Analysis-Germany's oldest companies face fresh break-up calls
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[February 16, 2023] By
Christoph Steitz and Ludwig Burger
FRANKFURT (Reuters) - Activist investors are renewing their years-long
efforts to break up some of Germany's most venerable companies, seeing
streamlining as a promising route to reviving share prices as Europe's
top economy emerges from the energy crisis.
This week Brenntag, founded in 1874 as an egg trader in Berlin, became
the latest target of investors, who called for the chemicals distributor
to spin off its specialties unit. Bayer, Fresenius and Thyssenkrupp have
seen similar demands to release value.
That signals a rebound in shareholder activism that may force companies
to consider major overhauls and spin-offs, executives and investors say,
after a lull last year that investment bank Lazard attributed to the
energy crisis triggered by the war in Ukraine.
Lawrence Elbaum, co-head of law firm Vinson & Elkins' shareholder
activism practice, said investors were looking for value-boosting
strategies that do not require much funding in a difficult market.
Deka Investment, which has around 367 billion euros ($392 billion) in
assets under management and holds stakes in most major German
corporations, has repeatedly called out German companies for structural
weaknesses.
Its head of sustainability and corporate governance Ingo Speich said he
expects activism to pick up in 2023, supported by "the low valuation of
German corporations compared to the U.S., and an activism landscape
that's not particularly big".
Germany's blue-chip DAX 30 index put in the worst performance of any
major European stock market in the past year, rising just 2%. A
price-to-earnings (PE) ratio of 14.6 for the German benchmark DAX index
falls well short of the 20.9 PE ratio for the U.S. S&P 500.
With their long history - several were founded in the 19th century -
many of Germany's biggest corporations have accumulated businesses that
no longer make sense to be combined under one roof, said Speich.
"We are no pure-play fanatics and neither are we fans of conglomerates.
But when a company is undervalued, then there's a reason for that," he
said.
'LEANER SET-UP'
The United States has a much richer history of corporate break-ups,
exemplified by plans unveiled in October by medical device maker
Medtronic, which is creating a new company out of its patient monitoring
and ventilators businesses.
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The 3M Global Headquarters in Maplewood,
Minnesota, U.S. is photographed on March 4, 2020. REUTERS/Nicholas
Pfosi/File Photo
Other U.S. examples over the last two years include Johnson &
Johnson, General Electric and 3M.
Joe Kaeser, supervisory board chairman of Siemens Energy, said the
United States was much more advanced, and also more successful, in
the field of shareholder activism.
"A leaner set-up can take advantage of untapped energy and
crystallise hidden value, especially in a complex environment with
difficult market conditions," he told Reuters.
As CEO of conglomerate Siemens AG from 2013 until 2021, he
engineered one of Germany's most successful corporate break-ups,
separately listing Siemens Energy and Siemens Healthineers and
merging Siemens's wind unit with Spain's Gamesa.
Management and governance problems are still rife in Germany,
creating activist opportunities, said Kaeser. He said a certain
"friends and family" attitude in German board rooms meant there was
less awareness that companies belong to their shareholders than
elsewhere.
For Siemens shareholders, the slimming-down paid off. German wealth
manager Flossbach von Storch said last month Siemens had created
around 126 billion euros in value - defined by dividends, share
buybacks and stock price development - since 2003, the most among
all German listed companies.
But another leaner machine serves as a reminder that there's no
guarantee shrinking will unlock value - conglomerate Thyssenkrupp,
which has been shedding assets for years, is among the biggest value
destroyers, the study found.
($1 = 0.9366 euros)
(Reporting by Christoph Steitz and Ludwig Burger; Additional
reporting by Svea Herbst, David Carnevali and Emma-Victoria Farr;
Editing by Josephine Mason and Jan Harvey)
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