Bail-out refusal – a set-back billionaire Merckle

Bail-out refusal – a set-back billionaire Merckle
Published: 03 December 2008

Adolf Merckle’s hopes for an easy way out of his financial woes were dashed this week when the regional government said the German billionaire, who suffered huge losses from bets on falling share prices, could not receive a state bail-out. The setback gives Mr Merckle little time to find a solution to his financial crisis, as a stand-still agreement with his banks blocking them from making claims is set to end this week. Bankers involved in the talks about a bridge loan for his investment vehicle VEM said the negotiations were very complicated. However they said it was likely that the banks would extend the stand-still agreement for some more weeks to buy more time to find a solution (reports the UK Financial Times).

Apparently, the more than three dozen lenders involved could grant Mr Merckle’s investment vehicle a bridge-loan and at the same time force a sale of Ratiopharm a generic drugs maker However, it could be very difficult to find a buyer, as interested parties might struggle to obtain loans for a deal in the wake of the financial crisis.

The 74-year-old billionaire ran into severe financial troubles some weeks ago after VEM lost a large three-digit million-euro sum from betting on a falling Volkswagen share price. In addition banks demanded margin calls on a multi-billion loan that Mr Merckle used to finance his stake in Heidelberger Cement which he majority-owns.

Bankers said VEM had a debt burden of €5bn ($6.3bn). They also said Mr Merckle’s various holdings with more than 100 companies were "leveraged like a private equity company". However, VEM refused to comment on the amount of debt. It said recently in a statement that the banking crisis and the financial market turbulence have led to a "shortage of liquidity" at the group.

Mr Merckle surprised corporate Germany a few weeks ago when it emerged that the industrial patriarch got caught in the same extraordinary surge in VW’s share price that left many large hedge-funds reeling in October. His troubles provided yet another example of how Germany’s family-owned companies, once famed for their anti-cyclical and long-term approach to business, make use of short-term tactics or financial instruments that have only been attributed to hedge funds in the past. Mr Merckle owns a family empire that makes about €30bn in revenues and stretches from one of Europe’s largest cement makers to Germany’s largest generic drug maker.