Executive summary - Udo Bullmann

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Deutsche Börse1. Company descriptionDeutsche Börse AG is a marketplace organizer for the trading of shares and other securities. It also is a transactionservices provider. Deutsche Börse AG operates the Frankfurt Stock Exchange, which is one of the world's largesttrading centres for securities. With a share in turnover of around 90 percent, it is the largest of the eight Germanstock exchanges.Deutsche Börse employs more than 3,200 people, that service customers in Europe, the U.S. and Asia. It haslocations in Germany, Luxembourg, Switzerland and Spain, as well as representative offices in London, Paris,Chicago, New York, Hong Kong, and Dubai.In 1993 Werner Seifert became the chief executive of Deutsche Börse. He focused the stock exchange sharply ongrowth. After creating the Xetra electronic trading system, which was displacing floor trading and the regional stockexchanges, he had amalgamated the local systems for securities clearing and settlement in the hands of a subsidiary,Clearstream, thereby carving out a monopoly in Germany. He also oversaw the merger of the Swiss and Germanfutures exchanges to become Eurex, the world's largest derivatives market. After failing to take over the LondonStock Exchange in the year 2000, Seifert tried a second time in 2005.2. Economic and social effects2.1 Management policies and shareholder activism: stock option programs, effects on board andCEO´s, management fees, employee informationIn 1993 80% of Deutsche Börse was owned by German commercial and savings banks. For them it is of importance,how the stock exchange works. Brokers and regional stock exchanges each held 10% of its shares. In 2001, whenSeifert floated Deutsche Börse itself on the stock market, 68% of the shares were still owned by German investors.By 2005 93% of the company's shareholders were Foreigners, mainly interested in the yield on their shares. One ofthe reasons given by foreign investors for buying into the company was, that it represented a good business on offerat a low price.American and British shareholders took a dim view of Seifert's practice of accumulating profits in the company'scoffers instead of making payouts to its shareholders. In May 2005 they forced the chief executive of Deutsche Börseto step down. The reason for Seifert's overthrow was the planned purchase of the London Stock Exchange (LSE).The main dissenting voice was that of the English-based hedge fund TCI Fund Management, which opposed thepurchase from the outset. The bid of £5.30 per share was described as excessive.The managing partner of TCI, Christopher Hohn, also forced the resignation of Rolf Breuer, chairman of thesupervisory board of Deutsche Börse AG and former chief executive of the Deutsche Bank. Breuer had supportedSeifert´s strategy of expansion at all costs.When the takeover bid for LSE was rejected, the fund companies demanded that the surplus capital be paid out toshareholders. The dissenting shareholders held a total stake of some 35% in the company (TCI had 7.9%, Atticus5.1%, Capital Group Companies 5%, Capital Group International 4.7% and others 12.3%). At the general meeting inMay 2005, the board of management and the supervisory board proposed that €78 million be paid out to shareholdersand that €149 million be allocated to the reserves. Union Investment, one of the minority shareholders, tabled acounter-motion for a payout of €227 million.The massive interference of shareholders in matters of firm strategy had so far been unusual and practically unheardof in Germany. In response to it the supervisory board brought legal action against the foreign fund companies,alleging that they had acted in concert. It was claimed, that these investors, whose combined stake in Deutsche Börseexceeded 30%, had coordinated their actions with a view to exerting jointly a controlling influence, that was notwarranted by the size of their holding alone. Acting in concert is not permitted in Germany. If it neverthelesshappens, the holders of the combined stake are required to make an offer to the remaining shareholders for thepurchase of their shares. The supervisory board was unable to prove that the fund companies had acted in concert,since the fund companies had no need to strike any such deals, because their views largely coincided anyway.
The intervention of the hedge funds in the dealings of the German stock exchange had a very serious consequence:Now the stock market scenery in Europe was anew sorted without participation of Deutsche Börse AG. Theprevention of the purchase of the LSE by the German stock exchange was one of the important reasons thatsubsequently now American stock exchanges received unchecked influence on the big European stock exchanges.Whether this was one of the destinations of the hedge funds beside the income return destinations, is not known.3. LBO exit (secondary LBO, IPO, listing)Many people were surprised not to see TCI and the other investment companies cash in their shares of DeutscheBörse, after they had successfully raised their value and gotten a big dividend on top of it. But many hedge fundshave changed their strategy over the last few years. They used to adopt a hit-and-run-strategy, which means that theywanted to get in and out of an investment as fast as possible, while taking as much money as they could grab.Nowadays they are also looking for fairly long-term investments that can stretch even more than three to five years.To exert more control over their investments, hedge funds intervene in the business policy of firms, which shifts thebalance of power.ReferencesHandelsblatt 10.05.05, S. 18; Börsenzeitung 11.05.05, S. 1, S. 5; Süddeutsche Zeitung 11.05.05, S. 30; Die Welt12.05.05, S. 3; Handelsblatt 18.05.05, S. 25; Wirtschaftswoche 19.05.05, S. 48 ff.; Börsenzeitung 20.05.05, S. 2, S.4, S. 9; Süddeutsche Zeitung 20.05.05, S. 25; Handelsblatt 20.05.05, S. 1; Frankfurter Allgemeine Zeitung 23.05.05;Frankfurter Allgemeine Zeitung 24.05.05, S. 29; Börsenzeitung 24.05.05, S. 3; Frankfurter Allgemeine Zeitung27.05.05, S. 25; Frankfurter Allgemeine Zeitung 28.05.05, S. 21; Handelsblatt 12.09.05, S. 24
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HEDGE FUNDSAND PRIVATE EQUITY -A CR
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The need for long-term investmentTh
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On the basis of a coherent analysis
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The pension fundsWhere does all the
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3. The target company is merged wit
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Societies’ response - current nat
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In most of the case studies, PE inv
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huge tax advantages when the rate o
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known to bank supervisors. Those da
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provide transparency with respect t
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The demand for change and better re
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industrial policy, focusing on know
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AcknowledgementsThis report has bec
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The situation we are facing now is
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market to promote the knowledge-eco
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Our desire to separate the single s
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Typically a single strategy HF oper
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In most European countries, fund ma
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It should also be signalled that:
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Institutional investorsCurrent and
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leverage in order to benefit from s
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1.6 The costs, the management fees
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only remaining way to boost returns
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A majority of hedge funds have limi
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Our analysis is that these concerns
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Average annual returnsTremont HF in
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1.11. Tendency of crowdingDespite t
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• Corporate governance:“In the
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Onshore FoHFsCountryUnitedKingdomGe
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ItalyBank ofItaly•Specializedasse
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1.14 Societies’ response - curren
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Investments are often in individual
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employed 21 . Leverage effect expla
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Investments are sold off to other c
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Private Equity: European trends in
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time because of the longer holding
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Bain CapitalPartners 74.7 9Thomas H
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Sources of new funds raised (2005)C
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The private equity manager virtuall
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The fund structuring arrangements f
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ownership transfers. But buyout cap
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equity value chain. The main areas
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of the table but that less mature c
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UCITS (Undertakings for Collective
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Article 49Within the framework of t
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open and secure retail markets and
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offeree company must give its views
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In its Communication on worker info
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est practices, promoting innovative
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- Work to ensure more consistent an
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destabilising the financial markets
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& LBOs invest. It increases financi
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In particular, incumbent managers o
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long-term competitiveness of the ac
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It also leads to further weakening
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If HFs and LBOs have brought uncert
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the social responsibilities of comp
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areas after recapitalisation 11 . I
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Furthermore, the funds in many case
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privatised with a view to stimulati
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asset stripping, and the offering o
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dividend to Valentia.The second pub
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***The three country case studies o
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eturns well below those achieved by
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investment funds - in the UK alone
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4.2 The issue of pension fundsThe p
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One year earlier the British Financ
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the fund exceeds the highest value
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5.3 Short sellingHistorically, hedg
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global financial markets. In 1998 t
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implications associated with the li
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Page 152 and 153: clearly destructive must be prevent
Page 154 and 155: European Union.Part III is going to
Page 156 and 157: 2. Market transparency - a common i
Page 158 and 159: International Settlements in Switze
Page 160 and 161: 3.2 The main beneficiaries of regul
Page 162 and 163: within jurisdictions with enhanced
Page 164 and 165: In our view, if we want to promote
Page 166 and 167: investors.The EC should set up an i
Page 168 and 169: Alternative investment fund manager
Page 170 and 171: widely differing impacts of PE acti
Page 172 and 173: estrict investment to specific asse
Page 174 and 175: Clearly the governance authorities
Page 176 and 177: paid. There is therefore a need for
Page 178 and 179: 5. Our immediate proposalsIn the pa
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Page 184 and 185: ANNEX 1 - Case studiesANNEX 1 - Cas
Page 186 and 187: 1. Company description ............
Page 188 and 189: AA1. Company descriptionThe Automob
Page 190 and 191: Autoteile Unger1. Company descripti
Page 192 and 193: Bulgarian Telecommunications Compan
Page 196 and 197: DIS1. Company descriptionThe DIS De
Page 198 and 199: DT-GROUP1. Company descriptionDT Gr
Page 200 and 201: (2005 €610m) resulting in an EBIT
Page 202 and 203: FRANS BONHOMME1. Company descriptio
Page 204 and 205: Friedrich Grohe AG1. Company descri
Page 206 and 207: 3. LBO exit (secondary LBO, IPO, li
Page 208 and 209: industrial sector level. A compromi
Page 210 and 211: Linde1. Company descriptionLinde is
Page 212 and 213: 2.5 Protection of minority sharehol
Page 214 and 215: marketing outside Germany and to bo
Page 216 and 217: 2.3 Effects on job creation, invest
Page 218 and 219: Peguform1. Company descriptionThe h
Page 220 and 221: PICARD1. Company descriptionPicard
Page 222 and 223: STORK1. Company descriptionThe indu
Page 224 and 225: TDC1. Company descriptionTDC is the
Page 226 and 227: TELECOM ITALIA GROUP1. Company desc
Page 228 and 229: 2.5 Corporate governance and econom
Page 230 and 231: same way like some institutional in
Page 232 and 233: Viterra1. Company descriptionViterr
Page 234 and 235: Glossary 1Absolute returns: The ret
Page 236 and 237: Hurdle rate: A rate of return that
Page 238: Stock option: An individual's right
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Executive summary - Udo Bullmann

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