VIPsight - February 2012

COMPANIES

 

Douglas to go private?

The Douglas retail group (Douglas perfumeries, Thalia bookstores, Christ jewellers and Hussel sweetshops) is according to the will of the founding family Kreke to be rebuilt and streamlined. The Krekes, who hold about 12.62 percent of the shares in the trade group, have announced that together with the allied Oetker family (25.81 percent of the Douglas shares), they wish to raise their stake in the company. There have already been talks with several financial investors - according to Financial Times Deutschland with Apax, BC Partners and Permira - about the possible acquisition of a substantial interest by investors, possibly in the form of a public takeover offer, Douglas let it be known in mid January. There were so far no binding offers, however, nor is the structure or financing of any acquisition clarified. The deal is still in the concept phase, signalled CEO and founder’s son Henning Kreke. If it were possible, however, to buy Douglas completely through a financial investor, the company, undervalued in Kreke’s eyes, could sooner or later be taken off the market and then filleted. Kreke already has a potential adversary here: drugstore entrepreneur Erwin Müller, who holds 10.05 per cent of the Douglas shares, is likely not to like the push by the Krekes and Oetker, since he already announced some time ago he wanted to build up shares.

Sky alienates investors

The drama about incorrect subscriber numbers and alienated investors at Sky has entered a new chapter. Shortly after Christmas, under the cloak of lowered public attention, the German pay-TV channel Sky confirmed, piquantly on its Facebook page and not via ad-hoc reporting, that the U.S. film studio Paramount had terminated its contract with Sky. The deleted Paramount films would be offset by other Hollywood and smaller studios, assured film programme director Marcus Ammon. However, the attractiveness of the Sky offer could suffer, which could have a negative effect on numbers of subscribers and make the focus on the sports field advance, say observers. Investors were outraged by the Group’s information policy. Some threatened a complaint to the Federal Financial Supervisory Authority (BaFin).

Deutsche bank wants to hive off asset management

In late November 2011 Germany’s largest private bank, the Deutsche Bank, indicated it wanted to restructure its in-house asset management. Financial Times Deutschland, referring to financial sources, now sees the second round of the process ushered in: interested parties are now looking at the books. It states there are prior non-binding offers from a dozen companies for the divisions, which manage total assets worth 360 billion euros. In addition to asset management, the business with large institutional clients and the mutual-fund subsidiary in the United States are also up for grabs. By the end of February binding offers should be submitted. In addition to U.S. fund companies such as Pimco, financial investors are regarded as potential buyers. The target is revenue of two to three billion euros.

ThyssenKrupp’s heavy ballast

Even if ThyssenKrupp shareholders were able to take home a dividend again in September last fiscal year, a loss of €1.8 billion does not argue a successful business strategy. In 2010/11 the German steel giant had to write off 2.1 billion euros on its activities in America. Delays, mishaps and mismanagement had driven the cost of two new ten-billion-euro plants in Brazil and the U.S. to ever new heights.  Rumors therefore came that ThyssenKrupp might hive off its Brazilian subsidiary.  Financial Times Deutschland called the Brazilian Vale group a possible buyer. Insiders see this option at present rather in the stage of simulation games. Even given that the Brazil problem is not yet solved, and ThyssenKrupp wants to give no earnings forecasts for the current year for either the Steel Americas division or the overall group, the announced restructuring of the Group is still slow. Thus in late January it became known that the Essen firm wants to hive off its stainless-steel subsidiary Inoxum. In Finnish competitor Outokumpu it has already found a prospective purchaser. Although the workers’ representatives now fear massive job cuts, selling is the most likely scenario for the subsidiary among the IPO and spin-off options.

Postbank to transfer profits

Deutsche Postbank and Deutsche Bank on 10 January began negotiations on a control and profit-transfer agreement. Postbank will in future transfer profits to a subsidiary of the Frankfurt bank, DB Finanz-Holding GmbH. Currently, the Deutsche Bank has slightly more than half of the voting rights, and therefore not enough to prevail with the control agreement at the Postbank AGM on 5 June. As of February, Germany’s leading bank will receive a stake of about another 40 per cent in the Bonn-based Postbank from Deutsche Post. After the Postbank share recently rose to its highest level since September 2010, small shareholders are now hoping that they will be presented with an attractive settlement offer.

Börse getting nowhere

The Deutsche Börse management has offered to the Works Council to hold talks on a job-security agreement for the Hessian offices in Frankfurt and Eschborn, under the mediation of the State Chancellery in Wiesbaden. The exchange operator wants to make no compulsory redundancies for the 1,600 employees for two years, and at the same time undertake to invest a volume of at least 300 million euros over a period of three years. The council has rejected this offer, however, and currently sees no need for action. It wants first to wait and see whether the merger of the two exchanges will ever happen. The EU Competition Commission says it wants to decide on the merger project on 1 February, with 25 of the 27 commissioners here standing behind Joaquín Almunia, who assessed the proposed merger as well as the Hessian Securities and Exchange Commission critically.

Billions rain on Telekom

Deutsche Telekom got the three billion dollar compensation for the failure of the sale of T-Mobile USA remitted from AT&T at the end of 2011. In addition, the DAX group is to receive as further compensation access to the network of the U.S. telephone company in regions where T-Mobile had not been present, thus saving substantial investments. Just before Christmas, the takeover of the U.S. wireless business by AT&T for $39 billion finally failed at the resistance of American regulatory authorities. On the balance-sheet the positive special effect is countered by restructuring costs and write-downs on the U.S. mobile subsidiary, which had been postponed by the merger agreement in March last year.

KfW’s entry to EADS drags on

The German federal government’s planned entry into the European Aeronautic Defence and Space Company (EADS) through the KfW banking group will take longer than expected. Daimler is still wrestling with the State bank over details of the sale of its stake in the European aerospace group, which should have been completed before the new year. The Stuttgart carmaker actually wanted to have a Memorandum of Understanding signed by the development bank by the end of 2011, but KfW would not bow to pressure and is first checking tax and accounting aspects. The entry of a new anchor shareholder could under current law trigger a takeover offer for the shares of the other owners, which the Frankfurters want to avoid. Additionally, in the Netherlands, where EADS has its corporate headquarters, takeover law would still have to be adapted this year, as the entry of KfW would mean an amendment to the EADS shareholder pact. If the deal with Daimler falls through the bank wants to buy other investors’ shares. In addition to the 7.5 per cent from the car company the Reconstruction Loan Corporation (KfW) may want another 7.5 percent, which are held by banks and Länder. The State influence would thus increase, whereas the management of EADS really wanted to open up the company to private investors.

Siemens cancels Osram IPO for the moment

The parent company in Munich no longer expects its lighting subsidiary Osram to make it to the stock market in the first half of 2012, the news agency dpa reported, citing company circles. Actually, the world’s second-largest lamp company was supposed to go on the trading floor in autumn already. But when stock prices were in decline, CFO Joe Kaeser had to admit in November he had missed the right timing for an IPO. Although officially the preparations for an IPO continue, some analysts now see a spin-off, with Osram hived off and a distribution of shares to Siemens shareholders, as a more realistic option. Siemens originally wanted to collect up to three billion euros from the IPO of the subsidiary.

Kaufhof negotiations surprisingly broken off

Metro has cancelled the sale negotiations for the Kaufhof department stores until further notice. The difficult situation on the financial markets does not offer suitable conditions for a transaction, said Metro CEO Olaf Koch on 17 January. Three investors had indeed submitted bids for the department-store chain, but fears that financing could end up causing problems for one of the potential buyers were decisive for the decision. Finally, the trade group had negotiated with Rene Benko and Nicolas Berggruen. The bid by the Austrian Benko through the real-estate holding company Signa is supposed to have ultimately amounted to over two billion euros. Berggruen according to the Börsenzeitung offered less than two billion euros. Hiving off Kaufhof has for many years been seen as a desire of the Düsseldorf company, but had in the meantime been repeatedly rejected.

 

 

 

Buhlmann's Corner

 

Questions to shareholders

Shareholders argue for years over governance issues, until for lack of any outcome or appropriate consequence of the votes the legislature gets active and introduces a set of rules no one really wanted. So it was with the cooling-off period or the compliance declaration, and so it threatens to be with the quota for men or the accountants. Repair work will require refinement, and evasions enhance neither transparency nor the value of clear corporate governance.

At Bayer and BASF, yesterday’s CEOs, motivated by their environment, press on to head the Supervisory Board.  As their cooling-off period began, no thoughts yet went to the 2012 AGM date. The month-long suspension between the legally defined period and the final decision by the shareholders could have been avoided had the shareholders exercised their responsibilities in time and not left the power to the legislature.  Gentlemen’s (and ladies’) agreements between departing and cooling-off Supervisory Board chairmen have always existed. What is new is that candidates for the chairmanship are now exposed to an involuntary election campaign among Supervisory Board colleagues in the period between the Supervisory Board appointment and the vote for chairman - let’s see what antics that may bring.

At the start of his tenure, many a CEO has longed for a cooling-off period - for his predecessor; by its end he was cursing it. Shareholders should have acted here and helped to eliminate the conflict; instead they let yet another law in.

Sometimes it works even easier, as for instance at EADS, where the government is not a shareholder, but is behaving like one. The whole thing turns bad when there’s a representative holding the shares on behalf of third parties. Daimler is similar. Here are the shares with their opportunities and risks, and each shareholder must decide whether he wants that or prefers a repurchase transaction with the Federal Government. Fortunately, the personnel change just made it, after, as at IKB and ThyssenKrupp, individual Supervisory Board members seemingly “didn’t know” and asked for further clarification.

 

 

 

ACTIONS CORNER

A dispute ongoing for over two years between 104 former London investment bankers at Dresdner Bank and the partly nationalized Commerzbank is about compensation claims from the year 2008 in the amount of €52 million. The investment bankers insist that the former head of investment bank Dresdner Kleinwort Benson, Stefan Jentzsch, had publicly promised the compensation that year. The process commenced on 23 January with preliminary hearings before the London High Court. The actual trial began on 25 January and is scheduled until 17 February.

The hedge funds Kingate Global and Kingate Euro Fund have sued a subsidiary of Deutsche Bank in New York over a dispute over billions in claims against Bernard Madoff. The bank was allegedly delaying the implementation of an agreement on 24 August to buy their rights to compensation in the financial fraud. The funds accuse Germany’s biggest bank of not wanting to transfer the amount because it now thinks the price is too high. The bank was awaiting certain documents for the processing of the transaction, according to a spokesman. Madoff’s Ponzi scheme broke down amidst the financial crisis.

Madeleine Schickedanz has sued Sal. Oppenheim and its real-estate partner Joseph Esch for more than two billion euros in damages. A corresponding draft claim against the financial advisers and twelve other persons and companies has been attached to an application to Cologne Higher Regional Court to establish jurisdiction, Schickedanz’s lawyer Peter Rath said on 19 January. The Quelle heiress was also asking for refund of ​​loan repayments already made totalling more than €200 million. A spokesman for the Cologne-based bank, since acquired by Deutsche Bank, said the damage claims were “incomprehensible”.

The EU Commission on 25 January instructed Deutsche Post to repay an amount of 500 million to one billion euros to the German Federal Treasury. The group had collected unfair State aid for price approvals and received subsidies for public-sector pensions, which it should now refund. The aid had procured it advantages over its private competitors, said Joaquín Almunia. Frank Appel was, however, optimistic he could overturn the decision in court, like earlier decisions taken by Europe’s competition watchdogs. Deutsche Post announced it would file an appeal with the European Court of Justice.

Frankfurt Higher Regional Court will announce its decision in the damages case against Deutsche Telekom on 25 April, Judge Birgitta Schier-Ammann said on 25 January. The Court finds that the investors should have sought advice on Telekom’s initial public offerings if they did not understand the prospectus. The test case should clarify whether the Bonn-based company concealed risks in the prospectus for its third equity offering in June 2000 and deceived shareholders by false information. The 17,000 plaintiffs are demanding a total of 80 million euros. Telekom rejects the claim.

 

A judicial mediation in the billion-dollar lawsuit between GAGFAH and the city of Dresden has failed before Dresden Regional Court. A spokesman for the regional court confirmed reports to this effect in local newspapers. The property company also confirmed the failure; both parties gave no reason. It was to be decided still in January when the trial would begin. In the course of their enquiries, the prosecution had recently searched GAGFAH’s premises. The capital of Saxony has sued GAGFAH for alleged violations of tenant protection clauses, seeking a penalty of 1.08 billion euros. GAGFAH has always denied the allegations.

Immediately prior to commencement of the trial in the so-called Market Letter case, Harald Petersen resigned his positions at shareholder association Schutzgemeinschaft der Kapitalanleger (SdK). On the weekend before the trial it was revealed that the prosecution was also investigating the former SdK board member, who is also one of Markus Straub’s lawyers, for “complicity in market manipulation.” Despite investigations against the defence counsel, the trial of former shareholder protector Straub and Tobias Bosler started on 23 January. A former editor of investment newsletters and former SdK officer Christopher Öfele - both considered to be accomplices of Bosler, who allegedly organized the insider trading - had already confessed and received suspended sentences. The shareholder association had publicly criticized alleged accounting tricks by Wirecard, while Straub bet on falling prices.

Christian Strenger has lost his lawsuit against SolarWorld. Cologne District Court rejected the legal challenge against the decisions of last year’s Annual General Meeting of the TecDax group on 12 January. The corporate-governance expert had criticized the one-sided composition of the photovoltaic company’s Supervisory Board, because its members advise SolarWorld on legal matters, and challenged the actions of the Executive Board and Supervisory Board. The court pointed out that while the consulting agreement, in existence for years, between the solar energy company and the law firm Schmitz Knoth, where Supervisory Board chairman Claus Recktenwald is a partner, does not correspond with the requirements of the Companies Act, there is no evidence of conflicts of interest or a lack of independence of the supervisory body.

 

 

 

AGM Dates

 

Company	Event	Date	Time	Place	Address	Published on
DAX
Infineon	ord. AGM	08/03/2012	10:00	81829 München	Am Messesee 6, Messegelände, im ICM (Internationales Congress Center München)	23/01/2012
	The Agenda for the ordinary AGM of Infineon Technologies AG starts with the usual items, like presentation of annual accounts and discharge to the company bodies. Infineon Technologies AG earned balance-sheet profits of €378.24m last business year. Of the profits, €129.57m is to be paid out as dividend and €248.67m allocated to reserves. The election of the final-accounts auditor and the auditor for the audit review of interim financial statements for the year 2011/2012 will take place.
MDAX
Aurubis	ord. AGM	01/03/2012	10:00	20355 Hamburg	Coubertinplatz, Olympiahalle im Olympiapark	19/01/2012
	The Agenda for the ordinary AGM of Aurubis AG starts with the usual items, like presentation of annual accounts and discharge to the company bodies. Aurubis AG earned balance-sheet profits of €105.04m last business year. Of the profits, €53.95m is to be paid out as dividend and €51.09m carried forward to a new account. The company is again to be authorized to purchase its own shares and use them, excluding shareholders’ subscription and tendering rights. A resolution to amend the authorization to exclude subscription rights in the exercise of the existing authorized capital in the context of cash capital increases at market-price issuance of new shares is to be taken. In addition, the Company shall again be authorized to issue option and/or convertible bonds, profit participation rights and/or participating bonds (or combinations of these instruments).For this, conditional capital of €52.31m is to be kept available. Additionally, several charter amendments are to be decided.
TUI	ord. AGM	15/02/2012	10:30	30175 Hannover	Marseiller Straße 2 (Nähe Dammtorbahnhof), im CCH-Congress Center Hamburg	06/01/2012
	The Agenda for the ordinary AGM of TUI AG starts with the usual items, like presentation of annual accounts and discharge to the company bodies. The net profit of € million is to be carried forward in full to a new account. In addition, the Company shall again be authorized to issue option and convertible bonds, and profit participation rights or participating bonds, possibly excluding subscription rights. The existing Conditional Capital is to be replaced by a new one of €120m. Additionally, several charter amendments are to be decided.

 

 

 

Politics

Transaction tax still controversial

French President Nicolas Sarkozy announced at the end of January he would introduce a transaction tax. Originally he wanted to bring in the transaction tax together with Chancellor Angela Merkel by 2014, if necessary only in the 17 countries of the Eurozone. Merkel, however, has problems with the commitment, as her coalition partner the FDP will accept the tax only for all 27 EU countries. Another alternative would be to introduce the tax in accordance with the country-of-domicile principle, with the tax depending not on the place of trade but the tax residence of the actor. Meanwhile, Allianz CEO Michael Diekmann threatened that Germany’s largest insurer would escape to London if the transaction tax in the eurozone came in. Federal Finance Minister Wolfgang Schäuble (CDU), however, indicated he was still working hard on the introduction of the tax in the EU countries. The tax is on the agenda for the EU summit in late Jauary.

Roland Berger to the fore on European credit rating agency

Following the downgrade of France and the bad ratings for other European countries, the European Commission favours a European rating agency. To the fore here is an initiative of consulting firm Roland Berger. The core idea is a marketplace, a large platform, on which issuers disclose their information. From the available facts, the new rating agency is to derive their grades. Its judgments are then accessible to investors. Not the issuers, as is usual for the big three in the industry, should pay but the investors. Roland Berger partner Markus Krall wants by mid 2012 to collect around 300 million euros for building the agency from banks and other investors. It is now necessary to transform the expressions of interest into legally binding commitments, says Krall. The privately funded, non-profit foundation will have its headquarters in Holland and receive no State funds. The operating subsidiary may be located in Frankfurt and have a strong presence in Paris. If everything goes smoothly, the first sovereign ratings could be created by the end of the year and the first bank appraisals launched in early 2013. After three to five years the Agency should be self-supporting, and investors getting their stake back with interest. Other initiatives for a European rating agency have been taken by, among others, the German Environmental Foundation with its ENRA (European sustainable rating agency) project, the Bertelsmann Foundation and the Eacra platform, a consortium of European small agencies.

Banks and insurance companies should rate themselves

To date, insurance companies must, for funds which are invested for retirement, base themselves on the ratings of the three major agencies, and sell government bonds which do not have the top AAA rating. Following the recent downgrading of more euro countries by S&P in mid January, the CDU/CSU parliamentary group called for the rules for large institutional investors to be changed. Banks and insurance companies should accordingly assess the creditworthiness of countries themselves. Chancellor Angela Merkel (CDU) rallied behind this initiative. Now, the proposal will be submitted to EU finance ministers for consideration.

 

Greens against cap on bank levy

The bank tax introduced in summer 2011 after long discussion first became due at the end of 2011. The new levy meets with resistance especially from the Greens, because it has been capped twice. Thus, it may be at most a fifth of the profits, and in addition not exceed half the average earnings for the three preceding years. The financial expert for the Greens, Gerhard Schick, demands that this cap be lifted, because instead of the targeted amount for a normal revenue year of one billion euros, the Finance Ministry expects a revenue of only €589 million for 2011. This means the fund for the restructuring of banks, to be filled up to €70 billion from the levy, will scarcely be able to act. Schick sees the acceptability limit as a farce and therefore wants the cap checked for constitutionality.

Does a delisting violate shareholder rights?

The Federal Constitutional Court has been engaged since mid January with the question of whether it violates the property rights of shareholders when a company moves from the regulated market of a stock exchange to the open market, thus undergoing a so-called delisting. Whereas in the regulated market requirements such as quarterly reporting, regular releases on current business processes and comprehensive annual reports are conventionally imposed on listed companies, the reporting requirements on the open market are much more lax. Particularly for SMEs this constitutes a veritable cost advantage. But the rules for a move from the regulated market or even a complete withdrawal from the market are not yet explicitly set. The precedent is the family-run company Lindner KGaA, which in 2006 changed from normal floor trading on the Munich Stock Exchange to the OTC segment M:access and has since then had a legal battle with its investors about the legality of this withdrawal. There is disagreement particularly about whether the shareholders are entitled on delisting to compensation​​ for the decline in value of their securities associated with the change of segment. A federal court (BGH) ruling is now to settle this. While many SMEs have been listed since the millennium stock-market boom, they would for financial reasons like to leave were the procedure for this clearly regulated. So far, only so-called “cold delisting” through a squeeze-out is clearly defined.

Manipulations in the open market

To put an end to ongoing price manipulation and other violations in securities trading in​​ the open-market segment, before Christmas the Deutsche Börse closed the little-regulated segment of the First Quotation Board to listings. Not infrequently, companies listed on the First Quotation Board are merely shell companies, the price of which is artificially pushed up through market letters, phones or e-mail. The Federal Financial Supervisory Authority (BaFin) has been observing the manipulations for several years, and in 2010 located around 90 percent of this market manipulation in the open market. Since March 2009, therefore, on the Second Quotation Board, open to businesses which are already listed on other stock exchanges, only shares are that are listed on exchanges with a certain minimum transparency requirement may be included. Since January 2011 those companies that arrived on the First Quotation Board without a prospectus must demonstrate a capital of €500,000, and the shares must have a minimum face value of €0.10. The German stock market had set a deadline for the companies to show these conditions. When some of them let it pass, the exchange operator in October terminated the listing agreement under private law for 170 shares, and stopped their listing in November. Despite the tightening of conditions and the cleanup, further market manipulation came in November and December. As a consequence from this, before Christmas new listings in the segment were finally frozen. Now, the Frankfurt Stock Exchange is working together with the Hessian Exchange Commission and the BaFin on an action plan that will put an end to the manipulation. Currently, 450 companies are listed on the First Quotation Board.

Amortization of unrealized losses on equities allowed

The Federal Finance Court (BFH) has just decided in two cases that shares that have fallen in value may be written off in the balance-sheet. In one case a company had acquired the shares of three other listed companies and accounted for them as capital assets. It had written off their exchange loss of approximately 35 percent by reducing the profits. A second company had written off shares in an investment fund which was based mainly on stocks. In both cases the tax authorities had initially argued that the impairment was not expected to be permanent and therefore not accepted the depreciations. Now the BFH has revised this assessment with its judgments. According to them, shares may be written off when on the balance-sheet date they have dropped in value by at least five percent compared to the time of acquisition.

GCGC for more independence of supervisory boards

Following the recent meeting of the Government Commission on the German Corporate Governance Code on 17 January, the Commission recommends that the Code Recommendation on the independence of supervisory boards be made more concrete. In future, a Supervisory Board should have an adequate number of independent members to ensure independent advice and supervision. Independent supervisory-board members here are those who have no business or personal relationship with the company or its board or third parties that could create a substantial conflict of interest. In addition, Supervisory Boards should for the future nominate specific goals for the number of independent board members, and do so by 2 March. The previous suggestion that the chairman should not chair the meetings of the Audit Committee will be redesignated as a recommendation.

Shareholders against women’s quota at Siemens

The association of employee shareholders failed at the General Meeting (AGM) of the conglomerate Siemens on 24 January with its application to introduce a fixed quota for women on the boards of the technology giant. The employees had demanded that the proportion of women on the Supervisory Board should be increased to at least 30 percent from 2013 and to at least 40 percent from 2018. The Board and Supervisory Board had rejected that request in advance of the AGM. Currently, four women sit on the Supervisory Board, two on the board. Siemens had, like the other 30 DAX companies, at a summit in October with Family Minister Kristina Schroeder and Labour Minister Ursula von der Leyen voted against a fixed quota for women, but also agreed to raise the group’s quota from its current ten percent to 12 to 13 percent by the end of 2015. Shareholder association Schutzvereinigung der Kapitalanleger (SdK) castigated the request of the workforce as unconstitutional: it violates the prohibition of gender discrimination.

 

 

 

Reinhard Eyring and Philip Cavaillés

BEARER AND REGISTERED SHARES IN THE LIGHT OF THE 2012 COMPANY LAW AMENDMENT*

The government’s draft company-law amendment was adopted by the Federal Cabinet on 20 December 2011. Whereas  previous reforms (UMAG, ARUG, VorstAG and BilMoG) made fundamental changes, the 2012 company-law amendment develops company law only selectively. The government’s draft differs sometimes considerably from the ministerial draft of 2 November 2010, particularly on whether unlisted companies should be limited to the issuance of registered shares. The following are the significant changes on bearer and registered shares in the government bill.

Changes made by the 2012 Company Law Amendment

The company-law provision relating to the securitization of membership rights, §10 AktG, will be revised by the company-law amendment. A company’s previous option to issue either registered or bearer shares will be eliminated. The ministerial draft stipulated that unlisted companies could issue only registered shares. This scheme was weakened due to considerable criticism from academics, professionals and associations, and the option right (partially) preserved.

An option right is to continue, even if the registered share is to be the ordinary case, §10(1), first sentence, AktG-E. Bearer shares can according to §10(1), second sentence No. 1, AktG-E only be issued by listed companies, or, in accordance with No. 2, if entitlement to individual certification is barred and a Global Note is deposited with a securities depositary or a comparable foreign custodian. A company is listed if its shares are traded on a regulated market (§3(2) AktG). The unofficial market is not a regulated market. The new arrangement allows access to the free trading of bearer shares, if the claim to individual certification is barred and a global certificate is deposited.

The aim of the change

The aim of the new rules is to create a more transparent shareholder structure in unlisted companies. The Financial Action Task Force, an intergovernmental organization for measures against money laundering, which was created on the basis of an initiative by the leaders of the G7 countries, criticized that the lack of transparency would facilitate such crimes as money laundering and terrorism financing. The reporting thresholds of §§ 20, 21 AktG (disclosure above 25 percent of shares held) were not considered sufficient. The draft assumes that in suspicious cases investigators can through the collective securities deposit retrieve timely information and through the custody chain determine the identity of the shareholder.

Opinion

Basically, the option right and freedom of design are welcome. The mandatory collective deposit should facilitate the establishment of the identity of shareholders of questionable companies. To ensure protection even in the period between establishment and deposit, §10(1), second sentence No. 2 and third sentence, AktG-E provide that §67 AktG is applicable mutatis mutandis. Until the deposit of the global certificate, holders of bearer shares are to be registered in the share register.

Whether the goal of full transparency in the shareholder structure is achieved is questionable. In future, the possibility for a third party to be registered as a shareholder still remains. The Commercial Law Committee of the German Bar Association already pointed this out in its criticism of the ministerial draft.

It would have been possible to achieve more transparency by, for example, lowering or expanding company-law thresholds.

Established rights

§26f(1), second sentence, EGAktG-E gives wide-ranging protection for established rights. For companies that were founded before the day of the Cabinet decision (20 December 2011) and have issued bearer shares, the new provision of §10(1) AktG-E does not apply. A transitional period after the expiry of which the shares should be changed is not provided for.

For the date of founding of the company, by §23(1), first sentence, AktG it is that of the notarization of the Articles of Association.

Conclusion

The more than one-year period between the publication of the ministerial draft on 2 November 2010 and the adopted government bill on 20 December 2011 reflects the controversy over the content of company-law amendment. Also, there are still different views on how the objectives can best be implemented. It remains to be seen whether the 2012 Company Law Amendment makes it possible largely to achieve the objectives set out. Particularly in relation to combating terrorist financing and money laundering, this seems doubtful.

The introduction of the (partial) share-type option right in unlisted companies is welcome, however.

*By Reinhard Eyring, Partner and Dr. Philip Cavaillés, Rechtsanwalt and Solicitor (England & Wales), Ashurst LLP

 

People

At the beginning of the year Marion Helmes replaced her predecessor Christian Holzherr, who in October had unexpectedly left Celesio at his own request. The Supervisory Board appointed the doctor of business administration on 20 December. She is responsible for Finance & Treasury, Controlling, Accounting, Tax, HR and IT. Helmes comes from Q-Cells, where she gave up her post as Chief Financial Officer a few weeks ago.

Thomas Kremer, General Counsel of ThyssenKrupp, is to succeed Manfred Balz at Deutsche Telekom. The Bonn Group and ThyssenKrupp would not comment.

Thomas Enders is to succeed Louis Gallois as CEO of the European Aeronautic Defence and Space Company (EADS) at the end of May. The current CEO of EADS will as planned give up his post on the board on 31 May after five years. Instead Jean-Claude Trichet moves onto the committee as new member. The 69-year-old French financier was until recently President of the European Central Bank (ECB). In the first year after his retirement from the central bank Trichet has to get its permission before he takes a new post.

Professor Martin Rohr left HOCHTIEF at the turn of the year. The engineering graduate exercised his contractual right to early termination, which allows managers to retire upon a change of ownership, the Essen-based company announced on 20 December. Rohr gave the reason for his withdrawal as his personal life planning.

Guillaume de Posch, Chief Operating Officer at the RTL Group since the beginning of the year, has resigned his Supervisory Board post at Sky Deutschland with effect from 5 January. The former head of ProSiebenSat.1 adduces conflicts of interest in connection with his new Board membership at the Luxembourg media group as the reason.

At the Annual General Meeting on 23 January Hero Brahms left the Supervisory Board of Wincor Nixdorf. As seen on the invitation to the shareholders’ meeting, he was replaced by Professor Edgar Ernst.

Campus

Green Paper aims to set CG standard

In Europe very different rules and standards of corporate governance may apply. In order to unify them, the EU Commission in April 2011 published the so-called Green Paper on the EU corporate governance framework, with an eye to identifying the existing need for improvement. Through July, the Commission then collected opinions on the Green Paper. The results of the consultation were published in mid November 2011. Commissioner Daniela Weber-Rey, a partner at Clifford Chance and a member of the German Corporate Governance Commission, has summarized the answers. The majority advocated that consistent corporate governance standards should be introduced regardless of company size. But they rejected a legally binding quota for women and want to encourage a voluntary promotion of diversity here. At the same time, respondents were against a legal limit on the size of supervisory boards. However, they call for regular external evaluations and mandatory disclosure, and a mandatory vote on remuneration policies. A shareholder platform is to improve cross-border coordination and the flow of information between issuers and shareholders. In addition, the work of proxies is to be made more transparent. The Commission has announced publication of further consultation results for early 2012.

DAX board directors are pension millionaires

In times of rising fixed salaries the pension entitlements of DAX board members are also climbing. Compensation expert Heinz Evers has worked out a statement for Handelsblatt showing that DAX company board members have, on average, pension rights of eight million euros, thus more than double within 15 years. The ranks of the best-secured DAX board members are headed by Daimler CEO Dieter Zetsche, who by the end of 2010, for his past 13 years on the Executive Board alone, had secured €26 million in entitlements. Volkswagen boss Martin Winterkorn follows, with a current pension of €18 million. Ex BASF CEO Jürgen Hambrecht, on his departure in 2011 after 14 years on the board, took a €15 million pension package with him. Josef Ackermann, head of Deutsche Bank since 2002, will retire in May 2012 with pension rights of €13 million. Evers makes the criticism that the DAX companies’ total pension obligations have grown disproportionately to employee pensions: instead of commonly 50 to 60 percent of the last fixed salary, they are at up to 80 percent today. The pension plan for the eight-member VW board climbed to €64 million in 2005-2010 and thus rose by 540 percent. In addition, an increasing burden on groups is emerging: at Daimler, the Board’s pension entitlements already add up to €197 million.

More private shareholders

Despite the financial crisis and economic downturn, the interest of private investors in Germany in shares has increased for the first time in six years. As the German Stock Institute (DAI) determined, the number of shareholders has risen by 683,000 to 4.1 million. A total of 8.7 million investors, or 13.4 percent of the German population, was in possession of shares or units of equity funds at the turn of the year. In the crash month of August the volume of purchases even exceeded that of sales by almost double. Thus the total number of shareholders rose in the second half of 2011 by around 4.1 percent or approximately 356,000 – a “remarkable” increase, as the DAI writes. Of the 6.2 million shares owners in 2000, just 3.4 million remained by the end of 2010.

Investment bankers more optimistic again

The estimates of financial experts on the situation in the capital market having almost reached the negative level of the Lehman bankruptcy in consulting firm cometis’s previous panel, the mood among the investment bankers surveyed lightened again in the fourth quarter of 2011. The bankers granted defensive sectors such as food & beverages, but also pharma, the best prospects, while cyclical industries such as the automotive industry took the rear seats. The respondents see the financial sector at the very back. The vast majority sees the euro crisis as the decisive factor for stock-market developments in the next six months. As long as no consistent solution is found there, investors will continue to hold back, the bankers judge. The great uncertainty about economic developments will also keep the window for IPOs closed in the first half of 2012, but it should open in the second half of the year. On SME loans, about half the respondents predict 20 to 30 new issues.

Accounting errors down

The German Financial Reporting Enforcement Panel (DPR) detects the first signs of improvement in balance-sheet quality. Its 2011 activity report still shows a consistently high error rate, of 25 percent. Of the 110 tests carried out 90 were spot checks and 20 non-routine tests or checks performed at the request of BaFin. The previous year the error rate was 26 percent for 118 tests. The main causes of the consistently high error findings for the past five years were inadequate reporting in the management report and the notes, especially regarding the impact of the financial and economic crisis on the company’s situation, and difficulties in applying individual IFRS standards. Thus, as in the previous year, risk and forecasting reporting was a major error source. The error rate falls from 25 percent to 19 percent when the results are adjusted by not counting errors that occurred again in successive financial statements of the same company more than once, and also eliminating tests where the auditor’s report was already restricted or denied. This value is still too high, says Vice President Axel Berger, but the adjusted calculation reflects the situation more adequately.

Proportion of women barely increased in 2011

A study by the German Institute for Economic Research (DIW) came to the conclusion that the proportion of women in supervisory and management boards of large companies and banks in Germany barely changed in the past year. “The tenacity of male structures leaves little room for women,” stated the Institute’s female managers’ barometer on 18 January. Thus, the proportion of women on the boards of the top 200 German companies continued at three percent in 2011. Nevertheless, DAX-listed companies raised their share by 1.5 percentage points to 3.7 percent. On supervisory boards, the proportion increased slightly from 10.6 percent to 11.9 percent. In MDAX companies in 2011 only 2.3 percent of board members were women: female SDAX executives came to 4.8 percent. While the rate in this country is barely moving forward, the percentage of women directors in Ireland is already at 28 percent, in Sweden at 15 percent and in Finland at 12 percent.

 

 

Analysis

Compliance must be lived*

Companies expend great effort training their employees in order to secure themselves legally against compliance violations. For sustainable change in behaviour, that is not enough.

The dangerous moment came for George M. without his having had even a slight chance of recognizing it. Casually, a friendly ex-colleague had inquired at a trade fair about details of a product launch. His questions appeared innocuous and were clad in the familiar banter of two industry colleagues who still met each other with respect, even if they were now working for competing employers. And so the conversation was soon forgotten.

The rude awakening came some months later. Then, friendly but determined prosecutors turned up in a number of companies in his industry and seized files by the basketful. His information from that time appeared as a classified transcript note in the papers of a competitor. For the Kartellamt the case was clear: between the two houses there had been cartel collusion to the detriment of consumers. The damage sum, payable immediately: ten percent of the turnover the listed company had achieved in one year in the affected division. George M. suddenly realized that he had made a big mistake and brought his company into enormous difficulties: the market price had come tumbling down, and the company’s reputation was heavily tarnished in the public and the media. At the same time he was extremely annoyed, because no one had prepared him for the danger of the actual conversational situation. Soon he was in internal investigations, with the feeling of being defenceless at the mercy of accusations.

Formally, in fact, everything was against him, because given the enormous effort his employer had made in order to prevent cases like these, such a situation should not have arisen at all. George M. had like all his colleagues been channeled through a comprehensive compliance programme. He had studied the code of conduct of his business, taken lectures on the law and passed special training on the PC - all acknowledged with his signature. Nevertheless, he was not able to recognize the significance of his remarks. But why had his employer’s complex compliance efforts proved ineffective for him?

Many employees in German companies are like George M. They are trained at regular intervals, supplied with brochures, know their contact persons and the number of the internal compliance hotline. Usually they complain about too much rather than too little relevant information. The impression is that the sometimes costly compliance communication in companies falls short at some crucial point: it has no lasting effect. It checks acquired knowledge. But obviously it does not succeed in achieving a sustainable, permanently durable change in behaviour anchored in the employees.

If this is true, the effect would be disastrous. Then the compliance efforts would be no more than a figleaf for management, which may feel a deceptive and dangerous false sense of security: having done enough to be protected adequately against legal liability claims, but clearly not enough to effectively prevent repetition and the resulting reputational damage for the company. Hadn’t George M. too confirmed with his signature that he had read and understood everything?

What’s going wrong with traditional compliance programmes?

The simple answer is: the communication. That may sound surprising, because obviously there’s already more than enough communicating. But where it gets stuck is the teaching method. Poorly prepared contents are usually conveyed in the wrong format. Often the internal presentations meet the needs of the speakers, but not those of their listeners. A legal lecture is rarely made into an exciting event close to the lived reality of companies and the actual daily work of employees. Conventional chalk and talk misses its effect because the students soon turn away, uninterested or bored. Thus compliance becomes an issue of necessity, and is completed with minimum effort.

What is to be done, then? Compliance communication needs in future to be aligned more closely on the expectations and needs of the target group. Employees will be attentive listeners and willing to learn if they recognize the reference to their actual daily work and responsibilities within the company. Training courses are not sufficient. Additionally there must be open and real-life exchanges of experience within the respective teams. When might I be running a compliance risk? What are the critical situations like? And above all: what is allowed? Good companies invest in this translation work, because it is the only way to make compliance also a contribution to business success. Only those who are not constantly stressing the risks, but rather illuminating the allowed range for employees, can make good, sustainable business possible. Nothing could be more counter-productive than an organization paralysed by prohibitions and monitoring that would rather not move at all than make a mistake.

How should a sustainable, effective compliance programme ideally be structured?

In practice, compliance communications programmes with the following basic features have proved useful:

1. Personally

Team discussions instead of anonymous screens: this open, trusting and personal communication helps employees to recognize the real stumbling blocks and to clearly articulate rule-compliant conduct and confidently present it to customers and suppliers.

2. Systematically

The communication of the programme must pass through the company with no gaps, in a sort of cascade.  It must always start at the top and be done clearly and unambiguously.  Depending on region, business and hierarchy level, the programme must be adjusted to the communication needs, expectations and work environment of employees.

3. Consistently

Compliance missteps must be punished promptly, consistently and visibly to all. The communication must occupy the subject, leaving no room for interpretation. The idea is to define the aims of the company and make its employees aware that rule violations will not be tolerated.

4. Productively

Lived compliance is increasingly becoming a differentiating feature in the marketplace and therefore a sustainable competitive advantage.  Communication plays a key entrepreneurial role here.  It must clearly explain and illustrate what is allowed, in order to promote good and sustainable business.

Conclusion

Robert Bosch once said, “The most honest form of management is also the most durable in the long run.” That rule-compliant conduct offers a competitive advantage is currently just being rediscovered by companies. This stance, however, places new and higher requirements on communication, for technical legal presentations or the anonymity of an on-screen dialogue do not yet create compliant conduct. Whoever wants to anchor compliance in the minds of employees and make it effective needs to promote openness, sharing in teamwork and an uninhibited approach to the issue.  Classic compliance communication programmes currently hardly do justice to this important goal, since they often focus on prohibitions, risks, monitoring and control. Accordingly, a change of heart is overdue: companies need to transfer more responsibility back to their employees, and more clearly emphasize the path to good, sustainable business. Advice and support rather than threats and prohibitions are the appropriate policies for this. It is  the only way in the long term to secure commercial success, lawful conduct, and reputation with both customers and employees.

*Dr. Hartmut Vennen is Managing Director of Strategic Communications Practice at FTI Consulting in Frankfurt, and heads the Corporate Communications sector. Markus Weik is Senior Executive on his team. Both advise companies in mission-critical situations, on all relevant fields of corporate communications. They specialize in communication in a crisis and in legal disputes, as well as in the implementation of compliance programmes.

Capital News

By the end of 2011 Commerzbank had already complied with 57 percent of its nine per cent capital requirement, estimated by the European Banking Authority (EBA) at €5.3 billion, thanks to a billion in profit in the fourth quarter of 2011. A message dated 19 January said that the measures now taken give the bank the potential to up its core capital by the set date of 30 June by a total of around 6.3 billion euros from its own resources. The three main points of this package are the continued reduction of risky assets, with a core Tier-1 relief of around 1.5 billion euros, the further reduction of regulatory capital deductions in the amount of approximately €0.35 billion and a projected profit retention by the end of June amounting to around €1.2 billion. This includes planned additional fixed cost savings in the first half year amounting to around €150 million. The core capital will accordingly be raised to 6.3 billion euros (equivalent to a core capital ratio of eleven percent). Commerzbank plans initially not to take any government assistance, not to spin off its subsidiary Eurohypo into a Bad Bank and and not for the moment to convert its silent participation in Allianz.

Owners of the two SGL CARBON bonds had by 16 December converted a portion of the convertible debentures totalling €107.4 million, the Wiesbaden graphite specialist announced on 20 December. Simultaneously, the debt would decline by that amount. A total of 3,294,580 million new shares were created. The exercise of such conversion rights increases the current equity, after accounting for the remaining interest cost component and the included funding costs, by 98 million euros. In November 2011, BMW secured 15 percent of the Group.

Director's Dealings

 

Company	Person	Function	Buy / Sell	Total value in Euro	Number of shares	Datum
Aurubis AG	Renate Hold	SB	S	15.277	380	05.01.2012
Bechtle Aktiengesellschaft	Schick GmbH		B	519.800	20.000	25.01.2012
Carl Zeiss Meditec AG	Dr. Wolfgang Reim	SB	S	82.150	5.000	04.-05.01.2012
Evotec AG	Dr. Werner Lanthaler	MB-Head	B	27.600	12.000	29.12.2011
GERRY WEBER INTERNATIONAL Aktiengesellschaft	R + U Weber GmbH & Co. KG		B	1.298.508	53.160	30.12.11- 06.01.12
Henkel AG & Co. KGaA	Mayc Nienhaus	SB	S	9.591	208	09.01.2012
Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München	Prof. Dr. Henning Kagermann	SB	B	200.114	2.130	27.12.2011
RWE Aktiengesellschaft	Roger Graef	SB	B	24.900	1.000	23.01.2012
RWE Aktiengesellschaft	Roger Graef	SB	Exercising an Option	1.352	52	21.12.2011
SGL CARBON SE	Robert J. Köhler	MB-Head	S	488.712	12.905	20.01.2012

 

 

 

VIPsight Shareholders

in January

Shares held by capital investment companies:

*Changes from previous month, percent

VIPsight Shareholder ID <click here>

 

 

 

 

Event Diary

21 February 2012 Eigenkapitalbeschaffung 2012: Ein Ausblick [Equity financing in 2012: An outlook]

Organizer: Deutsches Aktien-Institut; Venue: DVFA-Center im Signaris, Mainzer Landstrasse 37-39, Frankfurt am Main; cost: €900, info: +49 69 929150

23 February 2012 Aktuelle Fragen der Organhaftung [Current Issues in D & O liability]

Organizer: Deutsches Aktien-Institut; Venue: Hotel Hessischer Hof, Friedrich-Ebert-Anlage 40, Frankfurt am Main; cost: €900, info: +49 69 929150

6 March 2012 Transparenz bei börsennotierten Gesellschaften: Status Quo und rechtliche Perspektiven durch die EU-Transparenzrichtlinie Transparency in listed companies: the status quo and legal perspectives in the EU Transparency Directive]

Organizer: Deutsches Aktien-Institut; Venue: DVFA-Center im Signaris, Mainzer Landstrasse 37-39, Frankfurt am Main; cost: €900, info: +49 69 929150

 

 

 

Reading suggestions

Breuer, Wolfgang, Schweizer, Thilo, Breuer, Claudia, Gabler Lexikon Corporate Finance

2nd ed. Gabler-Verlag, 668 pp, €49.95, ISBN 978-3-8349-2980-8

The success of firms depends not only on their performance on the markets. Also essential is a professional appearance on the capital markets, to meet entrepreneurial resource requirements in the best possible way. The Lexikon provides nearly 3,500 keywords, with a comprehensive overview of all questions likely to arise in the context of corporate financing decisions. Great importance is attached to formulating theory-based evidence for the appropriate use of the various financial instruments available. The domains covered range from traditional topics such as equity, bond and loan financing to the discussion of hybrid and innovative forms of financing to special problems such as seed and early-stage and project financing. The Lexikon offers a mix of practical and theoretical content and is therefore equally of interest for decision makers in the financial departments of companies and students with a focus on finance, banking management and capital-market theory.