German political power struggle drives Evonik controversy

13 August 2010 15:49  [Source: ICIS news]

TORONTO (ICIS)--A political power struggle in Germany’s North Rhine-Westphalia state is likely the real driver behind an ongoing controversy over special rights that private equity firm CVC allegedly won in 2008 when it acquired a minority stake in specialty chemical major Evonik for €2.4bn ($3.1bn), an official said on Friday.

“What we have to bear in mind is that this [controversy] comes to the fore now, shortly after the state government here changed, but more than two years after the deal was struck,” Ulrich Winkler, spokesman for Evonik majority stakeholder RAG-Stiftung, told ICIS, speaking in German.

He was commenting on an article in German business daily FT Deutschland that said that North Rhine-Westphalia’s new Social Democrat-Green Party government, which took power last month, seemed to be bent on getting rid of RAG head Wilhelm Bonse-Geuking who had been installed under the state's previous Christian Democrat-Liberal coalition government.

This political power struggle was driving the ongoing controversy over claims that RAG-Stiftung had allegedly granted CVC special veto rights over Evonik as part of the 2008 deal, rights that would make Evonik potentially less attractive in the eyes of outside investors, the paper said.

RAG-Stiftung is a coal foundation that is charged under a German law – “Steinkohlefinanzierungsgesetz” - with overseeing the phase-out of the country's subsidised hard coal production by 2018.

Proceeds from an eventual sale or initial public offering of Evonik are meant to help pay for environmental costs and liabilities associated with the phase-out. If the proceeds do not cover the costs, German taxpayers would likely have to make up the difference.

RAG has maintained that CVC’s rights as a minority stakeholder would not diminish the value of Evonik in an IPO. In case of conflict, the agreement with CVC provided that RAG’s interests could not be set aside, it said.

Also, RAG’s supervisory board – called “Kuratorium” – had been properly informed at the time and had approved the deal – contrary to allegations in some media reports that the board had been sidelined, RAG said.

The Kuratorium is partly made up of politicians. As of last month, it includes Hannelore Kraft, North Rhine-Westphalia’s new state prime minister.

Kraft's government has already said it wanted to see transparency at RAG. If necessary, it would seek changes in RAG’s regulatory framework, the government said in its formal coalition agreement.

According to FT Deutschland, former state prime minister Jurgen Ruttgers had pushed hard to ensure that Bonse-Geuking, a former BP executive, became the head of RAG-Stiftung - instead of Werner Muller, a former Evonik head and federal minister.

RAG’s Winkler said he could not comment on those specific speculations made by the paper.

But he said it was noteworthy that the Evonik “veto-rights dispute," as well as sudden media speculation over who would succeed Bonse-Geuking at RAG, should become an issue in the shortly after the new government taking over. Bonse-Geuking's contract at RAG runs until 2012.

In 2008, German politicians, analysts, commentators and unions generally welcomed the deal with CVC, which was believed to have netted much higher proceeds than could have been achieved through an initial public offering at that time, just when the global financial crisis got under way.

Evonik, for its part, this week reported a second-quarter net profit of €240m, up from €89m during the same period last year on further improvements in its operating business.

In related news, the new North Rhine-Westphalia government has also said it would seek to mediate in a controversy over Bayer's carbon monoxide (CO) pipeline project in the state.

($1 = €0.78)

For more on Evonik and other producers visit ICIS company intelligence
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By: Stefan Baumgarten
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