The Global Economic Impact of Private Equity Report 2008 - World ...

Griesheim was not controlled more intensively,” one observernoted. “Some investments were based on overly optimisticor even false investment analysis and planning. But this onlycame to light three years after the investments had beenmade.” Another source characterized this period: “Messer[Griesheim] competed very aggressively to take share in theonsite market, offering low‐priced, long‐term contracts, withlow and sometimes no take‐or‐pay threshold clause, andoccasionally below the cost of capital.” 18 All in all, MesserGriesheim’s leverage increased from €423 million in debtin 1996 to €1.6 billion in 2000 (see Exhibit 4 for MesserGriesheim’s key financials). Along with the Messer family’sinvolvement, and anti‐trust issues for any merger of equals,the company’s leverage and performance left Hoechst in avery difficult position in terms of exit options.Exit Options for Hoechst (Aventis)As Hoechst (Aventis) continued to focus on retrenching asa pure life‐sciences company and divested its agriculturaland chemical concerns, the company reviewed variousexit options for Messer Griesheim, including Rudolf’s desireto take the company public in 1998, or a merger of equalswith Swedish industrial gas concern AGA. Discussionswith AGA were underway in 1998–1999, without theparticipation of the Messer family. Management thenasked the Messer family to sign confidentiality agreements,although they had not been involved in the discussions.AGA was not alerted to the family’s special voting rights,nor of their veto rights. The deal fell apart with the familyboycotting negotiations; “It soon became clear that it wouldnot be possible to stage an exit without the agreementof the Messer family,” one insider recalled. “They clearlywanted to keep their stake and role in the company.”“Based on the company’s history,” another analyst noted,“it was very likely that the family would want to upholdits entrepreneurial influence in the future.” 19 Backgroundinformation on the family’s motivation can be found inthe company chronicle written by Jörg Lesczenski. 20The family proposed a merger with Linde and initiateddiscussions with Linde’s management. They agreed in theoryto keep only 10% of the shares, but to retain their specialvoting rights. While Messer Griesheim had initiated thediscussions, Hoechst management acquiesced to thediscussions and the subsequent due diligence, although oneinsider recalled that Hoechst delayed the process and washesitant to agree to a deal. The two sides held fundamentallydifferent views: Hoechst sought the highest price they couldget for the Messer Griesheim shares, and the Messer familywas committed to keeping their special rights.However, due to the summer 1999 merger of Linde andAGA, the Messer Griesheim deal made less sense; the newlymerged company was large and another merger would havebrought on anti‐trust issues. Yet, some felt the anti‐trustissues were not insurmountable; Linde‐AGA could have soldcertain entities in question to another player, Air Liquide forexample, subsequent to the merger. “It was largely due toHoechst’s behaviour prior to the Linde‐AGA deal that amerger between Messer Griesheim and Linde was notclosed,” a Messer family member said. “We would have beenhappy with the deal with Linde.” Agreeing on an exit strategybecame increasingly difficult.A New CEO: The ConsolidatorOn 1 January 2000, Hoechst CFO Dr. Klaus‐JürgenSchmieder replaced Rudolf as CEO; some noted thatSchmieder had gained the reputation of “consolidator”within Hoechst, and most analysts expected him to takethe same approach at Messer Griesheim. Hoechst – nowAventis – publicly stated its intentions to sell its MesserGriesheim stake within the year. Along with the Lindediscussions, negotiations with the US firm Praxair had alsobeen underway, but had not been promising. Both anti‐trustissues and the family’s desire to retain its leadership positionin the company’s management brought these negotiationsto a quick end. In March 2000, Aventis announced that itwould divest its Messer Griesheim stake via a limitedauction including financial advisors. Schmieder had alreadydeveloped restructuring plans, working with strategyconsultants Roland Berger who put together a planthat included the divestiture of several non‐core MesserGriesheim businesses and a restructuring plan for thecore activities, which among other things, called for areduction of 850 employees. As one insider noted, “Theyneeded to undergo serious restructuring in order to regainfinancial flexibility.”The Carlyle Group’s MEC Deal: A Dry Run?An earlier restructuring effort in Messer Griesheim involvedthe divestment of Messer Griesheim’s electric arc welding,filler material and cutting business in Europe. In December1999, Messer Cutting & Welding had been disposed of byMesser Griesheim to the Messer family. In 2000, MesserCutting & Welding acquired Swiss Castolin Eutectic underthe umbrella of a new company, MEC Holding. To achievethis, the Messer family partnered with the Carlyle Group’sCarlyle Europe Partners (I) fund; the Carlyle Groupcontributed cash for its shares of MEC Holding (51%). TheMesser family contributed Messer Cutting & Welding to theentity and thereby held 49% of MEC Holding. The CarlyleGroup negotiated the ability to take over the CEO position,and to change the operational business directly, should it feelthe need. This deal was for the most part a side show to theAllianz Capital Partners/Goldman Sachs deal. However, itwas the family’s first experience with private equity investors,providing elements of a dry run for the second private equityfinancing of Messer Griesheim. Some of the contractualarrangements of the Allianz Capital Partners/Goldman Sachsdeal were structured similarly to the Carlyle deal.18According to an HSBC report, cited in Natasha Alperowicz, “Messer does an about-turn: New ownership focuses on debt reduction”,Chemical Week, 27 February 2002, http://goliath.ecnext.com/coms2/summary_0199-1480758_ITM, accessed 2 November 2007.19“Case Study: Messer Griesheim LBO,” Goldman Sachs, Vallendar, 27 April 2007.20Jörg Lesczenski, “100 Prozent Messer. Die Rückkehr des Familienunternehmens”, München/Zürich 2007.94 Case studies: Messer GriesheimThe Global Economic Impact of Private Equity Report 2008