Volkswagen Slipstream

VW Scandal Hits Frankfurt IPOs

Schaeffler Maria-Elisabeth Schaeffler-Thumann Source vario images
Maria-Elisabeth Schaeffler-Thumann, owner of car parts maker Schaeffler, has her eyes on the stock market.
  • Why it matters

    Why it matters

    The Volkswagen emission scandal and stock market volatility could derail planned stock market listings in Germany.

  • Facts

    Facts

    • The Volkswagen diesel emission manipulation, which emerged last week, has hurt investor confidence in German firms, particularly German carmakers and auto suppliers.
    • Bayer’s plastics maker Covestro, which supplies products to the car industry, and auto parts maker Schaeffler want to sell shares and list on the Frankfurt Stock Exchange this month.
    • Scout24, a digital classifieds company, was able to sell €1 billion, or $1.1 billion, worth of shares and list on the Frankfurt Stock Exchange.
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    Audio

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Scout24, Germany’s largest digital classifieds company, sold €1 billion, or $1.1 billion, worth of new and existing shares and listed on the Frankfurt Stock Exchange, the Munich-based firm said on Thursday.

The owners of Scout24, U.S. private equity firms Hellman & Friedman and Blackstone, telecom operator Deutsche Telekom and employees, sold about 24 percent of the German firm’s share capital, excluding an option to sell extra stock.

After the listing, the firm, which operates Germany’s largest real estate website and Auto Scout 24, a digital marketplace for automobiles, is now valued at €3.2 billion.

But a good day of trading for Scout24 was a terrible one for two other key German firms also floating on the Frankfurt Stock Exchange.

Plastics maker Covestro, a spin off from drugs and chemicals producer Bayer, continued to suffer knock-on effects from the Volkswagen emissions scandal, which shocked investors and consumers around the world last week.

“Covestro is very sexy, and if investors hesitated it was not because of Covestro, but because of the general market environment.”

Marijn Dekkers, Chief executive, Bayer

Viewing the lasting stock market volatility following the Volkswagen crisis, Leverkusen-based Covestro decided on Thursday to scale down its ambitions.

The company, whose plastics are used to make headlights and panoramic car roofs, almost halved the size of its share sale to €1.5 billion from €2.5 billion, lowered the issue price range by 25 percent on average and postponed the listing by five days to October 6.

“External factors such as uncertainty surrounding future economic growth in China or the Federal Reserve’s interest rate policy have contributed to increased market volatility,” Covestro said in a statement on Thursday.

“In addition, the stock market has been impacted by the negative headlines from the automotive sector,” Covestro said, referring to the Volkswagen scandal which erupted in the United States and affects 11 million cars globally.

The Volkswagen scandal exacerbated investor worries about global economic growth and evaporated billions of euros in market value of carmakers such VW, BMW and Daimler as well as their suppliers, including Schaeffler and Continental.

The reduced proceeds of Covestro’s listing, which could have been Germany’s largest since the dot-com boom in 2000, are a setback for Bayer chief executive Marijn Dekkers, who has been restructuring the Leverkusen-based firm to focus it on making medicines and pesticides.

Mr. Dekkers, who is scheduled to resign at the end of next year, told German business weekly WirtschaftsWoche Covestro’s IPO changes were justified when looking at current market conditions.

“Covestro is very sexy, and if investors hesitated it was not because of Covestro, but because of the general market environment. That is why we have made it easier for anyone interested to sign up for the listing,” Mr. Dekkers was quoted as saying by the magazine, a publication part of the Handelsblatt publishing group.

 

Bayer Covestro Source dpa
Work continues at Covestro despite IPO hurdles. Source: DPA

 

Bayer’s shares, meanwhile, were little affected and traded up 0.6 percent at €115.15 at the end of the morning, compared with a 0.9 percent rise of the German blue-chip DAX index. Shares of Scout24, which were sold for €30 a piece, rose 1 percent to €30.29.

On Tuesday, Hapag Lloyd, the world’s fifth-largest container shipper based in Hamburg, also showed it had been affected by deteriorated market conditions. It announced that it had raised $500 million instead of the $1 billion industry experts had previously expected.

The listing of family-owned Schaeffler, Germany’s fifth-largest car parts supplier and a ball bearings maker, might be postponed by few days, according to people familiar with the matter. The private placement of shares and listing on the Frankfurt Stock Exchange could raise as much as €3 billion, Reuters and Bloomberg reported last week.

The listing of the Herzogenaurach-based company is planned for Monday and should put an end to an ill-timed takeover attempt of tire and car parts maker Continental in 2008.

Thomas Mölkner, head of the workers’ council at Schaeffler, remembers the episode vividly, when the debt-financed takeover was overtaken by the credit crisis.

In fact, Schaeffler Group, which specializes in ball bearings for automotive, aerospace and industrial uses, was on the verge of collapse six years ago. “We just squeezed back then,” said the 53-year-old trade unionist. “Everybody was worried.”

Owners, management, workers and the town of Herzogenaurach closed ranks and overcame the crisis. Now the company’s planned stock-market launch on Monday could serve as a sort of official end to the Schaeffler drama.

The owning family will relinquish a bit of power – a consequence of its near-disastrous takeover of much larger rival Continental. But if the stock offering succeeds, the Schaefflers can reduce the firm’s debt and again concentrate on important investments for the future.

Just as with the Conti takeover in 2009, the timing is unfortunate without it being their fault. The VW crisis burst in on the preparations, and the entire automotive sector was punished on the stock markets.

Now investors are insisting on price concessions at the last moment, but fundamentally there is great interest in the company.

Schaeffler's CFO Klaus Rosenfeld didn’t offer the shares broadly, as is customary, but in a private placement without a public offering.

The fortunes of Schaeffler are closely tied to those of the town of Herzogenaurach, the small Bavarian town where Georg and Wilhelm Schaeffler established their firm in 1946.

The city is also home to two better-known companies, the sporting goods giants Adidas and Puma, but those firms produce their shoes and sportswear in many other locations, whereas Schaeffler employs 10,000 in Herzogenaurach – one in every two local jobs.

Back in 2009, when the drama involving the Continental takeover reached its peak, the town had to make drastic spending cuts. Fireworks at the town festival were canceled, municipal jobs eliminated and the dilapidated ceiling at town hall could not be renovated.

So the mayor, German Hacker, got in his car, drove to Berlin and asked for help for the auto supplier. “When Schaeffler coughs, the town gets pneumonia,” Mr. Hacker said, quoting one of his predecessors.

Six years later, the lanky, 6-foot-3 mayor sat in his office in a good mood. He was about to take a group of U.S. veterans on a tour of the city. “The crisis was overcome a while ago,” he said.

Commercial revenues are again flourishing. The company’s shortfalls turned out not to be as severe as feared at the height of the crisis in 2009. Now Mr. Hacker is planning a new town hall and other postponed investments are being made.

At the beginning of 2009, such a turnaround could not be foreseen. At the time, 8,000 people marched through Herzogenaurach in support of Schaeffler. After taking over its three-times larger competitor as the financial crisis hit, the ball-bearing specialist was confronted with huge problems.

With tears in her eyes then, Maria-Elisabeth Schaeffler walked to the factory gate with her son Georg, as always a few steps to the side and somewhat in her shadow. Applause erupted and the mother raised her arms.

“Of course there was fear,” she recalled in an interview with Handelsblatt. “We had sleepless nights.”

Everyone was worried, even the otherwise cheerful workers’ council leader, Mr. Mölkner.

The head of the Herzogenaurach chapter of the Federation of German Trade Unions is a stalwart at the company, where he started as an apprentice more than 35 years ago. He believes Schaeffler survived because the company did not eliminate jobs, but instead put its faith in reduced working hours and flextime.

“When things picked up dramatically in 2010, the workers were still on board,” he said.

The holding company and consortium still have almost €10 billion in debt – too much to invest in needed new technologies. But with tenacity, luck and skill, the Schaefflers overcame the crisis. The Conti participation is again worth €17 billion – far more than the debts. And because of refinancing by the CEO, Klaus Rosenfeld, interest payments are manageable.

“Maria-Elisabeth Schaeffler doggedly saw the thing through,” said a source close to the family.

The strategy of investing in Continental turned out well. Electronic solutions for cars are becoming more and more important, while Schaeffler’s strength had long been mostly in mechanics. Only the timing was unfortunate because of the unforeseen bankruptcy of Lehman Brothers.

Mr. Rosenfeld is the architect of the planned stock market launch. He came to Schaeffler as head of finance and served as a sort of fireman for banks that were the company’s creditors.

Since then, he rose to indisputable head of the company. He seeks the trust of investors, arguing that Schaeffler, strong in innovation and above average in profitability, is “one of the most important German family firms.”

 

Car Parts Maker Schaeffler-01

 

He also knows how volatile the markets are, especially as the VW scandal brings more unrest to the automotive sector. Mr. Rosenfeld took into account the risk for such surprises. He didn’t offer the shares broadly, as is customary, but in a private placement without a public offering. This makes it possible to plan the undertaking more securely.

At the height of the crisis, Maria-Elisabeth Schaeffler continued to be widely respected. Today she is not the billionaire in a fur coat – which she once wore at an official appointment in the mountains. She is involved in cultural and social activities without making mention of them, and she lives right in town.

After the death of her husband Georg in 1996, many didn’t think that his wife, who grew up in Vienna, could successfully assume his legacy. But she built the company into a profitable global market leader, also through the acquisition of German competitor FAG.

“The company is my life,” she told Handelsblatt.

Schaeffler is everywhere in the city. Soon the Herzogenaurach Culture Days will begin. This year’s theme is China, and the Chinese State Circus will make a guest appearance.

There is also a connection to Schaeffler: The company’s head of Chinese operations, Yilin Zhang, will report on how business in the gigantic Asian country is progressing.

In the future, that will also interest the stock market. The head of the workers’ council already fears that thinking in terms of quarterly returns will become too important in Herzogenaurach.

“Of course quarterly figures have a role to play,” said Mr. Mölkner. “But I expect the character of the family firm to be preserved.”

He believes, however, that transformation to a stock-held corporation will be a good thing.

“Workers’ participation is far deeper than before. There is more transparency,” he said. “That was certainly a great leap. There are still day-to-day conflicts, which is completely normal.”

But he considers planned job reductions in the industrial division to be a sharp break. Discussions with company management have intensified regarding this new development.

All in all, however, the consensus around the company, the IG Metall union and town hall is that Schaeffler is in a favorable position. Business has almost always been good. Now that finances are being freed up, innovation can be more fully supported.

Despite that, Mr. Mölkner of the workers’ council has no plans to buy shares in the company. He said he gave it serious thought, because Schaeffler is a strong enterprise. But the stock market is not his game.

“I can play the lottery instead,” he said. “Stocks are not for me. Everyone has to decide for himself.”

 

Gilbert Kreijger is an editor with Handelsblatt Global Edition in Berlin, covering companies and markets. Axel Höpner is the head of Handelsblatt’s Munich office, focusing in particular on Allianz and Siemens. To contact the author: kreijger@handelsblatt.com and hoepner@handelsblatt.com

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