Politics

Power companies. Abandon hope

The strategy of the Federal Ministry of Economy, contained in the “Bill for the Development of Electric Energy”, is oriented towards a future in which market shifts are the results of free competition. This deprives E.ON, RWE and others who fought until the very end for financial preference for conventional power stations if they are to have any hope of a future. From now on, incentives to build new generating stations to complement the more volatile types such as solar or wind-powered must emerge from the market prices. These units that deliver power to the grid at almost zero cost are depriving traditional power stations of profitability. Sigmar Gabriel is also seeking to pass a law to prevent generating companies skipping the decommissioning of nuclear stations. E.ON is presently considering legal action against this project. In June, the Federal Minister for the Economy had ordered auditors to ascertain whether the reserves in the accounts of nuclear energy groups such as E.ON, RWE, Vattenfall and EnBW to verify that the reserves amounting to 36 billion Euros are sufficient and guaranteed. Power companies could find themselves short of 30 billion Euros of reserves to pay for future decommissioning of the power stations and preparing a secure dump for nuclear waste. After a period of speculation about a steep rise in the costs of abandoning nuclear energy, many investors unloaded the shares they possessed in these major groups.

More protection for small shareholders in delisting

A document issued by the German government on September 21 states that shareholders in a situation of delisting should by rights have their shares indemnified. Previous proposals were conditional to no purchase offer being made to shareholders for their shares, whereas now delisting without some form of compensation for investors who reject a purchase offer has been discarded. The governing parties also reached a compromise for when stock market prices have been manipulated, for example where false information is provided deliberately, or the processes are fixed. In cases of this kind the reference point will be the earning-capacity value and not the share value. The indemnity must consider the average value of the share over the previous six months instead of the average of the previous three. If things work as they should, the new regulations, which are part and parcel of directives on transparency, will be ratified by the Bundestag on October 1. The coalition‘s financial experts are following the advice of those safeguarding the interests of shareholders who previously had been critical of the absence of legislation on the matter.

RWE CEO favours Brandt to be elected to the Supervisory Board

Peter Terium is backing former SAP CFO Dr. Werner Brandt to succeed Manfred Schneider to the chair of the RWE Supervisory Board. “We need a candidate who knows the issues” says Terium. According to a RWE communiqué “Brandt stands for continuity and is a very suitable candidate”. Typical of the most skilled financiers, he stays on top of the business; he has a keen eye for detail and is incisive in in-depth analyses. In SAP he always kept the CEO at just the right distance. The municipality shareholders and a number of the employees’ representatives are more in favour of former Federal Minister for the Economy Werner Müller. The outgoing chair of the Supervisory Board, Manfred Schneider, instead would prefer his place to be taken by Brandt. The RWE executive board was open in expressing its irritation at media attention focussed on speculation on the appointment and thus “was harmful to the company”. In December, the appointments board must present the proposals of the candidates representing the capital sector for submission to the Supervisory Board. The new chair of the Supervisory Board will be elected by the AGM in April 2016. The generating company is going through one of the most difficult periods in its 117 years of existence. The CEO is therefore going to be under great pressure.

Deutsche Wohnen takes over LEG Immobilien

The union of the second and third most important real estate rental companies in Germany has spawned an authentic leader. Last year, the then Deutsche Annington, which has been Dax listed since September 21 under the name Vonovia, joined forces with its competitor GAGFAH. On September 20 Deutsche Wohnen announced its intention of taking over LEG Immobilien, it too, MDax listed. The new company will keep the name Deutsche Wohnen and have a register of some 250,000 apartments with a portfolio value of 17 billion Euros. The gap between it and Vonovia’s 350,000 is less but still sizeable. The new group’s market capitalization of 12-13 billion gives it a good chance of following Vonovia with its 13.8 billion capitalization to Dax . Deutsche Wohnen and LEG Immobilien expect to conclude the deal before year’s end by a share swap. Including indebtedness, it is worth some 8 billion Euros. Both companies boast high-end apartments and low indebtedness. The merger between the second and third largest companies of their kind in Germany set off a shockwave on the stock market. Consumer protection bodies are unhappy with this, yet another merger in the property rental market. A company so large will assuredly relegate the interests of tenants to second place, after profit maximisation .