investigation proceedings against the chairman of the executive board, Carsten Kengeter, will be closed subject to conditions.

As the transaction smells like a ransom payment for Mr. Kengeter, many shareholders and customers expressed a negative response. Hence, let´s press our thumbs that Mr. Kengeter and the members of the supervisory board will get an opportunity to explain what happened to shareholders at next year´s AGM.

 

Siltronic AG: Please delete the first sentence

It is still common practice with many German companies to allow shareholders to “adequately participate in the positive business performance”, thus putting the owners of the business on the same entitlement level as any other stakeholder. Accordingly, it is no surprise to read such a statement in an annual report.

However, Siltronic went a step beyond and announced a defined dividend policy that “aims at distributing around 40% of the consolidated earnings of the Siltronic Group according to IFRS principles, attributable to the shareholders.” This part of the message is appreciated by shareholders, thank you. But please delete the sentence in the announcement regarding the adequately participation, since it could be misinterpreted in this context.

 

 

 

 

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Politics

 

Airbus and Bombardier counteract on anti-liberal measures of the US government

Airbus announced the acquisition of a majority stake in the C Series Aircraft Limited Partnership. This transaction combines Airbus´ infrastructure and capacities with Bombardier´s newest aircraft family in the 100-150 seat market.

The C Series Aircraft Limited Partnership headquarters and primary assembly will remain in Quebec, while a second, final assembly, line will be established in Mobile, Alabama. The transaction helps Airbus to widen its product range by adding a very attractive segment at relatively low investment costs. Meanwhile, Bombardier is expecting to neutralize the effects of punitive tariffs announced by the US government. At the same time, it could help to reduce the threat of a severe backlash for Boeing due to the introduction of the punitive US tariffs. For example, the UK government recently warned that Boeing could lose UK defense contracts as a consequence of the tariffs, which now may have become redundant.

The transaction is a clever move by Airbus and Bombardier; joining forces to optimize results in a growing and attractive market segment. But it also may have been fostered by the announcement of punitive US tariffs, thus highlighting the risks created by imprudent government actions for US companies with international activities such as Boeing.

 

Black and Grey: The EU Publishes Its Lists of Tax Havens

by Gibson Dunn

On Tuesday, December 5, 2017, the EU announced its long-awaited list of seventeen "non-cooperative" tax jurisdictions (the "Black List") and identified a further 47 jurisdictions with whom discussions about tax reform are ongoing (the "Grey List").  The countries identified in both lists were among a number of jurisdictions invited by the EU to engage in a dialogue on tax governance issues in early 2017.  The Black List identifies jurisdictions that failed to engage in a meaningful dialogue with the EU or to take action to address deficiencies identified in their tax practices. The Grey List identifies jurisdictions whose tax policies and practices continue to present concerns but which have committed to address issues raised by the EU.

The origins of the list date back to a European Commission Recommendation from 2012, which was followed by detailed assessment work carried out since June 2015, pursuant to a published Commission action plan.

The EU has not announced any immediate steps to be taken against the blacklisted jurisdictions and instead has deferred to EU member states to take action.

The jurisdictions on the Black List are:

American Samoa		Marshall Islands		St Lucia
Bahrain		Mongolia		Samoa
Barbados		Namibia		South Korea
Grenada		Palau		Trinidad & Tobago
Guam		Panama		Tunisia
Macau				United Arab Emirates

In its announcement on December 5 the EU noted that these seventeen jurisdictions had "taken no meaningful action to effectively address the deficiencies [identified by the EU in relation to their tax legislation and policies] and do not engage in a meaningful dialogue…that could lead to…commitments" to resolve issues raised. The EU confirmed that the jurisdictions will remain on the Black List until they meet certain criteria it identified in a publication of November 8, 2016 in relation to tax transparency, fair taxation, and the implementation of the OECD Base Erosion and Profit Shifting (BEPS) package.

In addition the EU published a Grey List containing a total of 47 other jurisdictions, and identified one or more specific ongoing concerns in relation to each of those jurisdictions.

The jurisdictions on the Grey List are:

Armenia		Guernsey		Niue
Aruba		Hong Kong		Oman
Belize		Isle of Man		Peru
Bermuda		Jamaica		Qatar
Bosnia and Herzegovina		Jersey		Saint Vincent and Grenadines
Botswana		Jordan		San Marino
Cape Verde		Liechtenstein		Serbia
Cayman Islands		Malaysia		Seychelles
Cook Islands		Maldives		Swaziland
Curaçao		Mauritius		Taiwan
Faroe Islands		Montenegro		Thailand
Fiji		Morocco		Turkey
FYR Macedonia		Nauru		Uruguay
Georgia		New Caledonia		Vanuatu
Greenland				Vietnam

In its conclusions on the Grey List the EU described these 47 jurisdictions as presenting concerns in relation to the criteria published on November 8, 2016 referred to above, and noted that it will continue to monitor the implementation of agreed steps to address the identified deficiencies. The stated purpose of the Grey List is therefore to act as a spur to continuing reform and progress in these jurisdictions.

Having expressed its sympathy for jurisdictions hit by the severe hurricanes in the Caribbean this year, the EU has put its screening process for eight Caribbean jurisdictions on hold.  These jurisdictions are: Anguilla, Antigua and Barbuda, Bahamas, British Virgin Islands, Dominica, Saint Kitts and Nevis, the Turks and Caicos Islands, and the United States Virgin Islands. Contacts with those jurisdictions will resume by February 2018, with the screening process in relation to those jurisdictions to be completed by the end of 2018.

While there is much to debate and dispute as to the allocation of jurisdictions to these lists, it should also be noted that the EU excluded from consideration EU member states themselves. This spares from consideration Gibraltar, as it is (pending BREXIT) formally part of the EU. After BREXIT there will be no bar to the United Kingdom or Gibraltar being considered for inclusion on either list.

In the run up to the publication of the lists, there was much speculation as to the sanctions and punishments that the EU would impose on jurisdictions included in the Black List. It had been suggested the EU could impose an EU-wide withholding tax on financial transfers into such jurisdictions, as well as a transfer tax on transfers out of those jurisdictions. While such measures may be adopted if the European Commission considers blacklisted jurisdictions to be continuing to be non-cooperative, in the short term the EU has decided to leave the question of the imposition of sanctions to the individual EU member states themselves.

This decision undercuts one of the stated purposes of the Black List – namely that of replacing the existing patchwork of national measures against non-cooperative jurisdictions with a coordinated approach by the EU. Nonetheless, inclusion on the Black List signals the EU's view that a particular jurisdiction fails to comply with tax good governance standards. This carries with it a measure of reputational damage for the jurisdictions in question vis-à-vis investors.

Clients and friends operating in the United Kingdom or in Europe may well have become familiar during the course of this year with the need to conduct a "risk assessment" for the purposes of complying with the EU's Fourth Money Laundering Directive (implemented in the United Kingdom, for example, by The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017). One of the risks to be assessed as part of such work is "geographic risk", with the assessing body required to take into consideration published views of international bodies. The publication of the Black List and Grey List should now be taken into account in the conduct, or periodic review, of that risk assessment. Those conducting risk assessments may need to consider the appropriateness of enhanced due diligence for entities incorporated in, doing business in, or with links to jurisdictions included on either list.

Clients and friends operating in the United Kingdom may also have completed, or be embarking on, a similar risk assessment under the United Kingdom's Criminal Finances Act 2017 regarding the "failure to prevent the facilitation of tax evasion" offences. Our recent  client alert on these offences can be found here. Again "geographic risk" forms part of such assessments. As in the AML sphere, best practice will be to take account of the EU's Black  List and Grey List in the conduct of, or periodic review of, such a risk assessment. Operations in these jurisdictions (especially those blacklisted) or work relating to these jurisdictions may require enhanced scrutiny as part of any risk assessment, and, where necessary, possibly enhanced controls or training as part of the implementation of "reasonable prevention procedures".

When it comes time to update a company's Bribery Act risk assessment, again the impact of these lists should be considered as part of that process.

Finally, it is worth noting that these designations are relevant only with respect to the EU. In the United States, for example, no such list has been proposed to date, and the imposition of sanctions by EU member states is not expected to have any direct US legal or tax consequences for entities from the blacklisted jurisdictions.

We will continue to monitor developments and will provide an update when the EU makes its decision in 2018 on eight outstanding Caribbean jurisdictions.

 

 

 

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People

 

Airbus SE: Top Management Succession Plan announced

The board of directors of Airbus SE has decided on a series of executive changes to ensure an orderly succession in the leadership of the company.

The long-term CEO Tom Enders decided not to seek a further mandate beyond April 2019, when his current mandate ends after 14 years at the helm. At the same time, the company announced that the COO Fabrice Brégier will step down in February 2018 and pursue other interests. His successor will be Gulliaume Faury, who is currently the CEO of Airbus Helicopters.

As a background information to his decision, Enders said that in the coming 16 months he will work with the board to ensure a smooth transition to the next CEO. Also, he plans to focus on business challenges and will further progress and strengthen the ethics and compliance programmes. Earlier this year, Airbus released that the investigations initiated by the UK´s Serious Fraud Office and France`s Parquet National Financier following self-disclosure by Airbus to the UK authorities are ongoing. The outcome of these investigations could have a material impact on the financial statements, business and operations of Airbus. 

 

Deutsche Börse: New CEO appointed

The supervisory board of Deutsche Börse has appointed Theodor Weimer as the new CEO of the company with effect of 1 January 2018 for a period of three years. This appointment follows the resignation of Carsten Kengeter with effect of 31 December 2017, which came with the explanation that this step would allow the company to focus its energy back onto clients, business and growth and to avoid further burdens caused by the ongoing investigation.

The news release did not indicate any intentions of the members of the supervisory board to join Mr. Kengeter´s initiative.

 

 

Pfeiffer Vacuum Technology: CEO Manfred Bender dismissed with immediate effect

The supervisory board of Pfeiffer Vacuum Technology decided unanimously to dismiss Manfred Bender from his position as CEO with immediate effect for important reasons on November 27^th, 2017. However, the company did not disclose the reasons for this decision.

In October 2017, the district court of Wetzlar appointed Ms. Ayla Busch as a member of the supervisory board and since Ms. Busch took over the chairmanship pf the supervisory board. Pangea GmbH, a company owned by Busch SE, made a takeover offer for Pfeiffer Vacuum Technology in June this year.

 

Covestro appoints new CFO

With the appointment of Dr. Thomas Toepfer as the new CFO, Covestro´s supervisory board finally closed an important gap in the management team. The new CFO will be released from his current position as CFO of KION effective 31 March, 2018.

After the surprising resignation of the former CFO Frank H. Lutz in June this year, the CEO Patrick Thomson had to take over finances and act as an interim CFO. A few days ahead of the resignation of Mr. Lutz, Covestro did announce that Patrick Thomson will complete his contract as expected on 30 September, 2018, while Dr. Markus Steilmann has been appointed as his successor.

 

 

 

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Capital News

 

STADA Arzneimittel AG: Final chapter in the takeover bid started

The turbulent takeover of STADA by Bain and Cinven (the “investors”) entered its final stage with the publication of the conclusion of a profit and loss transfer agreement between STADA as the controlled company and Nidda Healthcare GmbH as the controlling company. Nidda is the investment vehicle of the two instutional investors. The agreement offers outstanding shareholders in STADA a cash compensation of 74.4 EUR per share. In addition, the agreement provides for a recurring compensation payment of 3.82 EUR gross (3.53 Euro net at current tax rates) per share for investors who want to stay as shareholders instead. The initial price offered by the investors amounted to 66.25 EUR per share. This bid resulted in the acquisition of approximately 64.5 percent of the equity of STADA. A substantial block of the outstanding shares are held by Elliott (Paul Singer). The profit and loss transfer agreement is subject to approval of a planned AGM.

 

Steinhoff International: Shareholders are advised to exercise caution

These are turbulent days for everybody involved in Steinhoff. On 6 December 2017 the supervisory board advised that new information has come to light which relates to accounting irregularities requiring further investigation. On the 14^th, the supervisory board formed the view that based on section 2:362 (6) of the Dutch Civil Code the 2016 consolidated financial statements will need to be restated and can no longer be relied upon. At the same time, recent weeks saw several changes in the management team, and rising concerns with banks. Hence, at a meeting with its bankers on 19 December 2017, the company admitted that “the recent announcements have had a destabilizing effect on the group that will need to be addressed in order to preserve value for all stakeholders.” With a total debt of 10.7 bn EUR as of 14 December 2017, it is therefore not a bad conclusion that “continuing support from the group´s creditors and other stakeholders will be required to maintain stability and to provide the required time to address the current issues and preserve value for all stakeholders”.

 

Uniper SE: Not (yet?) in love with Fortum

This month, Uniper disclosed its earnings targets for next year and the dividend policy. While the outlook for 2017 has been confirmed with an EBIT auf 1.0 to 1.2 bn EUR, the effects of the sale of assets will contribute to a decline of the adjusted EBIT to 0.8 to 1.1 bn EUR. At the same time, though, the company announced that the dividend proposal for next year shall be 25 percent up on this year. Furthermore, Uniper expects to raise dividends until 2020 by an average 25 percent per year. At the same time, management confirmed its view on the voluntary public takeover (at 22 EUR a share, including 0.69 EUR dividends) offer from Fortum. In a joint statement on this offer, Uniper´s management board and its supervisory board came to the conclusion that the offer does not reflect Uniper´s true value, Also, according to the statement there is no recognizable contribution to a better development perspective for Uniper. While this sounds a bit like the usual “please do not touch”-wording, a new player entered the scene and might well contribute to a higher offer price at the end. According to a voting rights announcement published on 19 December, the Paul Singer controls 7.38 percent of the voting rights. It is not really likely that this investor is interested in a regular dividend increase.

 

BASF underpins commitment to agriculture

Agriculture has always been an important part of BASF´s portfolio. But in retrospect, one gets the idea that it never was in the forefront of the strategic planning. For example, the competition regrouped to form so-called integrated businesses, combining seeds, chemicals and more recently information technology over the course of recent years, leaving only marginal room for the remaining smaller and midsized independent players for profitable growth.

With the announcement of the acquisition of Monsanto by Bayer, it became apparent that BASF had to come to a decision about the future of its agriculture business. Hence, the agreement to acquire significant parts of Bayer´s seed and non-selective herbicide businesses by BASF did not come as surprise. The deal demonstrates once more the clever orchestration of the Monsanto-acquisition, with Bayer receiving Euro 5.9B for the sale of businesses with a sales volume of Euro 1.3B and an EBITDA of around Euro 385M for 2016. Needless to add that it is subject to the closing of Bayer´s acquisition of Monsanto.

 

K+S Group provides a very long term perspective

Shareholders of K+S Group are probably very patient people, waiting for longer-term orientations from time to time. And typically they tend to look into the future. But occasionally it is worthwhile to pay attention to the recent past. One year ago, the K+S management explained to shareholders at the AGM that a discussed takeover bid at 41 Euro was not sufficient. Since, a mixed news flow kept the share price well below this line. What is more, in August K+S announced that the target “of achieving consolidated EBITDA of around € 1.6 billion in 2020 is not realistic anymore”.

This is not the kind of news flow shareholders are looking for. But with the recent publication of its “Shaping 2030” Group strategy”, K+S replaced this picture with new long-term expectations for its shareholders. The new strategy goes to “reposition a manufacturing-driven company into a market-focused, customer-focused enterprise”. K+S expects an annual positive earnings effect of at least € 150 million p.a. by the end of 2020 and plans to become Free Cash Flow positive by 2019. The indebtedness (Net debt/EBITDA) is to be halved by 2020, helping to regain an investment grade rating in 2023. So far, so good, but the real news is the ambition for 2030: € 3 billion EBITDA with at least 15% Return on Capital Employed.

Unfortunately the share price did not react on this news and remained at approx. 21 Euro. But well, at least shareholders with a long term investment horizon can relax. With 2030 in mind, even an average of 5% p.a. should be sufficient to surpass the 41 Euro line.

 

Thyssenkrupp: Combination of European steel activities with Tata Steel

Thyssenkrupp announced the signing of a memorandum of understanding with Tata Steel to combine their European steel activities in a 50/50 joint venture. The new entity is set to have pro-forma sales of about 15 billion Euro and a workforce of about 48,000. Shipments are envisioned to be about 21 million tons a year. The expected annual synergies are 400 to 600 million Euro.

The transaction with an expected closing towards the end of next year has been expected for a while and tackles the structural challenges of the European steel industry. At first glance, this looks like a great transaction for both partners. But pay attention to the details, since 50/50-constellations tend to be unstable. Also, the move means a lot to thyssenkrupp´s corporate culture. There are definitively more chances than risks involved. Nonetheless, investors are probably well advised to keep an eye on the corporate governance aspects, though.

 

E.ON: Not everybody embraces Fortum

Shareholders reacted positive on the recent publication of so-called advanced negotiations regarding an agreement according to which the company would have the right to decide to tender its remaining Uniper stake in the course of a public takeover offer by Fortum in early 2018, offering the opportunity to dispose of its 46.65 % holding in Uniper SE. Fortum`s offer (to all Uniper shareholders) would comprise a cash consideration with a total value of 22.00 Euro per share.

Despite the positive reactions of its shareholders and the share prices of the companies involved, the Uniper CEO demonstrated a cool stance, stating that “this unsolicited takeover offer is clearly not in line with the strategy of Uniper as recently reiterated publicly.” Uniper is currently not in discussions with either of Fortum or E.ON in regard to the unsolicited and conditional transaction proposals described in their respective statements. If and when appropriate, the Supervisory and Management Boards of Uniper will evaluate any forthcoming specific proposal in detail and in the interest of the company and all its stakeholders.

Dear Mr. Schäfer, there is no need to hide behind unspecific and unknown interests of the company and all its stakeholders. This type of encrusted bureaucratic statements may have been ok in the old days as a monopoly player. Not any more, sorry.

 

zooplus AG: “Investing in accelerating growth” sends the share down

The leading online retailer for pet supplies published a very clever profit warning. According to the news, the company plans to invest more heavily in acquiring profitable new customers to achieve a sustainable acceleration in sales growth. As a “result”, the management board of zooplus AG decided to revise its 2017 full-year target range for earnings before taxes (EBT) from Euro 17 – 22 M to a single-digit million amount.

So, the year is nearly over, and as a result of the decision to invest an amount of perhaps Euro 15M gets lost? Maybe, but the share price reaction tells us that shareholders did not buy the story. Besides, how can you “significantly accelerate the company`s growth in the third and fourth quarter”, if at the time of the announcement (i.e. September 15^th) the third quarter is nearly over and the company still “plans to invest more heavily”?

 

 

 

 

 

 

VIPsight - 3rd Edition 2017

 

COMPANIES

 

Merck KGaA: Next strategic move under preparation

Following the completion of the sale of its biosimilar business to Fresenius, Merck KGaA prepares for the next strategic move. The company announced that it is looking into options for its consumer health business, including a potential full or partial sale of the business as well as strategic partnerships. The consumer health business with its portfolio of Over-the-Counter products delivered sales of €860 million in 2016.

The initiative fits into the corporate strategy. Merck undergoes a transformation process into a science and technology company limiting the amount of resources available to finance the growth of other areas. Consequently, the announcement concluded that any possible proceeds for a potential transaction would be used to deliver on the company´s overall financial targets.

 

Steinhoff International rejects allegations

In a press release, Steinhoff International rejected allegations of dishonesty made by the German magazine Manager Magazin and said that substantial facts and allegations in the magazine are wrong or misleading. The furniture giant also reminded investors that already on December 4^th, 2015, the company confirmed that one of its German subsidiaries has been involved in an investigation regarding the adherence to certain provisions of the German GAAP. In the meantime, though, legal and external audit companies appointed by the company to investigate the matter independently came to the conclusion that no evidence exists that any of the transactions concerned can give rise to any contravention of any provision of German commercial law and topics were reflected correctly in the financial disclosures. Also, Steinhoff added to the statement dated August 24^th, 2017, that the group`s relationship with a joint venture partner ended in disputes which are subject of several ongoing legal proceedings.

According to the press release, it is evident that the former joint venture partner abuses the press as part of a “process of litigation.” According to the market reaction, though, it is evident that some shareholders are concerned.

 

Pfeiffer Vacuum: Request for an extraordinary shareholders meeting received

Following two unsolicited takeover bids earlier this year and a turbulent AGM in May, Pfeiffer Vacuum informed about a request to convene an extraordinary shareholders´ meeting by Pangea GmbH, which is an investment vehicle of the Busch-group. According to the company, the agenda of the meeting is supposed to include the recall of two members of the supervisory board, including the chairman of the supervisory board, and the election of two new members. In addition, the meeting shall decide on the appointment of a special auditor to examine the conduct of the management board and the supervisory board in connection with the takeover bids, as well as the takeover of Nor-Cal Products, Inc., by Pfeiffer Vacuum.

While the message concludes with the information, that the company will consider the proposal and convene a meeting if the statutory requirements are met, a second release states on the same day that the chairman of the supervisory board Dr. Michael Oltmanns will resign form this position, effective October 25, 2017.

 

Südzucker: Set to be released into the wild….

A major discussion topic at this year´s Südzucker AGM has been the end of the European sugar quota and beet price regulations, effective September 30, 2017. At this point in time, it is still unclear what is going to happen when the markets are liberalized and subject to (relatively) free competition. However, what became very apparent at the meeting is that Südzucker is well aligned to benefit from the new environment. Effectively, more than 40 percent of Group turnover have been subject to this regulation so far, restraining the company, but also the competition.

The company cautioned the expectations of the audience with reference to the expected future sugar price volatility. But it should be noted as well that as a consequence of the European regulation Südzucker controls substantial underutilized capacities it can set into full production without having to make substantial investments. The result is likely to be additional sugar going into exports, potentially up to a 20 percent or more production increase, which could generate an additional earnings impact.

 

 

 

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Buhlmann's Corner

 

One share – one vote

That was a popular saying many years ago when I was young, which indeed may be why it has been universally forgotten. The number of shareholder votes cast in France increases in accordance with investments, but also because there is an underlying trend for people to no-trade and leave the shares untouched. In China a giant IP ended up in the portfolio of institutional investors in a dearth of transparency not at all what is to be expected of a selling company of that stature.

Are there any pennies dropping here? Standard and Poors closed its S&P500 indicator listings with non-voted stock and snapchat as the last item. Their royal majesties, sovereigns of the gulf of # wanted to make the running for everyone but were instead brought to a halt. Their intention was to use ARAMCO to shift 1/20 into the pension fund which in turn would be managed according to the rules governing fiduciaries, a move that would have rendered null all voting rights even under the legal systems of such countries as Germany, the Bahamas or even Finland. There, the majority shareholder may do as he pleases.

And that is just what he did, firstly slashing the taxes to almost half which almost doubled the price of oil. If, instead, the king so desires the power (and worth) of ARAMCO will continue to be at the royal beck and call. Taxation now here, now there, oil cartel prices now up now down. Presently the effect will make itself felt in the pension of the retired Californian school teacher. I wonder if she knows – I wonder if she minds.

Insofar as experience is a learning curve, Deutsche Börse is feeding us a diet rich in experience, but what’s the endgame?

Some get the shares, some get the debts is the name of the game with insider knowledge an optional extra. It‘s pointless talking to the top management at DeutscheBörse AG. If they knew, they are just barefaced bad, plain and simple. If instead they didn’t know, they were unfit to be the bourse’s doormen.

See appear the long arm of the law striking a deal worth 10.5 million Euros so that Carsten Kengeter chairman of the board of management may be allowed to keep the shares that Paul Achleitner & Co managed to get to him. And so the question is if Kengeter gets to keep the shares, who gets to foot the bill?

What are we dealing with here? The fiduciary managed share capital of a company or a mountain of Monopoly money to play with?

Is the majority shareholder thought to be just naïf because he can get away with anything?

Are we witnessing trust being ousted by betrayal? And what happens if the 4 million suddenly become 10? Would that be Kengeter’s problem too?

….when the shareholder pays up (10 Mio), he is entitled to a part of the increased amount. Perhaps we should retain the services of Moelis & Co. (American investment boutique) to help Deutsche Börse put its accounts in order.

And last but not least, the deal struck between Deutsche Börse and the German government states “no malfeasance has come to light” and for that to stick “someone – parties unknown – will pay 10.5 million Euros”.

One wonders if at that point, S&P will remove Deutsche Börse from its indicator listing.

Indeed: One share – all pay

 

 

 

 

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ACTIONS CORNER

 

Fresenius: Focus on external growth

Just a few weeks after the extraordinary meeting of shareholders of Akorn, Inc. approved the merger agreement with Fresenius Kabi, the group announced the next acquisition initiative. Fresenius Medical Care plans to acquire all outstanding shares of NxStage for USD 30.00 per common share, valuing the company at approximately USD 2.0 billion. NxStage has approximately 3,400 employees and develops, produces and markets medical devices for use in home dialysis and care setting. The acquisition is expected to support Fresenius` strategic initiative of vertical integration and care coordination as well as the home dialysis business. The transaction is expected to close in 2018.

With the acquisitions of Quironsalud, Akorn, Merck KGaA´s biosimilar business and now NxStage, Fresenius shows a strong bias towards external growth.

 

United Internet: Acquisition of 1&1 Telecommunications by Drillisch completed

United Internet announced that Drillisch AG acquired the outstanding 92.25% of the outstanding equity of 1&1 Telecommunication, which is now a fully owned subsidiary. As a consideration, United Internet received new Drillisch shares. The issue of these shares to United Internet had been approved at the extraordinary general meeting of Drillisch earlier this year. This step completes the overall transaction, making United Internet the dominant shareholder in Drillisch with a 73 % holding in the company.

 

Thyssenkrupp: Sale of Brazilian steel mill eases financial pressure

Following the disposal of its processing plant in the US in 2014, Thyssenkrupp completed the withdrawal from the loss making American activities with the sale of its CSA Siderúrgica do Atlântico (CSA) steel mill in Brazil to Ternium. With the closing of this transaction, the company received the consideration of €1.5 billion. The transaction reduces the Group´s net financial debt significantly, thus creating a better position in future talks with its banks.

 

Deutsche Börse: Insider allegations reach new level

Deutsche Börse announced that it received a notification of hearing from the public Prosecutor`s office in Frankfurt, notifying the company that it intends to formally involve the company in the ongoing investigation proceedings against its CEO Carsten Kengeter. The allegations relate to an alleged violation of the insider trading prohibition in December 2015 and an alleged omission to make an ad hoc notification in January 2016.

The public prosecutors holds out the prospect to fully terminate proceedings against Mr. Kengeter by mutual agreement, but at the same time it would impose two fines of EUR 5.5M and EUR 5M on the company. Deutsche Börse said it continues to believe that the allegations made are unfounded in all respects.

 

Drillisch: Takeover of 1&1 Telecommunication paves the way for the formation of a new player in the German telecommunications market

On July 25^th, 2017, the extraordinary general meeting of Drillisch approved capital increase from EUR 70.2M to EUR 188.9M. In return for the issuance of the new shares to United Internet, Drillisch will receive the 92.25 percent of the outstanding shares of 1%1 Telecommunication and thereafter will own 100 percent of this company.

The move paves the way for the formation of a new player in the German telecommunications market, combining the mobile and fixed-network business of United Internet with Drillisch´s mobile business. Drillisch said at the AGM that via the combination it can make a better use of the German network capacity of Telefonica. In total, Drillisch expects synergy effects of EUR 150M and more, beginning with the year 2020, while the one off expenses of the deal shall be approximately EUR 50M.

Following the capital increase, United Internet will own 73.1 percent of the share capital of Drillisch.

 

DIC Asset: Increasing relevance of asset management and a successful refinancing indicate a healthy earnings performance

At this year´s AGM, DIC Asset had to present a net loss for the business year 2016 to its shareholders. However, last year´s results have been impacted by one off effects of EUR 56M related to a refinancing of most of the financial debt of the group. Accordingly, the net loss for 2016 amounted to EUR 29M. However, looking forward, the refinancing of nearly one billion Euro with a new duration of seven years basically cut the interest expenses by half to approximately EUR 20M p.a. and reduced annuities, thus lowering future expenses and liquidity needs.

At the same time, the company reported progress regarding the buildup of the real estate asset management business, which increased from EUR 3.2M in the prior year to EUR 3.5M in 2016 and is expected to advance further in the current business year. In addition, the company might realize some benefits from its holding of 25.05 percent in WCM Beteiligungs- und Grundbesitz AG, which is subject to a takeover bid. The board of DIC indicated a positive view on the takeover bid for WCM.

 

 

 

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Politics

 

airberlin: EU commission approves KfW credit of € 150 million

Investors, who did not buy the Air Berlin story with its unusual corporate governance structure made the better choice. In August, the company announced its filing for insolvency proceedings with the headline: “airberlin files for insolvency | German Government offers support”.

As it turned out, the government support did not mean the filing, but rather a transitional credit of € 150 million to be granted by KfW, which was approved by the EU Commission in September.

The credit shall facility the search for investors, who are invited to make an offer for the company or parts thereof until September 15^th, 2017. Lufthansa looks perfectly positioned in this process.

 

Audi, BMW, Mercedes, Porsche, VW: How to destroy confidence

Recent weeks saw a constant flow of bad news for the German car manufacturers. Manipulation software, environmental problems, diesel bans in major cities, declining sales of diesel cars, recalls, and even criminal allegations created a climate of uncertainty with customers and shareholders. It looks like every solution found for one particular issue in this painful process was followed by several new bad news. The most recent severe topic are cartel allegations. According to newspaper articles, several car makers are believed to have disclosed on a voluntarily basis details of cartel activities to the relevant authorities.

At this point in time there has been no clear statement by any of the car makers confirming these reports, though. Nonetheless, investors are concerned as is clearly indicated by share prices. Hence, as a car manufacturer it is important these days that one can rely on strong and understanding friends. Following the announcement of VW´s recent quarterly results, Goldman Sachs left the preference shares on its “Conviction Buy List”. This decision is a clear statement. But it is also consequent, since preference shares carry only marginal governance rights. So one might argue it simply doesn`t matter, does it?

 

 

 

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People

 

STADA Arzneimittel AG: Resignation of members of the Supervisory Board

Bad Vilbel, August 2017 STADA disclosed that Carl Fredinand Oetker (Chairman of the supervisory board)), Rolf Hoffmann, Dr. Birgit Kudlek, Tina Müller and Dr. Gunnar Riemann have resigned from their positions on the supervisory board with effect from the end of September 25^th, 2017. Dr. Eric Cornut will continue his position as a member of the Supervisory Board. The release did not specify if the employee representatives on the supervisory board will step down as well.

According to Ferdinand Oetker, with the announcement of the beginning of negotiations for a domination and profit and loss transfer agreement, “we view our task in the context of the ownership changes to be complete. We have therefore decided to step down from our posts”.

The “we” seems not to include the supervisory board member Dr. Eric Cornut. Also, the step may be a bit premature, given that the beginning of negotiations does not necessarily guarantee a successful conclusion by September 25^th, 2017.

 

 

 

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Capital News

 

Commerzbank: Ceberus acquires substantial shareholding

On July 26^th, Cerberus announced a shareholding of 5.01 percent in Commerzbank AG, thus confirming prior market speculations. The news reflects regained institutional interest in the bank. Following the acquisition of Dresdner Bank, Commerzbank had to deal with a severe crisis, requiring massive capital injections by shareholders and the German government to keep the bank afloat.

The investment by Cerberus can be interpreted as a signal for a new confidence in the company, but the intentions of the new investors need to be seen. Apart from the 5 percent holding by Cerberus, the German government still owns 15 percent, while Blackrock and Capital Group are other important shareholders in the bank.