German companies ready for wholesale restructuring
By Charles Pretzlik
Published: July 14 2000 18:53GMT | Last Updated: July 15 2000 04:43GMT
Corporate Germany is bracing itself for an unprecedented wave of restructuring after the approval on Friday of the government's plans to abolish taxes on capital gains made by quoted companies selling shareholdings in each other.
The steps, which come into effect in January 2002, threaten to expose many of the totems of the German corporate landscape to domestic and foreign takeover.
"There is no doubt this will enhance overall structural change to a very large extent," said Hartmuth Jung, chairman of UBS Warburg in Germany and co-head of European mergers and acquisitions at the investment bank.
For years, many German companies have been insulated from the hostile environment of Anglo-Saxon capitalism by a network of cross-shareholdings. Such protection is now set to be stripped away as the new tax regimes makes it easier for large shareholdings to be sold.
The largest holders of stakes in industrial companies are Germany's insurance companies and banks that took them instead of cash on loans made during the post-1945 reconstruction. Originally seen as a way to provide industry with a stable shareholder base and a ready source of funding, these stakes have tended to be low-yielding and a drag on the banks' return on equity.
This is something they can ill afford as they themselves face intense competition and pressure from their own shareholders.
Deutsche Bank, Germany's largest bank, holds large stakes in such industrial groups as DaimlerChrysler, the car maker, Heidelberger Zement, the building materials group, and Metallgesellschaft.
Some shareholdings, such as Deutsche's 15 per cent stake in Holzmann, the construction company that nearly went bankrupt, have occasionally been a source of embarrassment.
Deutsche said: "We are pleased with the tax reform. It doesn't mean that we will sell everything immediately but it means a widening of the room for manoeuvre."
The estimated market value of Deutsche's main shareholdings is E23bn ($21.5bn). Similarly, Dresdner Bank owns shareholdings in such groups as BMW, the car maker, and Dyckerhoff, Germany's leading cement producer, which are estimated to be worth E15bn.
JP Morgan, the US investment bank, estimates that the unrealised capital gains on Deutsche's portfolio is E18bn, and E12bn on Dresdner's. Yet, any attempt to realise such gains could be subject to a 58 per cent capital tax.
Schroder Salomon Smith Barney, the US investment bank, believes Allianz, the German insurer, is the "kingpin of the whole restructuring story". It has an asset portfolio worth more than E40bn and has been invigorated by the arrival of a former Goldman Sachs banker, Paul Achleitner, as its chief financial officer earlier this year.
In the new tax regime bankers expect such groups as Heidelberger Zement, Linde, MAN and Metro to become vulnerable to takeovers from within or outside Germany.
Such companies as BMW, ThyssenKrupp, BASF and Bayer also appear on bankers' watch lists.
Not only will it be less costly to sell blocking stakes, but those that do will find themselves holding cash they can use to buy up rivals. In addition, German acquirers will be able to strip out unwanted assets more cheaply.
At the very least, bankers say, the changes promise to increase the liquidity of the German market, thus further promoting the development of an equity culture in Germany.
However, the tax changes do not come into effect for another 18 months and, although financial structures can be designed to allow them to be taken advantage of before then for equity-linked transactions, bankers believe this will be more difficult in M&A.
Other brakes on the process include the fact that some stakes are so large they can only be sold gradually. Other stakes could be seen as strategic, such as Allianz shareholdings in banks such as Deutsche and Dresdner.
Nevertheless, investment banks are licking their lips as what is in prospect. "Most of us have spent vast sums expanding our German expertise. We see enormous opportunities for us," one US banker said. |
