Buying Shares

Berlin Stalls Plans to Privatize Companies

  • Why it matters

    Why it matters

    The German government has stopped reducing its holdings in the former state monopolies, prompting criticism from private-sector competitors.

  • Facts

    Facts

    • Berlin recently waived more than half of its dividend on shares in telecoms operator Deutsche Telekom and opted to receive new shares instead, increasing its stake from 14.3 to 14.5 percent.
    • Germany began privatizing its state-owned companies in the early to mid-1990s.
    • Sources close to the government say that it has declared further privatizations to be a taboo subject ahead of next year’s federal elections.
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    Audio

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Deutsche Telekom logo – 2. Quartal
Deutsche Telekom headquarters in Bonn. Source: dpa

The privatization of Germany’s state-owned companies, which began enthusiastically in the early to mid-1990s, has stalled. The government is even scaling it back.

The latest evidence of this is news that German Finance Minister Wolfgang Schäuble has instructed his ministry to increase its holdings of shares in Deutsche Telekom, according to information seen by Handelsblatt.

The move goes against long-term plans to privatize state monopolies. And rather than saying that buying more shares in the telecoms company is in the public interest, civil servants have revealed themselves to be speculators.

“Overall, the government and KfW considered the conditions of purchase to be an attractive offer,” said a spokeswoman for KfW, the German state-owned development said. “We should neither reject a financially favorable offer nor accept an unfavorable offer.”

For four years, Deutsche Telekom has been offering to let its shareholders receive their dividends in the form of new shares. Now, instead of using dividend payouts to build new roads and repair bridges, Mr. Schäuble, a member of the conservative Christian Democratic Union (CDU) party, has decided to put back two-thirds of Berlin’s dividend into buying Deutsche Telekom shares.

This has increased the government’s stake from 14.3 to 14.5 percent. KfW converted half of its dividend into shares, although its holding has remained at 17.5 percent due to dilution. Mr. Schäuble has thus waived more than half of the dividend of €805 million ($894 million) in favor of receiving shares in the former telecoms monopoly.

“We demand that the shares be sold and the entire proceeds invested in expanding the fiber optic network in Germany.”

Carsten Linnemann, Chairman of the CDU's association for the SME's and trade

The finance ministry has also held on to its stake in Deutsche Post, the German postal service operator, even though there has been no obvious reason for the government to maintain a stake for some time. Bundesverband Briefdienste, an organization that represents private-sector competitors of Deutsche Post, has even complained that this has led to a conflict of interests distorting competition. One example: the government’s recent decision to approve massive increases in postal charges, which benefited the state itself as a shareholder.

This is partly why the monopoly commission called on the government last December to sell its remaining shares in Deutsche Post and Deutsche Telekom. But today that fact seems to go unheeded. While the government used to sell a small block of shares in Deutsche Post almost every year, it has not done so since 2013. The finance ministry still owns a 21 percent stake, effectively giving it a right of veto.

Berlin’s generous treatment of the companies in which it still owns a stake is also particularly apparent in the case of rail operator Deutsche Bahn, where a capital injection of €2.4 billion was recently negotiated within a period of a few weeks. This included a capital increase of €1 billion, with the rest coming from a waiver of the dividend.

 

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Deutsche Bahn had originally planned to obtain billions of euros’ worth of fresh funds itself, by floating parts of its U.K.-based subsidiary Arriva on the stock market. The aim was to curb the rise in the company’s debts. However, the IPO failed, partly owing to political resistance. Berlin had hoped several years ago to cash in by floating the entire Deutsche Bahn group, but now the government is helping the company out.

Sources close to the government in Berlin say that the ruling right-left coalition between Chancellor Angela Merkel’s CDU and the Social Democratic Party (SPD) has declared further privatizations to be a taboo subject ahead of next year’s federal elections. The SPD strongly opposes privatization, and the CDU doesn’t want to expose a target for other parties to attack.

But critics of the public economy aren’t satisfied by this explanation. “In principle, an increase is of interest only if the government plans to sell the shares at a higher price,” said Jürgen Grützner, managing director of VATM, an association of German telecoms operators. And though there were several good opportunities for this in recent months in Deutsche Telekom’s case, the government didn’t take advantage. “That means dependence is being increased instead of reduced,” Mr. Grützner said.

Tabea Rössner, a media expert for the Green Party, also believes the government faces a dilemma. In the case of Deutsche Telekom, she said, it is simultaneously a shareholder, regulator and client, and would be better off selling all its shares.

Chairman of the association for small and medium enterprises and trade of the CDU, Carsten Linnemann, agrees. “We demand that the shares be sold and the entire proceeds invested in expanding the fiber optic network in Germany,” he said.

 

Ina Karabasz is an editor at Handelsblatt’s companies and markets team. Dieter Fockenbrock is Handelsblatt’s chief correspondent for the markets desk. Christoph Schlautmann covers the logistics and waste management sectors for Handelsblatt. To contact the authors: karabasz@handelsblatt.com, fockenbrock@handelsblatt.com, schlautmann@handelsblatt.com

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