Executive summary - Udo Bullmann

Peguform1. Company descriptionThe history of Peguform started in 1959 with the Baden-Plastic Werke in Bôtzingen which produced plastic products(films and household goods). However, it was first in 1978 that the company name "Peguform-Werke AG“ wasintroduced. At the same time the company entered the automotive market (bumpers, exterior systems, cockpits andinstrument panels and interiors), which is today the single focus of Peguform. In 1999 Venture Industries, anAmerican auto supplier, took over the Peguform Group. In May 2002 the management of the German companiesapplied for preliminary insolvency. In October 2002 the insolvency procedure was opened. After reorganization,which was possible due to participation by employees and financial guarantees provided by customers, the Americanprivate equity fund Cerberus took over the Peguform Group (Germany, Spain, Mexico, and Brazil).2. Economic and social effects2.1 LBO description (offshore base, activity focus, etc.)Cerberus Capital Management LP is a large privately owned investment fund. The firm is based in New York. Thefund was founded in 1992, and Cerberus invests primarily in companies which are near bankruptcy and hopes tomake the businesses it acquires profitable.Cerberus' financial contributors are mainly US pension funds and wealthy individuals. Cerberus invests capital inreal estate and financing corporate takeovers. In addition, the US investor has specialized in the purchase and use ofloans in default. The company has been a voracious acquirer of businesses over the past several years and includessizeable investments in sportswear, paper products, military services, real estate, energy, retail, glassmaking,transportation, and building products. Its holdings amounted to $16 billion in 2005. Cerberus currently hassignificant investments in companies around the world.2.2 Effects on job creation, investments in training and education of labour force, investment ininnovationAfter filing for insolvency in 2002, the well-known insolvency administrator Dr. Jobst Wellensiek together with theRothschild Investment Bank drew up a list of potential buyers. Three financial investors and three strategic investorsmade offers and the offer of Cerberus was accepted. All potential buyers required a reduction of operating costs.They all required from employees a reduction in personnel costs of 40 million euros, which representedapproximately one sixth of the total personal cost of 260 million euros. This was agreed in a reorganization collectivecontract together by the IG BCE employees and Cerberus. For the most part, an increase in working time to 39 hoursper week without an increase in salary, and an income reduction of 4 percent was established. Also agreed was areduction of Christmas and holiday pay. Thus the burden was around 10 percent per employee, including those notcovered by the collective contract and senior managers. The contract is valid for five years. Collective pay raises willonly be implemented by half. Lay offs are possibly only with the consent of the works council. For reductions incapacity due to the evolution of the auto industry, personnel adoptions are possible in accordance with an openingclause.Restructurings at the expense of employees were part of the sale agreements. In the first round, 500 jobs wereeliminated. A second wave of layoffs will soon take place. However, the employees do not blame the job cutbackonly on the financial investor. Rather they are to a greater extent economically determined by a slump in sales amongthe auto manufacturers. For that reason there is a fundamental understanding of the need to back jobs.2.3 Corporate governance and economicsSince the entry of Cerberus there have as yet been no major changes in the finance structure. Investments have beencarried out according to plan. However, Peguform invest cyclically. Major investments are only made when there arenew orders. At present, the situation is assured until the end of 2007. Developing new products takes approximatelyone to two years and Peguform is unsaleable without assured orders. Only in the case of new orders, majorinvestments would be made again in 2007.