Tengelmann takeover

Pulling the Emergency Brake

Tengelmann
Sigmar Gabriel has Edeka egg on his face. Souce: Roland Weihrauch/dpa
  • Why it matters

    Why it matters

    A decree issued by Economy Minister Sigmar Gabriel, designed to save jobs in the wake of a major supermarket merger, appears to be backfiring.

  • Facts

    Facts

    • Edeka plans to convert many of the existing Kaiser’s Tengelmann stores into supermarkets run by its discount subsidiary Netto.
    • One of the conditions of Mr. Gabriel’s decree is a five-year freeze period.
    • Kaiser’s Tengelmann hasn’t been profitable in 15 years.
  • Audio

    Audio

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Sigmar Gabriel had a clear goal.

The economics minister wanted to save the 16,000 jobs at ailing supermarket chain Kaiser’s Tengelmann. It was only for this reason that he issued a ministerial permission with conditions for the planned takeover of the chain by competitor Edeka. The merger benefits the public welfare because it preserves jobs, the minister stressed. At least for the next five years.

But now, within a very short time, it has become clear how difficult it is to save jobs with a ministerial decree. Negotiations between Edeka and the union reveal that there is already a major dispute over the interpretation of Mr. Gabriel’s conditions even before the takeover of Kaiser’s Tengelmann is complete.

Immediately after the minister had announced his decision, the first justified questions were raised as to whether protecting jobs at a specific company is truly in the public’s interest. Daniel Zimmer, head of the German monopoly commission, resigned in protest over Mr. Gabriel’s approval of the Edeka takeover. He said that the criterion of benefiting the public welfare, which Mr. Gabriel had cited as the reason for his decision, had not been met, because jobs would only be saved temporarily.

One of the benefits of a merger is that unnecessary duplications are eliminated.

The dispute was inevitable. One of the benefits of a merger is that unnecessary duplications are eliminated. It makes perfect economic sense for Edeka’s strategists to begin by taking such steps as closing a regional administrative office. Their goal is to interpret the minister’s conditions in a way that benefits the company. But that threatens to destroy the spirit of the ministerial directive, namely to protect all jobs.

Another detail from Edeka’s plans is worth noting. Of the 129 Kaiser’s Tengelmann stores in the western state of North Rhine-Westphalia, 61 are to be converted into supermarkets run by Netto, an Edeka subsidiary. Experience has shown, however, that discounters like Netto use significantly less personnel than supermarkets with a full line of products. This is the only way they can maintain their low prices. But the Netto plans suggest that a reduction in employee numbers can be expected by no later than the five-year freeze period imposed under the ministerial decree.

The former Kaiser’s Tengelmann employees are protected against job loss for five years, even if they end up working for Netto. But what about the current Netto employees? There is no ministerial directive forbidding Edeka to close one of its Netto stores in North Rhine-Westphalia. The retailer could also fire its own employees and replace them with employees of the newly acquired former competitor.

Another unanswered question is what happens with Kaiser’s Tengelmann employees with temporary contracts after the takeover. Will Mr. Gabriel’s five-year guarantee also apply to their jobs? This is another area where Edeka’s and the unions’ interpretations differ significantly. And what happens with Kaiser’s Tengelmann stores whose leases expire and cannot be extended? Would Edeka be required to open new stores at a nearby location to satisfy the minister’s conditions?

All of this shows that the attempt to use a political decree to preserve jobs that cannot survive in the market is doomed to fail. Former German Chancellor Gerhard Schröder made this painful realization in the late 1990s when he issued a government guarantee in an attempt to save 23,000 jobs at Holzmann, a bankrupt construction company. But ultimately the chancellor’s intervention could only postpone the end. Holzmann was history only two-and-a-half years later.

Kaiser’s Tengelmann looks back on years of infirmity. The company hasn’t turned a profit in 15 years, and sales have consistently declined. How could anyone believe that ministerial decrees that practically cement the status quo can do any good?

The difficult talks between Edeka and the unions over a wage agreement for Kaiser’s Tengelmann clearly show that preserving all jobs would be an illusion with this takeover. But that eliminates the last foundation of a ministerial decree. Mr. Gabriel should observe the situation closely and, if necessary, have the courage to pull the emergency brake if his conditions are not met. Then he could always pave the way for a market-based solution.

 

To reach the author: kolf@handelsblatt.com

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