The ratings agency Standard & Poor’s considers its bonds as bad as Greek notes. The company hasn’t made a profit since 2011. Yet four competitors are jockeying to buy a 49-percent stake in the Alba Group, a waste management company based in Berlin, Handelsblatt has learned.
The family-owned firm, which has a turnover of €2.45 billion ($2.75 billion), employs 8,000 people in Europe, the United States and Asia and is one of the world’s leading suppliers of raw materials and environmental services.
According to Handelsblatt’s sources, Alba has already entered into detailed negotiations with interested parties. Three of the potential buyers are from China and a fourth is also from Asia. Investors from the United States have now left the race.
The economic turbulence in China hasn’t had any impact so far on the talks. Negotiations have taken place in Shanghai and Beijing. Business delegations have also come to Germany.
Alba is worth between €1.25 billion and €1.5 billion, according to company estimates. Subtract the company’s half a billion in debt, and the sale of a 49 percent stake would bring in a maximum of €500 million.
It's a decidedly bad time to sell. Alba's junk and scrap metal business is doing poorly.
“The process has gone entirely according to plan,” Markus Guthoff, Alba’s finance director, told Handelsblatt. “As we announced in April, we’re working under the assumption that, given the complexity and the amount of interest, it will take until early 2016 to find the right partner that shares the strategy and values of the group.”
Handelsblatt’s sources paint a different picture. The negotiations could already be wrapped up in October, though there have been delays due to disagreements over corporate governance, the sources said. A sticking point has reportedly been the company’s “complicated sales structure.”
Alba has been a family-owned company since it was founded in 1968. Chief executives Eric Schweitzer – who also heads the German chamber of commerce and industry – and his brother Axel would like to keep it that way, more or less. Since the brothers would likely split their share, the buyer would technically have a majority with a 49 percent share of Alba’s stock, unless the Schweitzer brothers decided to pool their shares into a joint company.
What’s more likely is that the Asian investors will buy into one of Alba’s subsidiaries, according to Handelsblatt’s sources.
Preparations for a partial sale of the company, arranged with the help of the investment bank Rothschild, are in full swing. Alba produced its first-half year financial statement early this year, at the end of August, and management also ordered employees to do inventory at an unusual time.
Yet it’s a decidedly bad time to sell. Alba’s junk and scrap metal business, bundled into its listed Cologne-based subsidiary Alba SE, is doing poorly. In the first half of the year, the price of iron ore reached a historic low worldwide and with it the rates for junked steel.
Although in the first half of 2015 Alba SE showed a 76-percent increase in earnings to €16 million compared to the same period last year, it barely covers the financial costs of its parent company in Berlin. Last October, outside investors pressured the Schweitzer brothers into buying 7 percent of Alba SE’s shares for €30 million. The brothers had paid €350 million for the other 93 percent of the subsidiary’s stock.
The Alba Group’s €500 million in interest-bearing debt also cuts deep into the company’s profits. It has bonds worth €203 million with an eight percent interest rate.
There’s also no prospect of improved operating profits. The World Steel Association estimated at the beginning of the year that demand for steel would increase by two percent in 2015. However, global demand has virtually collapsed due to the economic downturn in China.
With Alba in a shambles, Axel Schweitzer is trying to lure investors with the promise of “big opportunities for growth” in the Asian waste market, especially in China. Over the next five years, construction will begin on eight recycling centers in different regions.
With two Chinese partners, Guangdong Rising and Zhongde Metal, Alba has established a joint company in Hong Kong that specializes in trash separation and recycling. China is the largest market worldwide for green technology and the biggest producer of waste, Mr. Schweitzer says.
Alba has slightly improved its profitability by getting rid of dead wood, such as the company’s junkyards in Freiburg, Aschaffenburg and Hanover. Standard & Poor’s estimates that Alba will cobble together €120 million before tax, interest and write offs this year. The company made €116 million last year.
Alba’s announcement that it will bring a high-powered investor on board has given the company breathing room with the banks. A consortium from Commerzbank, Germany’s second-largest bank, with a stake in the firm agreed to lend Alba an additional €164 million through to October of 2017.
According to Standard & Poor’s, using the capital infusion from an outside investor to expand business in China doesn’t really make sense in Alba’s case. “The Alba Group will use the revenue from the sale of stock primarily to pay back its debt,” the ratings agency said.
Christoph Schlautmann covers the retail sector for Handelsblatt. Robert Landgraf is the deputy head of the paper’s finance section. To contact the authors: email@example.com, firstname.lastname@example.org