Insider Trading

What did Metro's bosses know?

Metro Hauptversammlung
Did he know something you didn't know? Metro Chairman Jürgen Steinemann. Source: Picture Alliance

When Metro announced on March 30 of last year that it planned to split the German retail and wholesale group into two parts, its stock price surged more than 10 percent. That helped Jürgen Steinemann, the non-executive chairman of Metro’s supervisory board, more than most. On February 22, 2016, he bought just over €1 million ($1.16 million) in Metro shares. When the demerger plans were revealed, the value of those shares increased by around €170,000.

Mr. Steinemann may come to regret the share purchase, as he is now the main focus of allegations of insider trading. Public prosecutors in the city of Düsseldorf have officially launched an investigation, which now encompasses an even larger number of people than earlier assumed. Sources within the prosecutor’s office say nine people are currently under investigation.

The key question now facing investigators is this: When did the demerger plans become sufficiently concrete that share trading by Metro executives or board members could amount to insider trading?

Share transactions surrounding the Metro split have drawn increasing suspicion.

Metro, Germany’s largest retailer and the third-largest in the world, has stated that “no insider information was available at the time when Mr. Steinemann and a senior executive bought shares.” Mr. Steinemann, who was promoted to chairman just three days before buying the shares, has defended the purchase as a “visible sign” of his confidence in the company as a whole. But public prosecutors believe there is at least a “prima facie case” that even early demerger plans amounted to inside information.

There are two main allegations of serious misconduct. First, there are initial indications of market manipulation, with suggestions that the company may have delayed in making public news of its planned demerger. In this context, authorities are investigating five company officials. There is “a possibility that the delay was deliberate, and intended to have an effect on the share price,” according to the state prosecutor’s office. On Friday, investigating officials raided Metro’s headquarters in Düsseldorf, seizing documents.

The second part of the investigation, dealing with suspected insider trading, is even juicier. Preliminary indications suggest two individuals in the company may have bought Metro shares while in possession of insider information. One employee of the company is also suspected of passing information to an outsider, who went on to buy shares.

A number of share transactions surrounding the split have drawn increasing suspicion due to the investigation. The key to whether any of them really amounted to insider trading lies in the timeline – how far along were the plans, and who knew what, at the time the shares were bought.

Metro’s former chief financial officer, Mark Frese, last year told Handelsblatt that he and a small team began planning in September 2015 to divide for the company into a food retailer and wholesaler (the new Metro) and a business focusing on electronics retail, later called Ceconomy. Mr. Frese said that he informed the supervisory board about the latest plans in December 2015, less than three months later. Mr. Steinemann, at the time an ordinary member of the supervisory board, immediately supported the restructuring proposal.

This version of events appeared in a Handelsblatt article back in January 2017, and were not denied then by Mr. Frese or Metro (nor were they denied when Handelsblatt again inquired on Monday). Yet a month later, at Metro’s annual general meeting in February 2017, when a shareholder challenged Mr. Steinemann on when the supervisory board had learned of the demerger plans, he responded: “Members of the supervisory board were informed of plans to create two independent companies at the end of March, once a preliminary review had been conducted.”

Germany’s top financial regulator, known as BaFin, also clearly has considerable suspicions in the case: it brought the matter to the attention of the public prosecutor. According to investigators, BaFin’s suspicions were aroused after examining the details of the share trades. Along with Mr. Steinemann, an initial investigation focused on Pieter Boone, a senior Metro executive. After Friday’s raid on Metro’s offices, however, prosecutors apparently found enough additional information to expand the probe to others on Monday.

The company reiterated on Monday that it was “working closely with the authorities, since of course it is very much in our interest to have these matters cleared up.” Until that happens, it is almost certain to prove a major distraction.

07 p17 Metro Share Price_Grafik 1

Florian Kolf leads a team of Handelsblatt correspondents covering the retail and consumer sector. Brían Hanrahan adapted this article for Handelsblatt Global. To contact the author: kolf@handelsblatt.com

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