VIPsight - June 2010

COMPANIES

CG à la Cromme

Gerhard Cromme, former chair of the Government Commission on the German Corporate Governance Code, has chosen former Siemens director Heinrich Hiesinger to succeed ThyssenKrupp CEO Ekkehard Schulz. The 49-year old Hiesinger most recently headed the industrial division at the Munich conglomerate. Hiesinger will join the board of the Essen steel group in early October, succeeding Schulz as ThyssenKrupp CEO on 21 January 2011. Since Cromme, as Supervisory Board Chair of Siemens, has at the same time let the obviously talented executive go, open criticism was rife. A legal opinion secured in advance on cautionary grounds, however, certifies that there is no infringement in this of either company-law provisions or principles of good corporate governance. At any rate, though, the agreement that next year current ThyssenKrupp CEO Schulz will join the Supervisory Board is not in line with the spirit of the code.

Funds call for billions from Porsche

To date 35 hedge funds have sued Porsche and its former executives Wendelin Wiedeking and Holger Härter in New York for compensation for damages. They are accused of false information and market-price manipulations in connection with the failed takeover of VW. According to the accusations, in October 2008 they deliberately misinformed investors, thus manipulating the price of the VW share. That price then shot upwards to as much as €1,000, after Porsche claimed it held 74% of VW. The funds are claiming damages of at least 2 billion dollars. Other funds are preparing actions. The time-limit for such lawsuits in the US expires at the end of October. The proceedings will, say initial estimates in the Wirtschaftswoche, last at least until mid 2011. As long as possible damage claims have not been definitively cleared up, the Volkswagen board will not agree to a merger with Porsche.

VW on an expansion course

Since late April the two lorry makers MAN and Scania have been holding talks about technical cooperation. VW holds 71.9% of Scania and 29.9% of MAN. Analysts expect that a takeover by VW of a majority in MAN is now only a question of time. In the meantime, Japanese carmaker Suzuki is expanding its holdings in VW. In late March the Japanese held 2 million VW ordinary shares, or 0.68% of them, corresponding to a value of around €140 million. After VW bought, in the course of cooperation, just over 20% of the Suzuki shares for some €1.7 billion, the Japanese carmakers want to buy VW shares for a maximum of half this amount. However, VW shares are thin on the ground at the moment, since 90% of VW voting rights are with major shareholders Porsche, Lower Saxony and Qatar. Suzuki CEO Osamu Suzuki had already called on VW in January to give his group access to VW share capital.

Daimler bids New York goodbye

A further German group, Daimler, is leaving Wall Street. This also removes the need for reporting to American stock-exchange regulator SEC. 17 years ago, the Stuttgart carmaker was a pioneer with its US listing. The reasons for it then were, as well as high liquidity in international securities trading, easier access to foreign investors for capital measures, but in the meantime the costs and the benefits have proved not to be in any reasonable proportion. Daimler will in future rely more heavily on electronic trading in Germany.

Massachusetts v. Deutsche Bank

Oversight authorities in the US State of Massachusetts suspect a number of major institutions, including Deutsche Bank, of having exploited financial products for the financing of municipal debts to their own advantage. Thus, the banks are said on the one hand to have secured a good income from the creation of the products, but on the other they have used CDSs to bet against the bonds, thus making money twice. The US financial watchdogs are calling on the banks to produce within the next two weeks appropriate documents on all municipal loans subscribed and credit defaults once entered into. Public prosecutors are already looking, together with the SEC, at the mortgage businesses of six of the ten banks under suspicion. It is not yet clear whether the investigation in Massachusetts is part of these investigations, which became known on 13 May. Deutsche Bank took no position on the investigations. A spokesman additionally said that no transactions in municipal bonds were handled.

Suspicion against ProSiebenSat.1 and RTL

German anti-trust body Bundeskartellamt on 19 May searched offices of ProSiebenSat.1 in Munich and RTL in Cologne. The two private TV channels are alleged to have made forbidden agreements on encrypting hitherto free-to-air programmes. Thus, digital Free-TV programmes are henceforth to be made accessible only for an additional payment. Furthermore, copy-protection functions and advertising blockers were involved, said a spokesman for the anti-trust authority. The Munich TV group confirmed the search without giving details.

BASF wants to swallow up Cognis

The BASF Supervisory Board has agreed to a takeover offer to Cognis majority owners Goldman Sachs and Permira. Details of the purchase offer are not yet known, though Cognis estimated its rough notion of the price at around 3 billion Euros. The chemicals firm was sold in 2001 by Henkel to the Goldman Sachs private-equity division and financial investor Permira, who subsequently restructured the company and cut costs. As Financial Times Deutschland (FTD) reports, Goldman Sachs and JP Morgan were also, in parallel with the direct sale, preparing for an IPO for Cognis, but that this was only the second-best solution for the owners.

At the BASF AGM on 29 April, it was decided to convert the bearer shares to personal shares. The exchange of the 918.5 billion shares is to come on 2 August 2010.

Commerzbank has new pay system

Again in 2010, Commerzbank executive pay continues to have a ceiling of €500,000, as long as the interest on the money lent by the government has not been fully paid back. For its rescue, Commerzbank had received €16 billion as a silent contribution and 2.2 billion as fresh capital, on the condition of limiting executive salaries for the duration of the aid, but initially for 2008 and 2009. The Commerzbank AGM has now brought out a new remuneration system, which is to apply retroactively to 1 January 2010. In it, executives will in future receive a fixed annual salary of €750,000 plus variable salary consisting of short-term components limited to one year of a maximum of €250,000 and a long-term component for four years, with a maximum of €750,000, which could be cut by a Malus system. The CEO would on a new arrangement receive not the present 1.5 times an ordinary board member, but 1.75 times. At the request of CEO Martin Blessing, this arrangement is to be suspended till the end of the appointment period on 31 October 2011. Blessing at the same time announced that the bank would be paying back the borrowed money to the special fund for financial market stabilization (SoFFin) by 2012 at latest. The government’s silent contribution is currently costing 9% interest. However, EU finance ministers recently demanded that all guarantees to be extended as from the beginning of July should have costs oriented more closely on market conditions.

There were critical comments at the AGM from shareholder association Schutzgemeinschaft der Kapitalanleger (SdK) on the authorized capital decided. According to the decision, Commerzbank can until May 2015 increase the subscribed capital on one or more occasions by a maximum of €1.54 billion, or up to 50%. Shareholders’ subscription rights may be excluded. The shareholder association stigmatized this as a blank check for the government to get out non-transparently at shareholders’ expense. The capital could be diluted in unforeseeable arrangements and devalued. Moreover, the shareholders were having their voice taken away, and not, as called for in the Financial Market Stabilization Act, being given preference in any re-privatization, continued the SdK’s criticism.

Gallois to do without variable pay

In spring, the Frenchman heading the European aerospace group EADS, Louis Gallois, had already waived the variable part of his pay, giving away some €1.55 million. As last year, Gallois proposed to the AGM on 1 June that this year too he waive the variable part of his pay – at least €1.14 million – and content himself with his fixed salary of €900,000.

Fresenius changes its shares and becomes a KgaA

Shareholders in medical technology group Fresenius SE set going the conversion of the preference shares to ordinary shares and a change of legal form to a partnership limited by shares (KGaA) at the AGM in mid May. At the earliest in the second half of this year, the non-voting preference shares will be exchanged in a 1:1 ratio for ordinary voting shares. The group wishes in this way to enhance the attractiveness of its share and at the same time strengthen its position on the capital market. The transformation into a KGaA makes Fresenius Management SE into a general partner. It is 100% backed by the Else-Kröner-Fresenius Foundation. The foundation currently has a 58.11% holding in Fresenius SE. The new company’s management will be identical with the current board of Fresenius SE. Critics are complaining, says Financial Times Deutschland (FTD), that the change in form will give the foundation too much power.

HeidelbergCement in the DAX

With effect from 21 June HeidelbergCement moves up from the MDAX into the DAX. At the same time Salzgitter goes down from the DAX into the MDAX.