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— Analysis —
Five months later, an answer is beginning to emerge. The young Merckle, who had served on the boards of several family companies but generally played a low-profile role in the business, has moved faster, and more decisively, than many had expected. Against the odds, he persuaded a consortium of banks to refinance the debt carried by the family's HeidelbergCement AG. He also, as expected, put his crown jewel, generic pharmaceuticals company Ratiopharm GmbH, on the block. While a successful sale is far from assured, Merckle has already sent a hopeful sign to other CEOs struggling with their own restructurings.
Merckle appointed Commerzbank AG and Royal Bank of Scotland Group plc to manage the sale of Ratiopharm, Germany's No. 2 generics group. The auction has already attracted the interest of both trade and financial investors and is expected to get moving after Europe's traditional summer lull. Once one of the country's richest men, Adolf Merckle ran into trouble last year when he shorted shares of Volkswagen AG just as now-parent Porsche AG announced it held far more of the carmaker than was believed. The panic sparked by Porsche's announcement made VW temporarily one of the world's most expensive companies and reportedly cost Merckle hundreds of millions of euros. The ill-timed investment came just as the economic crisis hit home at his broad portfolio, which includes not only Ratiopharm and HeidelbergCement, but also Phoenix Pharmahandel AG & Co. KG and ski trail grooming equipment maker Kässbohrer Geländefahrzeug AG. Almost immediately after the elder Merckle's death, analysts and investors began speculating on a sale of Ratiopharm to cover the trading losses. Then banks made the auction a condition of a €400 million ($524 million) bridge loan extended to keep his portfolio afloat. Most expect Ulm, Germany-based Ratiopharm to go to a major international generics group such as Israel's Teva Pharmaceutical Industries Ltd. or France's Sanofi-Aventis SA. Novartis AG, which became the world's biggest generics maker with the $16 billion acquisition of Germany's Hexal AG and partner Eon Labs Inc. several years ago, has said it won't make an approach out of fears over competition concerns. Ratiopharm's estimated value is just under €4 billion, and last year it had sales of €1.9 billion, including €840 million in Germany. The company employs 5,600 people. Interested financial investors include Apax Partners Worldwide LLP, TPG Capital and Warburg Pincus. At least one financial investor is also interested in another Merckle pharmaceuticals investment. Kohlberg Kravis Roberts & Co., through its Alliance Boots GmbH drugs wholesaler and retailer, said earlier this year it would gladly look at German distributor Phoenix Pharmahandel. It's unclear whether the company will go on the block, but it could bring in billions as well -- its smaller listed rival, Celesio AG, is valued at €2.8 billion. Analysts had also expected the Merckle family to quickly part with its 79.5% Heidelberg stake, now worth €2.9 billion. But the younger Merckle in June engineered a massive restructuring of the €8.7 billion in debt the company piled on during its £8 billion ($13 billion) 2007 purchase of the U.K.'s Hanson plc. A group of more than 50 banks agreed to a new credit, due in 2011, eliminating a previous loan that would have required the company to kick in €6 billion in mid-2010. Heidelberg's troubles attracted interest from a consortium of Goldman Sachs Private Equity Group, TPG Capital and Bain Capital LLC, and from France's PAI Partners. Although few now expect an immediate sale, the company itself said it would continue to look for additional sources of cash while cutting costs. HeidelbergCement, with headquarters in its namesake town, said it will examine other options to strengthen its balance sheet. It will also look to cut costs and debt, as well as sell noncore units over two to three years. In June, HeidelbergCement raised €220 million by reducing its 65% stake in Indonesia's PT Indocement Tunggal Prakarsa Tbk to 51%, and in May, it sold its asphalt operating line in Australia for an undisclosed sum. Morgan Stanley advised Heidelberg on the debt plan. That leaves the Merckles' Laupheim, Germany-based Kässbohrer, a tracked-vehicle maker. A spokeswoman refused to comment on reports the Ströher family, which reaped a reported €200 million from the sale of Wella AG to Procter & Gamble Co. in 2004, are the leading bidders for Kässbohrer, The Merckle conglomerate owns 89% of Kässbohrer, whose value has been estimated at around €145 million. It won't be Ludwig Merckle's biggest asset sale, but it could be his first. |
After German business tycoon Adolf Merckle committed suicide in January -- he stepped in front of a moving train -- observers began to speculate about the future of his industrial conglomerate. What might Ludwig Merckle, his 33-year-old son and sole heir, salvage of his father's self-built and deeply troubled empire? 
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