The Ox and the Frog
- German Conglomerates in the Current Crisis
by François Masquelier, Head of Corporate Finance and Treasury, RTL Group, and Honorary Chairman, EACT
This article addresses the specific financial situation encountered by a few of the German family-owned groups. This situation may also apply to other multinational companies elsewhere in Europe. The economic crisis will force these companies to completely revise their organisation and their financial and shareholder structure. Is this worldwide recession sounding the death knell for the large family-owned groups? It may be, because some, like the frog in the La Fontaine fable, wanted to grow larger than an ox.
"...The small fool swelled up to the point of bursting (...) The world is full of poeple who are not any wiser. Every land owner wants to build like the great lords, every prince has ambassadors, every marquis wnats to have pages."
Jean de la Fontaine- The Ox and the Frog.
The theme of merciless capitalism featured in the famous American soap opera of the 1980s, Dallas, could also easily apply to German family-owned capitalist enterprises, as well as to certain other companies of this kind elsewhere in Europe. Many family-owned groups had eyes that were larger than their stomachs and tried to acquire major targets all for themselves. Of course, not very long ago, the case of RBS in the financial sector was a prime example (prior to the attempt to purchase ABN AMRO). Other examples proved that when everything is going well (particularly the economy) large ‘pills’ can be swallowed. However, the cases of Schaeffler and Porsche seem to be exemplary in more than one way. They show that sometimes it is important to remain prudent and that these solo acquisitions can turn out to be complicated. There is good reason to believe that many will say that they will not be making any more such acquisitions.
Organisational and shareholder structures can no longer afford to be monolithic and set in stone.
Alas, in order to avoid making the mistake of pursuing colossal acquisitions in the future, they must first survive the current crisis. Unfortunately, it is a safe bet that some of them will not. Others have understood that they needed to lighten their load. This was the case, for example, with IN-BEV. The Belgian-Brazilian brewery recently separated from Sing Tao quickly, effectively and, in the end, under optimal circumstances given the unfavourable economic situation. It has to digest the purchase of Anheuser-Busch and therefore had to make some choices.
In Germany, many groups are family-owned (over 90%) and they are major employers (over 70%). It is therefore safe to say that Germany, more than any other European country, has an economic history founded on powerful family dynasties. These have been involved in their share of sagas, classic love-hate relationships between rich families; they form an alliance, a dispute arises, and in the end it is resolved, or worse, one acquires the other and attempts a squeeze out. In short, family relations are and always will be tumultuous. The crisis will do nothing to improve this; on the contrary, it will only make them more difficult. We have even seen suicides, such as that of Adolf Merckle, shareholder in Heidelberg Cement and Radiopharm, among other holdings. Speculation, specifically in Volkswagen, was the fatal blow. The more recent case of Schaeffler illustrates what many are encountering. They became bogged down in refinancing the purchase of the tyre giant Continental.
Access to credit, which has become more difficult and much more expensive, can completely change the game. We should also mention the case of Haniel, which recently purchased the Metro group. Germany has plenty of other giants, such as Henkel, Lidl, Aldi, Bertelsmann, Bosch, Springer, Arcandor and BMW. Some large groups may turn out to be giants with feet of clay, and their growth could be halted in the current financial slowdown and recession.