INSIGHT: In Monopoly, Degussa is Boardwalk

28 March 2007 15:07  [Source: ICIS news]

By Dede Williams

FRANKFURT, Germany (ICIS news)--In German business’s most popular game last year, poker, the CEOs of BASF, Bayer and Linde played their hands cleverly and raked in aces Engelhard, Schering and BOC.

This year’s game is Monopoly, and speciality chemicals producer Degussa is the property many want to land on. The company is caught in the middle as political and industrial Ruhr barons toss the dice.

Werner Muller, CEO of Degussa’s sole owner, former state coal mining conglomerate RAG, has already landed on Boardwalk. But if he doesn’t find the money to stay there, other players could leverage him off.

The long-time industry manager and one-term economics minister under chancellor Gerhard Schroder already is experienced at Monopoly.

During his term, the ministry overrode a cartel authority veto and allowed RAG to swap its share in Ruhrgas for Eon’s Degussa stake, thus setting up the board for the current game.  

After exiting politics and taking the helm of RAG, Muller devised a plan to take the company – and Germany – out of mining. This foresees an initial public offering (IPO) for a new RAG (“Newco”), with Degussa as the biggest chapter in its equity story.

All the €5bn ($6.7bn) expected proceeds of the IPO, envisaged for May, but now perhaps for a year later, would go to a foundation administered by the state of North Rhine-Westphalia, to pay miners’ pensions and remediate environmental damage.

Some state politicians suggest that separate auctions of the three units – energy and real estate in addition to chemicals – might be more lucrative. At least one “expert opinion” commissioned by state economics minister Christa Thoben asserts that an auction would generate around €800m more than an IPO.

Thoben may have an ally in Lanxess CEO Axel Heitmann, who several times has touted the advantages of a merger with the much larger Degussa, even while professing that he understands the company is not for sale.

Nevertheless, Heitmann may be poised to move, in the unlikely event that Muller stumbles over his politically controversial desire to oversee the coal foundation administering the IPO proceeds.

Former Degussa CEO Utz-Hellmuth Felcht, who stumbled over Muller as his supervisory board chairman and also said “no” when Bayer sought to flog off Lanxess, could be watching, too –  on behalf of new employer One Equity Partners.

Hubertus Schmoldt, chairman of the chemical and mining union IG BCE and deputy chairman of RAG’s supervisory board, has had enough.

Last week he called on players to “quit the Monopoly game,” warning that continuing would threaten both chemical jobs and miners’ pensions

In the mining industry – to which RAG still officially belongs – employees enjoy equal voting rights and will make their voice heard, Schmoldt said.

So far, the miners are rooting for Muller.

Games aside, the important question is this: How can “Newco” create value for Degussa? And how will analysts rate a conglomerate that is two-thirds chemicals, with the rest split unevenly?

Analyst views up to now have been largely negative, and an unattractive share price surely would make the new firm vulnerable to predators.

($1 = €0.75)

By: Dede Williams
+44 20 8652 3214

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