Turbulent times with Flick and Quandt
No fear of foreign investors
Equity capital protects against takeovers
A public limited company (plc, Aktiengesellschaft) is dependent, amongst other things, on its shareholder structure. Major shareholders play an important role simply on account of the quantity of shares that they hold. This is demonstrated by a particular episode in the history of Daimler-Benz. In the 1950s, two major shareholders – Friedrich Flick and the Quandt family – hit the news and later on, in the 1970s, there was even concern that this archetypal German company located at the very heart of Eurosope might be sold off to multinational oil companies.
In 1952, Friedrich Flick began secretly to buy shares in Daimler-Benz AG, stepping up his efforts in 1954 to such an extent that the stock market became aware of what was going on and the value of the shares began to rise. By the end of the year, Daimler-Benz shares had virtually doubled in value to the equivalent of some DM250 compared with the previous year – ‘equivalent’, because up till August 1960 the value of shares was expressed as a percentage of the nominal value rather than in deutschmarks. The chairman of the Board of Management, Fritz Könecke, guessed that the unusual rise in share value was the result of a strategy by persons unknown and therefore welcomed the fact that this was counterbalanced by the brothers Herbert and Harald Quandt, who wished to expand the holding of 3.85 per cent they had inherited from their father, Günther Quandt. The latter, who had been well disposed towards Daimler-Benz ‘was perhaps the only corporate architect in the post-war period who could match Flick in terms of sheer guile and persistence’, wrote Thomas Ramge in his book ‘The Flicks’.
At the AGM of Daimler-Benz AG on 18 July 1955, the cat was finally let out of the bag: Flick had acquired a blocking minority of 25 per cent of the company’s share capital worth a total of DM72 million and was elected to the supervisory board. At that point the Quandt Group officially held 3.5 per cent and also nominated Herbert to the board. In the years that followed, both Flick and Quandt bought up shares whenever the opportunity arose. A fourth major shareholder was bought out: former timber trader Hermann Krages from Bremen succeeded in putting together an 8 per cent package of Daimler-Benz shares, which he then offered to Flick and Quandt for DM770 per-share – twice the quoted value. After consultation, the two major shareholders agreed to ignore the offer, Flick officially opted out and the Quandts – who were now the only interested party – were able to buy the shares for DM450 each, which was little more than the quoted value. Later on, they split up the package with Flick on a 3.5 (Flick) to 2.5 (Quandt Group) basis.
By the early 1970s, some 14 per cent of the share capital, which had now reached DM1,189 million, was in the hands of the Quandt Group. That was why the public was shocked by the news that broke on the 28 November 1974: the majority of the shares held by Quandt had been sold abroad – though no-one knew precisely who the buyer was. Even Herbert Quandt himself claimed not to know who had acquired the shares, which had been handled by the Dresdner Bank. Finally, on 2 December, pressure from the supervisory board, the German government and the Bundesbank (Federal Bank of Germany) led to the mystery being solved: it was revealed that the sheikhdom of Kuwait had bought into Daimler-Benz, but had declared that it wished neither to occupy a seat on the supervisory board nor to interfere in the business – and this proved to be the case in the years that followed.
The public was rapidly reassured, given that Deutsche Bank still held 28.5 per cent and Flick 39 per cent of the shares – so nobody needed to fear a ‘foreign sell-out’. But what nobody knew at this point was that Friedrich Flick was also negotiating to sell his shares to an oil-producing country – Iraq. When Deutsche Bank boss Franz Heinrich Ulrich, who was chairman of the Daimler-Benz supervisory board, was told this by Flick during his Christmas vacation in St. Moritz, he managed to persuade the latter to retain 10 per cent of his shares and promised that Deutsche Bank would buy the remaining 29 per cent for DM2 billion. The intention, stressed Ulrich, was not to expand the bank’s involvement in the company but rather to keep the share package in the market.
This was achieved by the creation, in 1975, of an entity called Mercedes-Automobil-Holding AG (MAH), whose shares were owned 50 per cent by major institutional investors, with the remaining 50 per cent available on the stock market to private investors. This enabled the stock exchange to handle an attractive paper and at the same time avoided unpleasant surprises like a sell-out by two major investors: MAH shareholders could only determine the destiny of MAH, not of Daimler-Benz.
Deutsche Bank pulls out
In fact, Deutsche Bank pulled out almost completely shortly after the turn of the millennium: starting in 2002, Board of Management chairman Josef Ackermann gradually sold the bank’s industrial holdings in order to concentrate on its core business. In 2004 the bank reduced its shareholding in DaimlerChrysler AG from 11.8 per cent to 10.4 per cent; and by the end of 2006, Deutsche Bank had only 4.4 per cent of Daimler shares, reducing to 2.5 per cent in April 2009.
By mid-2009, Daimler AG had a broad base of around 1.3 million shareholders. Many members of the workforce now had a small stake in the company as a result of a handout of employee shares, and around two thirds of shares were in European hands.
The involvement of Aabar Investments PJSC from Abu Dhabi caused a stir in March 2009. Daimler increased the company’s share capital by some 10 per cent, partly by gaining the approval of the AGM on 9 April 2008 for an issue of no-par-value bearer shares against cash contributions. Aabar acquired all these new shares, giving it 9.1 per cent of the company’s capital.
The 1.95 billion Euros thereby generated strengthened the equity basis and liquidity of Daimler AG. In times of economic turbulence such as the period after 2008, the company was determined to be well capitalised – partly because the banks’ lending restraint meant that bottlenecks could not be ruled out and partly also as a defence against hostile takeovers. A press communiqué on 22 March 2009 announcing the involvement of Aabar reported that at the end of 2008 the equity ratio of the Daimler Group as a whole had been 24.3 per cent. Thus, from mid 2009 onwards, Daimler had two major shareholders – Abu Dhabi and Kuwait. The unchanged number of shares held by the Kuwait Investment Authority, which amounted to 7.6 per cent of Daimler AG at the end of 2008, represented 6.9 per cent following the capital increase.