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VIPsight

Corporate Governance – portrayed in the individual cultural and legal framework, from the standpoint of equity capital.

VIPsight is a dynamic photo archive, sorted by nations and dates, by and for those interested in CG from all over the world.

VIPsight offers, every month:
transparent and independent current information / comments / facts and figures on corporate governance locally and internationally,

  • written by local CG experts,
  • selected and structured by the Club of Florence,
  • financed by its initiator VIP and other sponsors with a background of “Equity and Advisory” interests.
     

VIPsight International


Article Index

 

 

ACTIONS CORNER

 

Continental AG: Is this Braking or the Pause Button?

With carefully selected bits and pieces of information and advice, Continental achieved to get a fair amount of attention for the planned spin-off of its powertrain business Vitesco Technologies. But investors who want to buy the stock now have to wait even longer, since Continental´s Executive Board decided in late April that the planned listing of the powertrain business shall no longer take place this year due to ongoing economic uncertainty. The idea behind this decision is that the plans for Vitesco Technologies to become independent thus can be implemented with greater flexibility in response to market conditions.

The Board also decided to continue preparing the powertrain business for the intended spin-off at a later point in time, thus ensuring that this step can be implemented with the shortest possible lead-in time and great flexibility once the market conditions change.

Consequently, the company no longer pursued the approval of this years´ AGM regarding the planned spin-off. While many shareholders might not have missed this item on the agenda, other COVID-related topics had a direct impact, such as the lowering of the proposed dividend to 3.0 (initial proposal: 4.0) EUR per share and the information about a salary waiver by the Executive Board members and for executives in March 2020. For the members of the Board, the waiver resulted in a reduction of the fix salary for the Months from April through July by 10 percent. This initiative was made in solidarity with employees who have been affected by short-time work and other curtailments.

 

Steinhoff International Holdings N.V.: Settlement Proposal submitted

Have you ever dreamed of waking up one morning holding a significant stake in a South African company? Such a dream could come true for Steinhoff shareholders. The SDAX company recently surprised with an extra-long ad hoc-release, proposing a settlement to conclude the complex legal claims, and ongoing and pending litigation proceedings, arising from the legacy accounting issues first announced in December 2017.

Even before you learn which proposal the company would like to make, readers are informed about the limited possibilities of the company as a precaution. Does one wonder whether this order is prescribed by the lawyers, or is it the result of a bad conscience? In any case, we learn that any settlement needs to be considered against the background of the financial position of Steinhoff and its significant levels of financial indebtedness. Also, the Group´s underlying businesses have been impacted by COVID 19 which, together with the effect of adverse currency movements, is likely to negatively impact current valuations. What is more, the proposed terms will require financial creditors´ consent.

According to the announcement, approximately 90 separate legal proceedings have been commenced against the company in the Netherlands, Germany, and South Africa, claiming more than 7 bn EUR. If all such claims were ultimately established in the amounts asserted, the net asset value of Steinhoff would fall far short of the amount required to satisfy them in full.

The proposal distinguishes three groups of claims:

- Market purchase claimants shall receive 133 million EUR in cash, plus shares in Pepkor Holdings Limited (the Group´s South African retail subsidiary). Steinhoff estimates that approximately 173 million shares (or 4.6 percent of the total issued share capital of Pepkor) will be transferred to MPC claimants so that the total settlement consideration would amount to 266 million EUR.

- Contractual claims against Steinhoff International Holdings N.V. shall be settler at the same relative recovery rate. Hence, this group shall receive 52 million in cash and 67 million shares in Pepkor (or 1.8 percent of the total issued share capital of Pepkor), resulting in a total settlement consideration of 104 million EUR.

- Contractual claims against Steinhoff International Holdings Proprietary Limited (the former South African holding company of Steinhoff) shall receive a total compensation of 482 million EUR, comprising a cash component of 241 million EUR and 345 million Pepkor shares (or 9.3 percent of the total issued share capital of Pepkor). The number of shares assumes that current employees and managers of Pepkor be entirely paid in the form of Pepkor shares.

Does anyone have an idea of how to carry out a reliable assessment of a retail furniture retailer in den days of COVID 19?

 

CTS EVENTIM AG & Co. KGaA: What if Disaster strikes twice?

No doubt, the COVID pandemic has hit CTS EVENTIM hard. No show – no ticket sales. This is a simple formula, and the share price trend since mid-February shows that it works. The company had to amend its proposal for the appropriation of profits to the AGM, and the outlook for 2020 was withdrawn.

Everything moved within expectations amidst the current business environment. But in mid-July investors received a wake-up call. The company informed via Ad hoc-release that the Austrian Financial Market Authority FMA prohibited Commerzialbank Mattersburg im Burgenland AG from continuing its entire business operations with immediate effect. The emergency administrative order dated July 14th, 2020 also established a special auditor as an expert supervisor (government commissioner) of the bank. An important consequence of the order is that the bank is currently not allowed to make payments out of deposits.

Ok, from now on shareholders in CTS have heard of this so far little-known banking institution and press their thumbs for more and hopefully better news. This is because Barracuda Holding GmbH, in which a subsidiary of CTS EVENTIM has a 71% shareholding, holds deposits with Commerzialbank Mattersburg of approximately 34 million EUR.

The effects on the accounts of CTS are hard to predict. But the event highlights a particular risk of COVID. Nearly all sectors and industries suffer from the effects of the pandemic. All businesses are hurt - some more, some less. Those hit a little harder are also more vulnerable when unexpected additional challenges pop up. CTS had to take a hit, but that´ should be manageable. However, the event underlines that risk monitoring and good governance are much more important in the days of the pandemic.

 

DEPFA Bank plc: Equity for Sale

The name DEPFA BANK has long been reminiscent of times long past and forgotten crises.  And many remember the surprising move of the company to Ireland shortly before the onset of the financial market crisis. That did not help, though, and in the end, the German taxpayer was nevertheless held responsible for this invoice.

But this is not the end of the story. A first attempt to sell the bank for 320 million EUR failed in 2014. But Reuters reported in October 2019 that Barclays was mandated to find a buyer for DEPFA. The article highlighted the strong capital basis of DEPFA, which is a result of de-risking its portfolio (read: shrinking the business) over the last decade.

The bank is believed to be an attractive target for institutions that can make use of additional capital, including German institutions. However, the bait comes with a catch. According to the Irish Times, the bank is structurally loos making. In February this year the paper quote Moodys: “Given that Depfa´s recurring revenue is insufficient to cover its cost base, we believe that – without outside assistance – Depfa has limited scope to engineer a sustainable turnaround and will therefore likely remain lossmaking in the medium to long term, although there may be potential to reduce losses.”

Equity ratios used to be a strange game for accounting nerds. When they were first introduced, the idea was to set risk limitations. But soon thereafter a race started for particularly creative constructions, creating unhealthy entities more concerned about equity ratios rather than profitability. This development contributed significantly to the financial market crises, and DEPFA BANK was one of the unlucky victims in those days.

But no DEPFA is back on the market. On July 14th, DEPFA BANK informed via an Ad hoc-release that the FMS-Wertpapiermanagement AöR, the German state-owned wind-down agency has announced the launch of the sale process for 100 percent of the registered share capital of DEPFA BANK plc.