VIPsight - 1st Edition 2017

 

COMPANIES
 

Continental: Joint venture with Nexteer Automotive in Motion Control Systems announced

During a press conference at the North American International Auto Show, Nexteer Automotive and Continental announced their agreement to form a joint venture focused on the advancement of motion control systems and actuator components for automated driving. This joint venture will combine Nexteer’s advanced steering and driver assistance (ADAS) technologies with Continental’s portfolio of Automated Driving and advanced braking technologies.
Nexteer and Continental will hold an equal 50-50 percent ownership position in the joint venture.  The joint venture will focus on research and development activities including rapid evaluation, design and prototyping. Pending regulatory approvals, it is expected that this project will be operational in the first quarter of 2017.

 

Welcome home, Deutsche Bank

Many people regard Volkswagen as the prime example to demonstrate the high cost of poor corporate governance. But, in fact, one might as well turn to Deutsche Bank with its many expensive strategic turns and twists in recent years. Some years ago, the Bank could easily absorb the costs of poor leadership. More recently, however, it looks like growing concerns about the solidity of the bank and its local presence in the market became the most important element in the bank`s decision making process.

On March 5^th, 2017 the bank announced the next strategic refinement. While the intended capital increase and asset disposals strengthen the equity basis and make it easier to deal with the remaining so-called “legal issues” (namely, the results of inappropriate behavour), the “re-integration” of Postbank marks an important strategic milestone – a new focus on the home market. The decision may come a little late, and perhaps it was enhanced by potential valuation issues with the initially planned sale of Postbank. But it looks like the natural thing to do since investment banking windfall profits largely disappeared from the screens. So welcome back at home, Deutsche Bank.

 

Deutsche Post DHL Group: UK Mail acquisition completed

Following the UK Mails shareholders resolutions at the General Meeting and the Court Meeting on November 18, 2016, the acquisition of UK Mail by Deutsche Post DHL was granted unconditional clearance by the European Commission on December 16, 2016. The UK Mail`s Scheme of Arrangement effecting the acquisition was sanctioned by the High Court of Justice in England and Wales on December 29, 2016.
DHL Parcel expanded its cross-border network since 2014 to cover 18 European countries. With the acquisition of UK Mail´s operations, Deutsche Post DHL Group added the nationwide infrastructure, a motivated team and high quality service capabilities to the European parcel network of Deutsche Post DH, according to Jürgen Gerdes, Deutsche Post DHL Group Board Member Post – eCommerce – Parcel.

 

METRO GOUP: Release of further details of the Demerger

At the Capital Markets Day in Düsseldorf, METRO GROUP released further details of the planned demerger. The wholesale and food business will operate under the corporate brand METRO, while the consumer electronics division will operate under the brand CECONOMY.
The new METRO AG is positioned as internationally leading specialist in wholesale and food retail, and primarily comprises METRO Cash & Carry, in addition to delivery specialists and other companies. The second activity under the new roof is Real, a large-scale, full-range supplier (hypermarket) in the food retail sector in Germany. As a benchmark for the distribution of dividends, the future METRO AG confirmed a targeted range of 45 to 55% of the company´s earnings per share.
CECONOMY is the holding company of Media Saturn, the European number one in consumer electronics on the basis of its sales of €22B (fiscal year 2015/16). In the past two years, Media Saturn hat increased sales and improved profitability. In principle, the company intends to base its dividend payment on a payout ratio of 45 to 55% of the earnings per share.
While it is intended that the former METRO AG will continue to exist as future CECONOMY AG and will constitute the consumer electronics business, it is planned that the wholesale and food specialist will be spun off as an independent, stock-listed company and will operate under the established name of METRO. The separation will be proposed to shareholders at a 1:1 ratio.
The AGM of METRO AG will vote on this demerger on Feb. 6, 2017. The Management Board of the former METRO AG expects that both companies will meet the MDAX criteria.

 

BASF: BASF continues with its portfolio optimization with the sale of its industrial coatings business and the acquisition of Chemetall

BASF has completed the sale of its global industrial coatings businesses to AkzoNobel. The transaction includes technologies, patents and trademarks, as well as the transfer of dedicated production sites in Deeside, United Kingdom, and Vanderbijlpark, South Africa. As a result of this transaction, AkzoNobel will now operate the global coil, furniture foil and panel coatings, wind coatings and general industry businesses acquired from BASF, as well as the commercial transport business in EMEA. These businesses generated sales of approximately €300M in 2015.The remaining portfolio of the Coatings division consisting of the automotive OEM and automotive refinish coatings businesses, as well as the decorative paints business with the leading brand Suvinil® in Brazil, had sales of approximately €2.9B in 2015.
The Coatings business has been further strengthened with the acquisition of Albemarle`s global surface treatment business, Chemetall, this week. Through this acquisition, BASF’s Coatings division expands its portfolio to become a more complete solutions provider. Chemetall’s sales for the full calendar year of 2015 were $845M. To prepare for a seamless integration, BASF has established a Global Integration Management Team, which will ensure business continuity while maintaining a clear priority on meeting customer needs.

 

Allianz: Allianz and HypoVereinsbank conclude sales collaboration

HypoVereinsbank (part of UniCredit) announced that Allianz will be the new insurance partner as of January 1, 2018. The collaboration widens the product range offered to the bank`s customers to include life, property and health insurance solutions. Customers will have access to advisers from HypoVereinsbank and Allianz for holistic and needs-oriented consultation. The personal consultation will be complemented by online packages and services. Allianz is using the collaboration to further expand sales through banks as part of its growth initiative, while HypoVereinsbank expects a strengthening of its market position and significant revenue potential.
As of December 31, 2017, the new collaboration with Allianz will replace the previous partnership of UniCredit’s HypoVereinsbank with the Ergo Group. HypoVereinsbank customers’ contracts with Ergo will remain in force. As of January 1, 2018, customers can only enter into new insurance contracts with Allianz, if going through the bank. Details of the new collaboration will be communicated prior to the launch.

 

Covestro: Easier Access to U.S. Capital Market

Covestro initiated a Level 1 ADR program with the intention of easing access to its shares for global investors. Covestro`s ADRs have been trading on the U.S. OTC (Over-the-Counter) market since December 1, 2016, under the trading symbol COVTY. The program enables the company to make direct contacts with registered depositary receipt investors. Through the sponsored ADR-program, Covestro wants to broaden its shareholder base for the long term and simplify access to its shares. In addition, the program enables the company to offer its employees in the U.S. the opportunity to take part in the company`s share participation program, which is expected to be launched in 2017.
The financial services provider Bank of New York Mellon was chosen as the depositary bank for the sponsored ADR program.

 

Biotest: Altered Tax Assessments lead to decrease of claims against Biotest

Biotest received revised tax assessments for corporate tax, solidarity tax and trade tax for the years 2005 to 2008. The revisions related to Biotest´s Russian business. The new assessments result in a decrease in tax and interest expenses of €6.9M. The company announced that it accepts the new assessments. At the same time, Biotest informed that it is in advanced discussions with the investigative authorities as to the completion of the summary proceedings regarding a fine. The prosecutor has already applied for the fine at the responsible court. The resulting liability of €1.0M was already set aside as provision in the September 30, 2016 results. Also, the authorities discontinued the investigations against several defendants from Biotest, but continue the investigations against three of the company´s managers.

 

Grammer: Demand from minority shareholder to get influence on the board composition rejected

In a voting rights notification published by the investor Cascade International Investment GmbH, Cascade demands the right to exert influence on the composition of Grammer AG’s Executive Board and Supervisory Board. With one exception, Cascade intends to replace all existing shareholder representatives on the Supervisory Board. According to Grammer, the nominees of Cascade are nearly all present or former employees of the Prevent Group, which is controlled by the Hastor family, and in addition, Cascade intends to dismiss the Chief Executive Officer of Grammer AG.
 
Grammer said that, according to publicly available information, Cascade, who is a 10.001 percent shareholder in Grammer, is a wholly owned subsidiary of Eastern Horizon Group Netherlands, in which the two sons of the entrepreneur Nijaz Hastor, Kenan and Damir Hastor, jointly hold a majority interest. In addition, Kenan and Damir Hastor are currently also the sole shareholders of Halog GmbH & Co. KG, which holds a further 10.22 percent stake in Grammer. 

Grammer AG’s Executive Board and Supervisory Board stated that they are unequivocally committed to the continuation of the “successful corporate strategy and independent corporate governance in the interests of all shareholders and stakeholders” and therefore rejected Cascade’s demands. In a side remark, Grammer also stressed that important customers are also observing the changes in the shareholder structure and holdings of the Hastor family in Grammer AG very closely.

 

Clearstream sees GSF volume shortfall

Clearstream’s global securities financing average outstanding volume fell by 14 percent in 2016. The clearinghouse recorded €515.9 billion in outstanding volume for the year, down from €598.6 billion in 2015. Clearstream also ended the year with its December global securities financing (GSF) volume missing compared to €542.1 billion 12 months before. Clearstream is on the cusp of finally going live on the Target2-Securities (T2S) platform as part of the initiative’s fourth phase of implementation on 6 February, which will include the large German market. Even when prospected there is no combined start with Euroclear who is behind schedule. As two of the largest EU clearinghouses to utilise the platform, it was deemed impractical to initiate both in the same phase. Clearstream alone is expected to bring about 40 percent of the overall volume to the settlement platform.

 

 

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Buhlmann's Corner

 

Are we really looking for an endless, timeless supply of cheap stuff?

They say there are always two ways of looking at things, and the victory of Donald J. Trump in the US presidential election is no exception. He is the living proof that the political, economic and intellectual élite was swept away because they had completely lost touch with reality.

Basing government decisions on “alternative” facts is of course bound to give rise to doubts and misgivings. Despite the absence of constraints marking the actual boundaries beyond which lies meta-reality, these facts do raise hopes and expectancies which, whether we like it or not, are vested with a measure of democratic legitimacy. As Clemens Vedder so apply put it “while reality used to be taken at face value, it has now become the raw material to be skewed, shaped stretched and shrunk from which to prepare the big picture.”

“First Lady” has become a label with its own commercial value – nowadays estimated at 150 million US$. With the security of her position comes the presidential seal of approval “by appointment” and can be used for everything from cosmetics onwards or - perhaps backwards - for lingerie.

And here lies the crux of the issue. Do we want to keep on buying stuff on the cheap or do we upscale to “Made in Slovenia” with Melania. Are we like the judges on the west coast who cast their vote by a headcount or a show of hands, or do we delegate someone else to do it in our stead.

I get the feeling that we much prefer following the advice of A.I. as to how to manage our investments in stocks and shares or put our money to use in algorithmic-piloted funds. Perhaps even in a ETF where “real” shares – the ones that have a measure of consequence in our daily life – are listed away at the end after all the sections for derivatives.

How, or rather who should shoulder the burden of responsibility when own capital management is the point at issue insofar as it affects one’s business partners and environmental requirements, as well as playing an active part by voting at the AGM. That may be how we like it and we’re even relieved that other shoulders are taking the burden. Isn’t it just a pity, though, that we felt for these things until just yesterday or so it seems, while today we’re delegating the job to someone else about whom we know very little.

Trump is assuredly a crafty Someone Else. His supporters vote for him instinctively because he gets things done. They have little regard for what these things are or are not, what he is, and whose interests they serve. They set examples for the Wilders and the Le Pens and they turn the clock back. One of these days we will be remembered as the generation who asked the banks to fund newly legitimised, environmentally hostile initiatives such as oilsands and pipelines They will also thank the insurance companies for underwriting the projects. For now, we enthuse about investors – oil funds, collection points etc – whose vote is all in the wrong direction, and how Allianz Global Investors sell off their coal-based investments or allow them to expire, so consigning them into the hands of the Someone Else.

When are we going to tell pensioners what values comprise the nest-egg they rely on for survival in their later years, and what decisions we or Mr. Someone Else take in accordance with these values? When will we agree on the price to pay for democracy? You can’t download responsibility from the Internet, just as you can’t shrug it off. You can’t turn a blind eye, fool yourself it doesn’t exist or make believe your name is Winterkorn.

If the Supervisory Board of Deutsche Bank is made up of an élite that claims no compensation from those found guilty of multi-million euro felonies, it means that our own domestic élite has cheapened itself. Why on earth should money be spent on getting third-party assays. In a state of law you speak to the courts directly. If the law courts reject the claim, then the élite in Deutsche Bank under Breuer and Börsig failed in their duty because they signed the wrong contract, and no matter what the press says, those involved were not Jain or Fitsche because it all began after Ulrich Cartellieri.

 

 

 

 

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Politics

 

Volkswagen: Settlement with private plaintiffs and U.S. Federal Trade Commission reached

Volkswagen AG and Volkswagen Group of America, Inc. have reached proposed agreements to resolve outstanding civil claims regarding approximately 78,999 affected 3.0L TDI V6 diesel engine vehicles in the United States. Two agreements have been submitted to the Court for approval concerning a class settlement with private plaintiffs on behalf of a nationwide class of current and former owners of 3.0L TDI vehicles, and a proposed Consent Order submitted by the U.S. Federal Trade Commission.

With the 2.0L TDI program already on the way, this settlement would cover the remaining “diesel affair”-vehicles and offer resolutions to the customers. The settlement includes a set of actions, including vehicles to be recalled and repaired, free of charge to the customer, in order to bring them into compliance with the emissions standards to which they were originally certified, and buy back or offer trade-in credits of equal value for other cars. The program will start as soon as the Court grants final approval to the settlement agreements. At the earliest, approval will occur in May 2017.

 

Volkswagen: Settlement with US authorities on the so-called “diesel matter” reached

Volkswagen AG confirmed that it has reached an agreement with the US Government Department in order to resolve criminal and federal environmental and other civil claims against the company relating to the so-called “diesel affair.” As part of the settlement, Volkswagen has agreed to pay penalties and fines totaling $4.3B, as well as implement a series of measures to strengthen its compliance and control systems, including the appointment of an independent monitor for a period of three years. The resolution comprises four settlements, including a plea agreement with the U.S. Department of Justice. The plea agreement is accompanied by a published Statement of Facts that lays out the findings and facts established as to the origins and evolution of the misconduct in the “diesel affair”.

Volkswagen also stressed that since the end of September 2015, the company has taken significant steps to address the “diesel affair” and to realign the group. The initiatives implemented include enhanced operational processes, and reporting and control systems to ensure responsibilities are clear; a more robust whistleblower system and new, stricter standards in its emission testing practices. Volkswagen has substantially elevated its commitment to working ethically and with integrity and is decentralizing how Volkswagen is managed by granting its brands and regions much more autonomy. According to the statement, these and other substantive actions across the group are part of a broader transformation of Volkswagen´s corporate culture in order to create a more entrepreneurial and international organization.

 

 

 

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People

 

BASF: New Faces on the Board of Executive Directors of BASF

The Supervisory Board of BASF SE appointed Saori Dubourg (head of Health & Nutrition division) and Dr. Markus Kamieth (Head of Coating division) to the Board of Executive Directors, effective May 13, 2017.
Margret Suckale (60) will retire with the expiration of her contract following the annual shareholders’ meeting on May 12, 2017. At the same time, Dr. Harald Schwager (56) will leave BASF’s Board of Executive Directors in support of long-term succession planning. Schwager was appointed to the Board in 2008 and is currently responsible for the divisions Construction Chemicals; Crop Protection; Bioscience Research; and Region Europe. Suckale has been on the Board since 2011. She is Industrial Relations Director and responsible for the division’s engineering & maintenance; environmental protection, health & safety; European site & network management; and human resources.

 

GfK: Shares might become a sparsity

2016 was a demanding year for GfK´s shareholders. Following the release of a profit-warning in early August, the share price collapsed. A few days later the announcement that the CEO, Matthias Hartmann, will leave the company as of Dec. 31, 2016, due to different views regarding the long-term direction of the business between him and the majority shareholder, GfK Verein, followed. In addition, the chairman of the Supervisory Board, Arno Mahlert, resigned, effective Sept. 12, 2016, due to differences of opinions in the cooperation with the majority shareholder.

The combination of profit-warning and corporate governance issues is not really what shareholders like, and accordingly the share price got under pressure. However, in early December the company surprised the market with the announcement regarding a voluntary public tender offer for GfK via a holding company (Acceleratio Capital N.V.) controlled by funds advised by KKR.

The Management Board and the Supervisory Board of GfK welcomed the all-cash-offer at €43.50 per outstanding publicly traded share, which represents a 44% weighted premium on the three months volume weighted average share price prior to the announcement. The offer was published on Dec. 21, 2016, and runs until Feb. 10, 2017. The minimum acceptance condition is 18.54% of the equity of GfK, while GfK Verein will retain its 56.46% holding.
What looked like easy sledding at first glance became a severe setback in Germany with the computer entrepreneur Michael Dell joining the scene via his MSD Capital vehicle, acquiring a 6.45% holding in GfK. According to an article in the German financial paper Handelsblatt, Dell probably bought his shares close to the offer price. The same may be true for Primestone Capital, who raised its stake in GfK from 3.21% to 5.00%.

 

 

 

 

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Capital News

 

Südzucker: Successful placement of AGRANA shares

Südzucker AG succesfully placed 500,000 AGRANA shares within the capital increase of AGRANA Beteiligungs-AG, Vienna at a price of € 100 per share. Gross sales proceeds for Südzucker amount to €50M, while AGRANA collected approximately €132M from the issue of 1.32 shares within the capital increase.

Südzucker and Zucker-Beteiligungsgesellschaft m.b.H. (Raiffeisen-Holding Niederösterreich-Wien, and others) did not participate in the AGRANA capital increase, resulting in a dilution of the joint holding company Z&S Zucker und Stärke Holding AG from 86,2 percent to 78.3 percent. Therefore, the AGRANA free load rose to 18.4 percent of the shares. Südzucker still owns 0.2M AGRANA shares for sale, and an additional holding of 1.5 percent in AGRANA. Südzucker is also entitled to exercise a majority of the voting rights in the holding company at any time, therefore enjoying a controlling influence over the subgroup
AGRANA.

 

LANXEES: Chemtura shareholders approve acquisition

LANXESS has taken a significant step forward in the planned acquisition of U.S. chemical company Chemtura. At a special meeting in Philadelphia (U.S.), Chemtura`s shareholders approved the merger with 99.88 percent of the votes cast. Under the terms of the merger agreement, Chemtura shareholders will receive $33.50 for each outstanding share in cash at closing of the transaction. Clearance from the U.S. antitrust authorities for the acquisition has already been received at the end of December 2016. LANXESS expects to close the transaction in mid-2017, after all remaining regulatory approvals have been received. 

With the largest acquisition in its history, LANXESS is building on its own additives portfolio and will become one of the world’s major actors in this growing market. Flame retardant and lubricant additives are the main pillars of Chemtura’s business and would complement the current LANXESS portfolio. After closing of the transaction, these two business activities will be integrated into LANXESS’s Rhein Chemie Additives business unit to form a new segment.

 

Deutsche Bank: Another legal issue on track

Deutsche Bank has reached settlements with the UK Financial Conduct Authority and the New York State Department of Financial Services. The settlements conclude investigations into the bank´s anti-money-laundering control function in its investment banking division, in relation to certain securities trades that occurred between 2011 and 2015, involving its Moscow, London and New York offices.
In the UK, Deutsche Bank agreed to pay civil monetary penalties of approximately £163M. The bank qualified for a 30 percent discount for agreeing to settle at an early stage of the investigation. In the US, Deutsche Bank entered into a Consent Order and agreed to pay civil monetary penalties of $425M and to engage an independent monitor for a term of up to two years. According to Deutsche Bank, the settlement amounts are already materially reflected in existing litigation reserves. The bank also stated that it is cooperating with other regulators and law enforcement authorities, which have their own ongoing investigations into these securities trades.

 

Deutsche Börse: Option to sell LCH.Clearnet SA to Euronext N.V. addresses antitrust concerns over the planned merger between Deutsche Börse and London Stock Exchange

On Sept. 26, 2016, Deutsche Börse AG announced that the London Stock Exchange Group plc and LCH.Clearnet Group Limited are exploring the sale of LCH.Clearnet SA in order to proactively address antitrust concerns raised by the European Commission. On Jan. 3, 2017, the London Stock Exchange and LCH confirmed that they have received an irrevocable all-cash-offer from Euronext to purchase LCH.Clearnet SA (the put option). Also, the terms and conditions on which any transaction would take place if the put option were exercised, including the all-cash consideration of €510M (subject to customary adjustments), have been agreed with Euronext.

A sale of LCH.Clearnet SA would be subject to review and approval by the European Commission in connection with the recommended merger of Deutsche Börse and the London Stock Exchange, the completion of LCH.Clearnet SA's works council consultation process, the approval by the shareholders meeting of Euronext and other customary conditions including relevant regulatory approvals. It would also be conditional on the successful closing of the Merger.

 

Deutsche Bank: Settlement in Principle with US-Department of Justice regarding residential mortgage-backed securities

Deutsche Bank has reached a settlement in principle with the US-Department of Justice regarding civil claims in connection with its issuance and underwriting of residential mortgage-backed securities between 2005 and 2007. The bank agreed to pay a civil monetary penalty of $3.1B and to provide $4.1B in consumer relief in the US. The settlement is subject to the negotiation of definitive documentation.

In connection with the resolution of this matter, Deutsche Bank expects to record pre-tax charges of approximately $1.17B in the financial results for the fourth quarter as a consequence of the civil monetary penalty. The financial consequences of the consumer relief, if any, are subject to the final terms of the settlement, and are not currently expected to have a material impact on the 2016 financial results. 
 

Deutsche Telekom: Strato AG sold to United Internet AG

Deutsche Telekom has reached an agreement with United Internet AG on the sale of Strato AG. United Internet is to acquire Strato through a holding structure, in which the private equity firm Warburg Pincus* will also hold a stake. The consideration for the transfer of all Strato shares to United Internet amounts to approx. €600M, representing an Enterprise Value / EBITDA 2016e multiple factor of approx. 12.4x. The transaction is expected to close during the first half of 2017.

Deutsche Telekom acquired the hosting services provider Strato for €275M in 2009. The sale is in line with Deutsche Telekom's strategy of continuing to develop into the leading European telecommunications provider. A component of this strategy is to consider options for increasing the value of business areas that can no longer be adequately developed within the Deutsche Telekom Group, through partnerships or disposals. 

Until-now, Strato has been the service provider for the hosting of MagentaCLOUD services within the Telekom Group. The planned future owner, United Internet, will continue to provide these services in the coming years. This will ensure that the data continues to be stored in Germany, which means that strict German legal requirements will be met, and that the services will be underpinned by Deutsche Telekom's data privacy and data security criteria.

 

Bayer: Key Milestone achieved - Monsanto Shareholders approve merger with subsidiary of Bayer

At a special shareholders meeting on Dec. 13, 2016, the Monsanto shareholders approved the planned merger of Monsanto with a wholly owned subsidiary of Bayer AG. Under the terms of the merger agreement, Monsanto shareowners will receive $128 per share in cash at the closing of the merger.

Based on a preliminary count of the shareowner vote, approximately 99 percent of all votes cast representing approximately 75 percent of all outstanding shares on November 7, 2016, the date of record for the special meeting, were in favor of the merger. Monsanto shareowners also approved the proposal to approve, on an advisory (non-binding) basis, certain compensation that may be paid or become payable to the Company's named executive officers in connection with the merger. The final voting results of all agenda items will be filed with the SEC in the company's Form 8-K and will also be available at www.monsanto.com/investors. 

The transaction is subject to customary closing conditions, including the receipt of required regulatory approvals. Bayer, with the support of Monsanto, has now submitted a number of filings, including the U.S. Hart-Scott-Rodino Act filing. Closing is expected by the end of 2017. 


 

Braas Monier: Amended offer and business combination agreement with Standard Industries is supported by the Braas Board of Directors

On October 14, 2016, Marsella Holdings S.à.r.l. (a wholly-owned subsidiary of Standard Industries Inc.) published a voluntary public takeover offer in the form of a cash offer to the shareholders of Braas Monier Building Group S.A., offering €25.00 per Braas Monier-share. The terms of this initial offer received a frosty welcome, as the offer price looked too low.
On December 18, 2016, the parties announced an amended offer, which the Board of Directors of Braas Monier fully supports. The new terms result in an economic value of €28.50 per currently held share for shareholders, who tender their shares into the offer.

The agreement provides for an offer price per share of €25.27. However, due to an increase in the number of shares outstanding by incorporation of reserves, the number of outstanding shares will be increased by ten percent. The new shares will be allocated to shareholders at no additional costs to them at a ratio of one new share for every then shares currently held. Shareholders will be able to tender both, their currently held shares and new shares. Finally, the agreement provides that the Board will resolve to distribute an interim dividend of €0.64 per (currently held) share.

 

Linde: Linde and Praxair announce their intention to merge

On November 30, 2016, Linde AG announced that it has received a revised proposal for the U.S. based company Praxair, Inc. concerning a potential merger of equals. The Linde Executive Board reviewed the proposal and announced that it will resume talks with Praxair on Dec. 7, 2016. All members of the Supervisory Board supported resuming the talks. Also, Dr. Wolfgang Büchele offered the Supervisory Board of Linde AG to step down as a member and chairman of the Executive Board. The Supervisory Board accepted the offer and appointed Prof. Dr. Aldo Ernesto Belloni as a member and chairman of the Executive Board, effective as of Dec. 8, 2016.

(Munich and Danbury, Dec. 20, 2016) Linde AG and Praxair, Inc. announced that the companies intend to combine their businesses in a merger of equals under a new holding company through an all-stock transaction. The companies have signed a non-binding term sheet and expect to execute a definitive business combination agreement as soon as practicable. Based on 2015 reported results, the combination would create a company with pro forma revenues of approximately €28B, prior to any divestitures, and a current market value in excess of €60B. The transaction shall create considerable value, resulting in approximately €0.9B in annual synergies.

In the all-stock transaction, Linde shareholders would receive 1.540 shares in a new holding company for each Linde share and Praxair shareholders would receive one share in the new holding company, resulting in Linde and Praxair shareholders each owning approximately 50% of the new holding company. The combined company would be named Linde, retain the globally recognized brand and would be listed on both the New York Stock Exchange and the Frankfurt Stock Exchange.

 

HeidelbergCement: All obligations in the context of the Italcementi Acquisition fulfilled

With the sale of its Martinsburg (WestVirginia) cement plant and eight related terminals to an affiliate of Cementos Argos, HeidelbergCement fulfilled an obligation of the US Federal Trade Commission. Now, the company has fulfilled all obligations in the context of the Italcementi Acquisition. The purchase price is $660M on a cash and debt-free basis. Following the purchase of shares not tendered in the mandatory offer on October 12, 2016, HeidelbergCement is the sole owner of Italcementi.

 

Aareal Bank Group: Conclusion of material litigations with holders of profit-participation rights

Aareal Bank Group has concluded material litigations concerning former Corealcredit Bank, with a ruling in the Bank`s favor. Holders of profit participation rights issued by Corealcredit Bank had sued it in connection with a reduction of repayment claims under profit-participation certificates, for fiscal years 2005 through 2008. These risks had been fully provided for through provisions and collateral. The conclusion of the proceedings will result in a positive non-recurring effect of €28M in pre-tax consolidated profit in the fourth quarter of 2016. However, the positive effect on income will be mostly offset by a corresponding tax effect of a similar amount, so that after-tax earnings will show only a minor (positive) effect of approximately €1M.

 

ADLER Real Estate: Allegations of Acting in Concert – Ruling by the Austrian Takeover Commission refuted

On September 5, 2016 ADLER Real Estate AG announced that it had entered into a tender commitment agreement with Vonovia SE pursuant wo which ADLER irrevocably committed to accept Vonovia`s contemplated tender offer to shareholders of conwert Immobilien Invest SE, Vienna. In November 2016, ADLER confirmed that it will accept the tender offer by irrevocably tendering all of the 26,160,921 shares in conwert held through a wholly-owned subsidiary. The confirmation concerned conwert shares representing approximately 25.7% of the share capital of conwert.

On Dec. 1 2016, ADLER informed that it has taken note of the AUSTIAN Takeover Commission`s legally non-binding ruling concluding that ADLER and others to qualify as parties acting in concert, and that they subsequently failed to make a mandatory takeover offer. ADLER refuted the allegations.

On January 18, 2017 ADLER informed that it has received € 422 m in connection with the successful tender of its shares in conwert to Vonovia in the context of the voluntary takeover offer of Vonovia to the shareholders of conwert.

 

Nemetschek: Acquisition of Norwegian software provider dRofus compliments product range

The German software provider Nemetschek SE acquired the shares of the Norwegian company dRofus AS. dRofus offers planning, data management and Building Information Modeling (BIM) collaboration tools. The company provides comprehensive workflow support and access to building information throughout the building lifecycle including the handover to facility managers – all on a single and central cloud-based platform.

dRofus is a complementary tool to all Nemetschek solutions and can ease the acquisition of new customers for both sides. The regional focus of dRofus is on Europe, the U.S. and Australia. For the year 2016, dRofus anticipates revenues of approximately €4.5M with an EBITDA margin of around 25 percent. The purchase price for dRofus amounts to €24.5M (cash-/debt free) and will be financed through free liquidity and the use of credit lines.

 

Scout 24: Successful re-financing completed

Scout 24 AG capitalized on its positive performance in recent years via a re-financing. The operator of digital marketplaces in Europe has concluded a new syndicated loan with eleven European banks under the leadership of UniCredit Bank AG totaling up to €800M, and maturing in December 2021. The new facility is used to repay an existing syndicated loan with a residual debt of €680M in full.

The new credit agreement comprises a term loan of €600M and a revolving credit facility of €200M. The new facility has been concluded at considerably improved terms. The initial interest margin is at 1.7%, prior to refinancing, the margin was at 3.5%. This translates into interest savings of around €12M in the business year 2017. Also, it offers greater flexibility to the company. At the same time, the CFO pointed out, that Scout 24 will push ahead with debt reduction to reach a target leverage ratio of 2.5:1 as a precondition to start paying dividends.

 

PATRIZIA Immobilien: Direct access to private investors launched

PATRIZIA Immobilien AG launched an online platform to allow private investors to browse and purchase its private funds online. The portal with the name eDirektzeichnung was created with the partner eFonds Solutions AG. It allows customers to buy shares in Patrizia`s real estate funds directly via the internet.

Via the portal, investors now have 24 hours access to all the facilities needed to make investments. According to PATRIZIA full transparency with all relevant information is guaranteed by a certified process.
The initiative represents another step to become more independent from traditional distribution channels. Last year, PATRIZIA GrundInvest launched four real estate funds for private investors with an investment volume of €230M. The attraction of these seemingly complicated funds to private investors comes from the relatively high distribution, which was anticipated to amount to 4.5 and 5.0 percent before taxes at the time of issue. The launch of a fifth fund is scheduled for the first quarter 2017.

 

 

 

 

 

VIPsight - 4th Edition 2016

 

COMPANIES

 

Sinner Schrader: Bumper results

If today’s figures are anything to go by, digital marketing and advertising agency Sinner Schrader AG will close the 2015-16 fiscal year at an all-time high. From its headquarters in Hamburg, the company announced an increase in turnover from 47.7 million Euros to over 51 million with EBITA at 4.5 million. This brings the group profit to more than 3 million Euros, 0.26 Euros per share, marginally higher than the last forecast of July 2016. Together with the publication of the provisional results, the Supervisory Board confirmed having renewed CFO Thomas Dyckhoff ‘s contract for a further five years.

 

Telecolumbus: low interest costs

Telecolumbus, Germany’s third-largest cable network, is reaping the benefits of a new credit agreement that was arrived at by negotiating the re-financing, consolation and duration of existing term loans worth 1.255 billion Euros. At the same time its extant credit contract was amended to the tune of 1.38 billion Euros. In a note, Telecolumbus announced that the transaction should come into force at the end of October.

The new agreement extends the duration of the credit contracts to January 2023 and lowers the credit margin of the term loans by 50 base points to 400 base points plus Euribor. Certain terms and conditions of the credit contract were amended, but the duration and interest rates for the existing investments and its total 125 million Euro revolving credit line remain unchanged. This transaction will lower Telecolumbus’s yearly interest liability by 6.3 million Euros.

 

DBAG: profit forecast exceeded

The Deutsche Beteilungs AG (DBAG) group profit for the 2015-16 fiscal year was significantly higher than had been forecast – available figures indicate somewhere in the region of 48 to 52 million Euros. The reason for exceeding the forecast confirmed on publication of the third quarter results seems to lie in an improvement of the capital market multiplier that DBAG uses to assess its company portfolio. On the 30 September cut-off date, the multipliers were higher than almost every comparison group had been on the previous cut-off date of June 30. According to the company, this could explain how losses were compensated.

 

 

 

 

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The German Mittelstand

 

Coming together to close the SME innovation gap

By and large, German SMEs are considered innovative and open to change. This time round, however, studies conducted by the Institut für Mittelstandsforschung (IFM) failed to confirm their acknowledged tradition of being able to deal successfully with innovation. Indeed, a report on innovation of a non-technological nature within SME-generated innovation as a whole (http://www.ifm-bonn.org/uploads/tx_ifmstudies/IfM-Materialien-250_2016.pdf) went so far as to call it the innovation vacuum that emerged from the 2008-9 financial crisis.

In this study, SME experts made use of the most accurate parameters for both the technological and non-technological. In general not subjected to a stand-alone approach but conceived for use in the preparation of novel attributes in technological products their scope is to improve the quality of both product and service. These are important prerogatives that underpin SMEs and without them competing with major industries would be inconceivable. In terms of the end result, there is little difference between tech and non-tech innovation, the capacity for innovation increases only as a function of company growth.

However, the report also brings up an interesting side effect that could pave the way out of the dilemma. When small companies organize themselves into consortia, the innovation vacuum is much less pronounced than when they stand alone. In addition to the benefits of synergy, resources and networks unavailable to small single concerns open up.

This idea has indeed been proved scientifically by reality. GESCO AG, an industrial group made up of leading companies in their respective fields and technology applicable in the investment goods industry, in particular the technology of production processes, resource management, health and safety, and infrastructures including mobility technology sought the effects of this very synergy.

The companies involved maintain their operational autonomy but they benefit from support in the form of controlling, coaching and consulting. This sidesteps the weaknesses of small and mid-size companies but grants them access to their strong points, issues such as speedy decision making, proximity to the market and the highly significant identification of staff with employer.

Togetherness also makes the smaller company strong. In order to enhance the innovative strength of SMEs, the IFM relies less on material help. According to experts it is much more important to create networks for sharing experience and knowledge. This orientation should also be encouraged by coordination on the part of the chambers of commerce with examples of best practice already established.

 

 

 

 

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Buhlmann's Corner

 

Stumpf – Winterkorn – Ackermann, what do they all have in common?

All three are CEOs and yardsticks for many (but not all) of their caste, see Samsung for example.

It is not chance that most of Humpty Dumpty’s greatest falls are in the world of finance (see also Maurice R. Greenberg of the International, US-based Group AIG). There are also, however, many exceptions. Henning Schulte – Noelle resigned in time before Dresdner Bank, his acquisition, became a problem for him and him alone to solve. What does the demise of these white-collar étoiles have in common? What ought the Supervisory Boards be on the look out for, always provided that they are courageous enough and haven’t been infected by the same strain of virus?

To my way of thinking, there is a single unifying factor which also happens to be part of the problem, and that is seniority. All those involved have been with the same company for years and worse still they sat in the top chair at the top table for years and years. When the Club of Florence gets together in 2017 to analyse “things that must never happen”, people like John Stumpf (Wells Fargo), Martin Winterkorn (Volkswagen) and Josef Ackermann (Deutsche Bank) will, instead, be blithely repeating the words “things that could never happen”.

On the wings of seniority they rise to dizzy altitudes, out of touch with the ground and their origins. Sweeping and soaring among the clouds is much more enjoyable than clambering out of the holes of day-to-day business and the humdrum of daily life. This much is nothing new but neither is it inevitable. Herbert Hainer (Adidas) came under sustained fire and notwithstanding certain issues of debatable corporate governance still managed to keep his feet on the ground.

It is undeniable that the onus is on the high-flyers, but by the same token, a measure of responsibility also lies with those who watch from the sidelines, or rather who don’t watch, the Supervisory Boards who gladly pocket their fee instead of demanding to be kept abreast on matters within their bailiwick.

Non-knowledge is part of the system. And in this system, awareness means that part of the blame lies with the staff when they comply with the “turn a blind eye” approach of top managers instead of reporting them. Equally significant if not more so is the odious (but inevitable) comparison of their own existential issues against the annual fees which, in Deutsche Bank for example, run into three-figure millions. Today it is called whistle-blowing. Our elders called it moral fibre, In times gone by it was “doing the right thing”. Whatever the name, the malaise is attributed to cultural shifts.

Where I come from, the net result is that each of the gentlemen mentioned in the title is flaunting a conflict of interests to the detriment (by definition) of third parties, mostly shareholders, and wreaks damage of an ecological (clients, environment) nature. When, as is the case of our three examples, best practice of corporate governance is mortified along with other structural problems the end of the story is nigh. And so it was with our trio.

John Stumpf lived an existence in the top tier board totally unchallenged. He spent decades in the company, and decades as its head, covered by Tim Sloan a colleague whose CV was identical to his own, and who eventually succeeded him. The run-down state of his office was proverbial – I couldn’t say for sure because unlike the other two I never went to see him. One thing is certain. If I had, I would have searched for his real office. And I’m willing to bet that I would have found it!

For years Martin Winterkorn lived in the shadow cast by VW proprietor Ferdinand Piech who not only lost touch with reality but vanished into thin air. He deserves top marks for razor-sharp intuition though – his disappearing act took place only a few short weeks before the company’s nosedive. Winterkorn’s role has been akin to the Pope’s namely the only way for peoples of the earth to communicate with a god in the heavens possessive of his family’s partly state-owned company: Volkswagen.

Josef Ackermann put together a best practice initiative with his bare hands, the Global Executive Committee (GEC), that turned out to be a catastrophe for Deutsche Bank. Every transparent (or non transparent) step in decision making became unsubstantial, relegated to concealment behind the façade that the manag ement board provided with the self-castrating blessing of the Supervisory Board and the few remaining management board members. Only two of them, Ulrich Cartellieri and RainerNeske put up some kind of resistance and then they, too, left. Cartellieri was on the Supervisory Board from 1997 to 2004 and is credited with the famous remark “we always thought we would be able to keep it under control.”Neske sat on the GEC from 2003 to 2009 and then on the management board before resigning after the debate on an issue that has still not been settled and on which everyone was pitted against him. The real issue seems to be how exactly does Deutsche Bank define the word “clear”.

As regards the world’s most liquid side issue, the various players are still far apart. One cashes in at his contract expiry date, another asks for a golden handshake, while the American relinquishes a quarter of his income of 35 years in banking by saying no to stock options.

This, too,is bizarre. Whether or not its CEO relinquishes or not, Wells Fargo has been served a fine of 185 million dollars, the same figure only 25 times lower than delivered on Siemens (whose fine includes accessory costs) Deutsche Bank (still running) is expected to be 50 times higher while Volkswagen can consider itself lucky if (for the few cars sold in the USA) it gets away with paying 100 times the amount of the American company. The sums don’t add up and there’s more than a whiff of bureaucrat revenge. And that’s something that can’t be allowed!

 

 

 

 

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People

 

SAF-HOLLAND: New CFO

Heavy goods vehicle manufacturer SAF HOLLAND will have a new CFO effective 1 March 2017. Dr. Matthias Heiden will replace Wilfried Trepels who is taking up an appointment with Wacker Neuson. Heiden rose through the ranks of SAP where he was in charge of company finance in central and eastern Europe. In the interim the position will be held by Dr. Martin Kleinschmitt.

 

Sartorius: CFO handover in 2017

Pharmaceutical supplier Sartorius will lose its CFO Jörg Pfirrmann in 2017. He will not renew his contract on its expiry date in July 2017 but intends instead to explore new professional challenges. Prior to his appointment to the management board, Pfirrmann had already worked for Sartorius’s financial division for ten years. The company is actively seeking a replacement.

 

Deutsche Rohstoff: lateral mobility

A new board of management is taking shape in entry standard listed Deutsche Rohstoff AG. In future, Thomas Gutschlag will dedicate his energies to the position of CEO and with effect from 1 January 2017 will transfer responsibility for financial affairs – which up to now he had managed in parallel – to Jan-PhilippWeitz, presently still in charge of Business Development. Communication with the capital markets will still be managed by CEO Gutschlag. The present CTO Jörg Reichert is leaving the board of management at year’s end and according to the company will be in charge of Ceritche AG, of which Deutsche Rohstoff is the majority shareholder.

 
 

 

 

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Capital News

 

Wacker: higher dividend

WackerChemie chose a conference on the capital markets in Munich to announce that it intends increasing shareholder participation in the company’s successes by distributing half of the annual profit figure. Up to now, the percentage distributed has been a mere 25 percent.

 

Shop Apotheke: IPO successfully accomplished

Shop Apotheke Europa, online pharmaceutical trader, has made a successful launch on the Frankfurt Bourse. A total of 4 million shares were placed at 28 Euros each. Approximately half a million shares came from existing shareholders and the remaining three and a half million are new shares the result of an increase in share capital. The issuance accrued a revenue of 100 million Euros for the company. Based on the issuance price, the company is worth 254 million Euros. Shop Apotheke intends to make use of this revenue to open new markets, especially in southern Europe, and to streamline logistics by automation. The company is originally German but its headquarters are now in The Netherlands.

 

Paragon: new shares

La Prime-Standard-listed Paragon has obtained fresh capital. An increase in cash capital raised 13.4 million Euros with the placement price set at 32.50 Euros per share, 3.85 percent lower than the previous day’s Frankfurt bourse closing price (XETRA). The offer was oversubscribed 3.5 times. A total of 411,478 new shares were placed with qualified investors and with the majority shareholder and company founder, management board member Klaus Dieter Frers. The revenue must be used to sustain growth above all in electromobility and for continuing to underpin a solid balance sheet. The capital increase was managed by Hauck&Aufhäuser.

 

 

 

 

 

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M & A

 

Alno: takeover offer

There is light at the end of the tunnel for kitchen manufacturer Alno. Investment company Tahoe who already owns part of the company has applied for a guarantee to gain access to 33.25% of company stock presenting a takeover bid . The shareholders should receive 0.50 Euros per share. Experts believe that company indebtedness cannot be cancelled by the revenue from current business. Burdened with expenses for restructuring and trade shows Alno performed poorly in the first half year slipping ever more toward a loss.

 

Wimdu and 9flats: co-habitation

Two German startups have joined forces in a move aimed at curbing the activity of a gigantic American competitor. Wimdu and 9flats, both online agencies for providing apartment accommodation for tourists are challenging Airbnb. Wimdu began from the portfolio of listed company Rocket Internet and 9flats is an offshoot of a venture capital subsidiary of Deutsche Telekom. The joint posted turnover of the two companies is in the order of 10 million Euros with a portfolio of 500,000 private apartments throughout Europe. The company’s headquarters will be in Singapore.

 

Capital Stage takes over the competition

Capital Stage, specialist in solar and wind farms has purchased over 94% of the entire shareholding of competitor Chorus Clean Energy. A spokesperson for Capital Stage announced that no existing shareholder squeeze-out is envisaged at this time. The transaction raises Capital Stage to candidacy on MDax listing. Combined, the two companies manage almost 150 solar and wind farms in six different countries.

 

 

 

 

 

 

VIPsight - 3rd Edition 2016

 

COMPANIES

 

 

Deutsche Bank is closing 200 branches

Deutsche Bank has incurred a loss of almost half a billion euros as a result of fraudulent share trading. According to its annual report, Germany's largest bank increased its provisions for "external fraud" to EUR 475 million euros in 2015 from EUR 20 million in 2014. A spokesman declined to say what event or events the charge related to or when it occurred.

The bank is also to cut 3000 full-time positions at 200 branches. This is practically one quarter of all its branches in Germany. These measures will be taken after agreement was reached with the bank's works council. Around 2500 of the 3000 job losses will affect the private and commercial banking unit. Deutsche Bank is focusing on the expansion of its digital services. There are also plans for a further 1000 job reductions in other business and infrastructure units. "Our objective is to avoid compulsory redundancies," the bank said in its statement. Most of the job cuts are expected to be made in large cities.

 

Airbus overtakes Boeing

The Farnborough Airshow marked an end to the order boom for the major aircraft makers. During the event the European manufacturer Airbus outstripped its US rival Boeing in terms of new orders, and is therefore again leading the way so far this year. Airbus' Chief Operating Officer John Leahy conceded, however, that his goal of from 650 to 700 new orders for 2016 was on the ambitious side. At the trade fair near London Airbus disclosed orders and commitments for 279 commercial aircraft worth around USD 35 billion at list prices. Of this total, 197 are firm new deals. Boeing secured commitments for 140 aircraft worth USD 22.4 billion, including 20 firm orders.

 

Shoes from the Speedfactory

Adidas's classified pilot project is being carried out in a separate, restricted access facility in Ansbach belonging to its partner Oechsler, a plastics producer and automotive industry supplier. The first 500 pairs of running footwear are scheduled to be produced as prototypes in this plant in the autumn. They will not be for sale as the quantity is so small and are solely for marketing purposes. Large-scale production at a 4600-m² factory in the central Franconian town of Ansbach, which will have an annual output of half a million pairs of footwear, will commence in 2017. Speedfactory is the name given by Adidas to this production concept, which is expected to gain in importance over the coming years. "We are revolutionising our industry," remarked Herbert Hainer, who steps down as CEO of Adidas in September, at a recent event in Ansbach.

 

Wirecard has a new niche

Wirecard has conquered a new niche. In tandem with the software developer AMETRAS the company has developed a payment app for the furniture and furnishings store Inhofer. This development undoubtedly also has the potential to attract other customers. The payment app offers a practical solution to Inhofer customers, who can pay a small deposit for their goods immediately upon purchase and use the technology to settle the remaining balance upon delivery. Payment is made using a smartphone and a card reader by credit card or direct debit.

 

MTU Aero Engines: orders worth over EUR 1 billion

The engine manufacturer MTU Aero Engines secured EUR 1.1 billion in orders at the Farnborough Air Show. "Geared turbofan technology continues to be in very high demand among airlines," said MTU's CEO Reiner Winkler today. According to Winkler, with its high market share in programmes for short- and medium-range aircraft as well as regional and business jets, MTU also stands to benefit from the aftermarket business.

 

Deutz running great

The three millionth engine has come off the production line at Deutz’s main factory in Cologne, another milestone in the long history of the engine maker. Just last year, DEUTZ notched up the nine millionth engine to be built worldwide since the Company was founded more than 150 years ago. DEUTZ opened a new engine plant in Cologne-Porz in June 1993 that was among the most cutting edge of its kind in the world. Today, Cologne-Porz is home to DEUTZ's most important assembly plant worldwide and the Company's headquarters. A few weeks ago, DEUTX commenced production of camshafts and crankshafts in a new shaft centre at this site.

Today, DEUTZ is one of the world's leading independent engine manufacturers and employs around 3,700 people.

 

 

 

 

 

 

 

 

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The German Mittelstand

 

 

Inheritance tax reform will have a major impact on smaller SMEs

In early July, the Federal Government called a halt to the process of inheritance tax reform that had been so widely debated by SME associations and lobbyists, making radical change seem increasingly remote. The draft bill on SME company inheritance is expected to maintain the same special provision as presently in force. Proprietors who manage their own companies for at least five years, or do so by probate and satisfy certain other conditions have the right to an 85 percent inheritance tax rebate. After seven years and a fixed wage bill, the company’s inheritance tax liability is nil.

[http://www.bundesfinanzministerium.de/Content/DE/Downloads/Gesetze/2015-07-08-G-z-Anpassung-d-ErbStR-u-SchenkSt-a-d-Rspr-d-BVerfG.pdf?__blob=publicationFile&v=2].

On the one hand the Family Business Foundation views the proposal as a major step in the right direction compared to the first draft bill of January 2015, while the Chairman of the Federal Association of SME-generated Economy (Budnesverband mittelständische Wirtschaft – BVMW), Mario Ohoven, is strongly opposed to it. “The compromise struck among the parties of the governing coalition runs counter to the interests of German SMEs.“ At first sight, that doesn’t seem to ring true being that the governing coalition’s aim is not only to improve taxation fairness but also to maintain employment levels and to stop the haemorrhage of companies and entrepreneurs. This is why the fiscal benefits for whoever inherits a company should be withheld until a set period of time has passed. As it stands, legislation is meant to orient company management towards more long-term strategies.

The draft bill, therefore, is only felt as being harsh by the many who inherit small companies. The problem is that up to now, inheritors of companies with fewer than 20 employees were exempt from submitting documentation attesting to due dates and wage bills but this exemption will now only apply to companies with staff of fewer than five. This, apparently minor amendment is reportedly causing major headaches. According to the SME Institute in Bonn, there are some 3.24 million very small companies – 89.3 percent of up to all registered companies, which, by definition can have 9 staff and post a turnover of up 2 million Euros.

The brunt of the new law is again borne by small companies who are finding it proportionately much harder to meet due dates and wage bills and their size or lack thereof makes them susceptible to market peaks and troughs. When the will to carry on the business dwindles and fades, finding an external manager becomes a costly enterprise especially one willing to accept the challenge and possess the skills to make it a success.

The legislator has reached a point that calls for reflection on whether legislation with self-defeating objectives is being put in place.

Start-ups, make an indispensible contribution towards strengthening the nation’s economy and fostering its thrust in innovation, and the small enterprises especially deserve greater consideration. It remains to be seen whether the issue will be tabled for negotiation very small companies have no lobbying clout.

 

 

 

 

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Buhlmann's Corner

 

 

Wishful thinking and reality – ‘The Proposition’

This is about a film – ‘The Proposition’ (its German title - Wunsch und Wirklichkeit – translates as Wishful Thinking and Reality) a true-to-life depiction of the state of Corporate Governance and shareholder AGMs.

Just like the film set in Boston, the founders and shareholders Larry Page and Sergey Brin find themselves in love with partners who are impotent. The co-shareholders possess A, B and C type shares without voting rights and all this (nomen est omen) in a parent company called “Alphabet” a multi-layer concern where never is heard the slogan ‘one share one vote’ so often yelled by activists at corporate governance conventions. Hi-tech concerns like Linkedin and Yelb, or groups such as Comcast and Discovery, or Volkswagen and Facebook all have that in common – grab the shareholders by the purse strings and deny them voting rights.

Everything is fine and hunky dorey provided the money keeps rolling in but then major Snafus take centre stage as soon as ethics become conspicuous by their absence and corporate governance practice is brought to its knees. One example, nothing short of sensational, was Volkswagen with its dictatorial leadership. The autocrat kept the actor at arms-length, the world-class swindle became an astronomical sum of money and, to cap it all, who got appointed to chair the Supervisory Board with the task of investigating what really happened? Why, none other than Hans Dieter Pötsch former treasurer and head of company communication policies. Nobody seems to be at all phased by the idea.

The AGM certified by an almost plebiscitary vote that everyone discharged their duties. Doesn’t anybody realise that deliberate abstention is not a vote for anything at all but just a non-participation in the vote regardless of whether you’re physically present or not. Are we absolutely sure that this doesn’t bother anyone at all? The fact remains that nobody seems to have noticed that the VW website gives the number of those present at the vote as 276,482,699 shares with voting rights, 277,355,828 of whom voted ‘Yes’ for the second item on the agenda. It stands to reason, the absentees also voted on the matter of the dividend.

Ought I be concerned when an abstention is not considered as a vote but a non-presence? If everyone was clear on the matter then probably not. But, I ask myself, why should the question even arise? So that an imaginary electronic count be held of the ‘NO’ votes not yet cast to make the percentage of approval look better?

Ought I be concerned because practically no voting shareholder ever makes sure that his vote cast gets on board and put to its intended use? History shows that concern ends at the ballot box at the journey’s very departure point. As anyone interested in voting rights can tell, by and large only ‘yes’ votes tend to make it home.

The remuneration system, not only of Deutsche Bank, but also of Renault, and in London of BP was rejected. When you want to, you can. All the rest is chatter, although it is also true that since being quoted on the stock market, certain German companies like Henkel and Merck are having to come to terms with rules that hinder voting rights – but behind the scenes the founding family acts as the ethical representative of shareholders as regards corporate governance. But then again, that ain’t necessarily so, as Haniel, Volkswagen and company show.

The dot on the ‘i’ of capitalism is called Apple; saved from bankruptcy by Bill Gates, father of Microsoft, with a pittance (150 million US$) it grew to be the most expensive boutique on the planet. For years, preference shares defended it against the AGM majority. Carl Icahn a great man is no longer there. And if Carl Icahn sees the risks in the ETF (Exchange Trades Funds), then these risks are real, even though the strength and power of an activist like Icahn grows as the number of shareholders who vote at AGMs diminishes. Indeed, during the Deutscher Corporate Governance Kodex conference, an ETF like Black Rock even went so far as to suggest that AGMs should be abolished. That, for me is just a self-fulfilling prophecy. You start by not going yourself, then you suggest doing away with it altogether, like the priest who firstly conceives a child so that by making a donation he gets out of being posted to Rome. And on the subject of Rome, even the Vatican is beginning to murmur about corporate governance. Clemens Börsig (ex-CFO and chair of DeutscheBank – like Pötsch in VW) left the IOR early. Does that mean that Pope Francis has an inside track to higher causes? Now, the question is should he have multiple voting rights as they have in France for shareholders with seniority. Or why not give all non-Catholics the non voting right to participate?

 

VOLKSWAGEN Aktiengesellschaft 56TH ANNUAL GENERAL MEETING June 22, 2016 <more>

 

 

 

 

 

 

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ACTIONS CORNER

 

 

 

 

 

 

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Politics

 

 

Post boss proposes robot tax

Deutsche Post CEO Frank Appel has proposed the levying of a robot tax to boost public budgets. "Work done by people, for example, could be exempted from VAT – with taxation restricted to work performed by robots," Appel informed the press. "It's a proposal that at least merits consideration," he said, pointing out that "groceries also receive preferential treatment when it comes to the levying of VAT." A study by the consulting firm PWC and the Darmstadt-based economic research institute Wifor, however, concludes that the demographic labour shortage in Germany cannot be fully addressed with robots. According to the study, robots will only be able to make up for two million of a potential shortage of four million workers.

 

 

 

 

 

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People

 

 

Melanie Kreis in Management Board of Deutsche Post

A woman will now be responsible for finances on the Board of Deutsche Post. The company has announced the appointment by the Supervisory Board of 45-year-old Melanie Kreis as the successor to Lawrence Rosen. According to Fidar, the German organisation campaigning to get more women onto supervisory boards, just under ten per cent of top management positions in Dax companies are held by women. The previous Chief Financial Officer of Deutsche Post, who held the position for over seven years, announced that he was stepping down for private reasons.

Lufthansa, by contrast, is losing its Chief Financial Officer, Simone Menne. In a statement the company announced that the 55-year-old has requested an early termination of her contract with effect from 31 August. The graduate in business administration had worked her way up at Lufthansa since 1989 and on 1 July, 2012 became the company's first ever female Chief Financial Officer.

 

An increase in the percentage of women on DAX supervisory boards

An increasing number of women are being appointed to the supervisory boards of German public limited companies. Nonetheless, the figure remains some way short of the legally required ratio of 30%, according to the auditing and consulting firm PWC in Frankfurt. According to PWC, since 2011 the ratio of women on the supervisory boards of the 30 companies listed on the DAX index of leading German companies has risen by ten percentage points to 23.4 per cent. With voluntary commitments having proved ineffective, the German government is now seeking to make the upper echelons of German industry more female by law. From 2016 the supervisory boards of listed companies are expected to have a female to male ratio of 30 per cent. At present this 30 per cent mark is exceeded by ten of the 30 DAX companies – with half achieving a ratio of 20 per cent at the most. According to the PWC survey, the consumer goods maker Henkel currently has the highest ratio, with women occupying 7 of 16 positions on its supervisory board. Munich Re has 8 female supervisory board members of a total of 20, with Deutsche Bank and Deutsche Lufthansa each reporting seven female members on their 20-strong boards. Fresenius SE and Fresenius Medical Care have no female supervisory board members.

 

Everyone loves Caparros

Alain Caparros, CEO of Rewe, is Germany's most popular boss, according to the job and career community Glassdoor. The portal identified the ten highest rated CEOs based on the input of employees who voluntarily provide anonymous feedback on its site. In second and third places were Harald Krüger of BMW and Mark Weinberger of Ernst & Young. The Employees' Choice Awards were conferred for the second time.

 

 

 

 

 

 

 

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Campus

 

 

 

 

 

 

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Capital News

 

 

Daimler posts a sharp increase

Daimler AG has released its interim results for the second quarter of 2016. There was a particular focus on the company's EBIT performance. Group EBIT adjusted for special reporting items rose to EUR 3.98 billion from EUR 3.76 billion in the same period of 2015. At the Mercedes-Benz Cars division, however, EBIT eased from EUR 2.23 billion to EUR 2.2 billion. At Daimler Trucks EBIT fell from EUR 717 million to EUR 661 million, while Mercedes-Benz Vans posted an increase to EUR 462 million from EUR 238 million under this heading. At Daimler Buses EBIT improved from EUR 57 million to EUR 89 million. Daimler Financial Services posted a slight rise from EUR 445 million to EUR 479 million, while reconciliation EBIT was unchanged at EUR 73 million.

 

Wacker Chemie: strong growth prospects

Peter Spengler, an analyst at DZ BANK, again issued a SELL recommendation for the specialty chemical firm Wacker Chemie AG in his latest report but reduced its fair value from EUR 101 to EUR 94. According to Spengler, the Munich-based company's polysilicon business is still in a transitional phase due to depressed prices and low utilisation in the US. Spengler advises investors to factor in the company's good growth prospects from 2017, however, and to take positions accordingly. With subsidiaries and sales offices in 28 countries, Wacker is active in the US, Asia, Australia and Europe.

 

Still no dividend at Zalando

Zalando, Europa's largest online fashion retailer, will continue to refrain from paying a dividend. "We are likely to continue to invest our profits in growth in the coming years," announced Management Board Member Rubin Ritter at the company's Annual General Meeting. Zalando has been listed on the stock market since autumn 2014 and was added to the mid-cap MDAX index in 2015.

 

Deutsche Telekom saves a billion

The decision of many shareholders not to take a cash dividend has enabled Deutsche Telekom to make a EUR one billion saving. Investors holding 40.9 per cent of Deutsche Telekom opted for a dividend payment in shares instead of cash this year. Last year, however, the proportion of shareholders opting for a dividend payment in shares was even greater at 49 per cent. The dividend of 55 cents per share for 2015 will entail a total outlay of EUR 1.49 billion in cash. For 26.7 old shares shareholders now receive one free share - at the current share price of EUR 14.56 this is worth 55 cents. The issue of a total of 70 million new shares increases the company's subscribed capital by 1.5 per cent.

 

RTL increasing strongly

RTL posted improved earnings for the first quarter of 2016, driven by its broadcast business and production arm. Reported Group revenue rose by 9.5 per cent to EUR 1.430 billion. Reported EBITA was up by 18 per cent at EUR 229 million while net profit attributable to RTL Group shareholders grew by 30 per cent to EUR 138 million. The beneficiary was Bertelsmann, which owns 75% of RTL. The media group's operating profit grew by eight per cent to EUR 500 million while its net profit climbed 30 per cent to EUR 185 million.

 

Thyssenkrupp with huge drop in sales and profits

Thyssenkrupp reported a first-half profit of EUR 37 million, down 62 per cent year on year. Its sales fell by eight percent to EUR 19.4 billion.

 

Krones has grown

Krones AG has held its 36th Annual General Shareholders' Meeting in Neutraubling. Representation of the company’s share capital at the meeting came to around 83%.

Executive Board Chairman Christoph Klenk and Chief Financial Officer Michael Andersen reported to the shareholders present on a very successful 2015 financial year overall. Krones achieved all key financial performance indicators last year and posted further profitable growth. The outlook for the current financial year is also positive overall. Revenue is expected to advance by 3% in 2016, with Krones targeting a repeat of last year's EBT margin of 7%. The Executive Board and the Supervisory Board proposed to the Annual Shareholders’ Meeting a dividend of EUR 1.45 per share for the 2015 financial year, EUR 0.20 higher than last year, to distribute an appropriate portion of profits to shareholders. The Meeting approved the proposal by a large majority. The payout corresponds to 29% of consolidated net income for 2015 and is therefore at the upper end of the target corridor of 25% to 30%.

The reappointments of Philipp Graf von und zu Lerchenfeld, Norman Kronseder and Hans-Jürgen Thaus as Supervisory Board Members were approved by the Annual Shareholders' Meeting. The company's shareholders also approved the appointment of Prof. Dr. Susanne Nonnast as a new Supervisory Board Member. This law graduate, a Professor at the East Bavarian University of Applied Science in Regensburg, is the second woman, after Petra Schadeberg-Herrmann, to represent shareholders on Krones’ Supervisory Board.

In addition, the AGM elected Volker Kronseder to the Supervisory Board. From 1996 to the end of 2015, Volker Kronseder was the company’s Executive Board Chairman, and he will continue to exercise responsibility at Krones AG on the Supervisory Board.

 

Heidelberger achieves turnaround

Heidelberger Druckmaschinen AG achieved a EUR 100 million turnaround in its result – from €-72 million to €28 million – in its 2015-2016 financial year (1 April 2015 to 31 March 2016). The company therefore attained its target of a significant increase in annual net profit. Its performance shows that the company's strategic reorientation is having an effect.

"Heidelberg is once again making profits and looking ahead with confidence," said CEO Gerold Linzbach. "The last financial year marks a turning point in our strategic reorientation process”.

Sales increased to EUR 2.512 billion in 2015-2016 (previous year: EUR 2.334 billion), After adjustment for exchange rate movements (EUR 2.426 billion), growth was within the expected range at around 4 percent. A good final quarter in the period under review took incoming orders beyond the previous year’s figure of EUR 2.434 billion to EUR 2.492 billion EBITDA excluding special items in the reporting period totaled EUR 189 million (previous year: EUR 188 million, including special items amounting to some EUR 50 million). This corresponds to an EBITDA margin of 7.8 per cent (previous year, excluding special items: 5.9 per cent) of sales adjusted for exchange rate movements. This led to a positive net result after taxes of EUR 28 million (previous year: EUR -72 million).

Following these successful annual figures, Heidelberg is continuing its policy of further optimising its financing structure and reducing its future interest burden. Given its stable liquidity position, the company opted for early redemption of the approximately EUR 50 million still outstanding on its high-yield bond - in full and ahead of schedule from cash on hand - in early summer. The bond has a coupon rate of 9.25 percent and was originally due to mature in 2018.

"Heidelberg is back in the black and is on a sound financial footing," said CFO Dirk Kaliebe. The reorganisation of our financing structure with further falling interest costs provides the basis for the company’s future strategic development."

 

 

 

 

 

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M & A

 

 

K+S: fertiliser manufacturer acquires Chinese rival

The salt and fertiliser manufacturer K+S has further strengthened its position with another acquisition. For a euro amount in the low double-digit millions range the company is acquiring the activities of Huludao Magpower Fertilizers Co., Ltd. The Kassel-based company, which last year fended off a hostile bid from its Canadian rival Potash, recently spoke of an "important step in our expansion into Asia". According to K+S, Magpower is among the leading manufacturers of synthetic magnesium sulphate (SMS), which is used as a fertiliser for oil palms, and soybeans.

 

Infineon goes shopping again

Germany's largest semi-conductor manufacturer has further strengthened its position in the US, with CEO Reinhard Ploss agreeing to pay USD 850 million – approximately EUR 765 million – for its rival Wolfspeed Power. Wolfspeed Power is currently owned by the LED producer Cree. "The business activities and know-how of Wolfspeed and Infineon are highly complementary," said Ploss in July. Both companies produce power management chips. This is not the first time that Ploss has gone shopping on the other side of the pond. Infineon will fund the deal with bank financing of USD 720 million. In the twelve months to the end of March 2016 Wolfspeed generated revenues of USD 173 million (EUR 155 million), Infineon disclosed recently. For comparison purposes: Infineon posted first quarter revenue of EUR 1.6 billion. In a press release, Infineon said that the transaction would be immediately accretive to the company's margin and adjusted earnings-per-share. The deal is expected to be closed by the end of 2016.