Billionaire Merckle Family Said to Make Guarantees to Save VEM

Billionaire Merckle Family Said to Make Guarantees to Save VEM


Nov. 19 (Bloomberg) -- Germany’s billionaire Merckle family, stung by losses on Volkswagen AG shares, made personal guarantees for the first time that may save an investment unit from insolvency and eliminate risks for other holdings, three people familiar with the situation said.

The family that controls HeidelbergCement AG, the Ratiopharm GmbH generic drugmaker and Phoenix Pharmahandel AG pharmaceuticals wholesaler may use part of its wealth to finance the rescue of Dresden, Germany-based VEM Vermoegensverwaltung, said the people, who declined to be identified because the talks are private.

Adolf Merckle, 74, who heads an empire operating in the cement, machinery and drugs industries, had previously resisted giving guarantees on as much as 1.1 billion euros ($1.4 billion) he needs to plug losses at VEM and refinance loans to Spohn Cement GmbH, an investment company that holds about 54 percent of HeidelbergCement. Agreeing to contribute some of his estimated $9.2 billion personal fortune may give lenders the reassurance they seek to provide the loans, the people said.

“It would definitely help negotiations if the Merckle family offers some of its wealth as guarantees,” said Stefan Scharff, an analyst at SRC Research in Frankfurt. “The banks can’t afford to let the loans go down the drain.”

Merckle and VEM didn’t immediately return calls seeking comment.

VEM may be forced to file for insolvency if a so-called standstill agreement that would freeze banks’ claims isn’t extended, said four people familiar with the talks yesterday. A group of about 40 lenders are being led by Commerzbank AG, Landesbank Baden-Wuerttemberg, Royal Bank of Scotland Group Plc, Deutsche Bank AG and HVB Group, the people said.

Standstill Agreement

As many as seven of the banks have not signed the standstill agreement, two of the people said. It remains unclear whether the Merckle family’s guarantees are sufficient to satisfy the 40 banks and whether these are “irrevocable and unconditional,” according to two of the people.

Merckle faces a liquidity shortage after losing as much as 700 million euros on wrong-way bets on VW stock and the value of HeidelbergCement plunged, the people said. A failure of VEM could have repercussions for Merckle’s other holdings, said the people. Merckle may be forced to sell assets including German Ratiopharm, the people said.

Merckle this week approached the government of Baden- Wuerttemberg about a possible loan guarantee, government officials confirmed yesterday. The government called state help “a last resort.”

Spokesmen for Frankfurt-based Deutsche Bank and Commerzbank, Germany’s largest banks, RBS of Edinburgh and UniCredit SpA’s German unit HVB Group declined to comment. Stuttgart-based LBBW also didn’t comment.

Moody’s Downgrade?

HeidelbergCement, Germany’s biggest cement maker, extended losses in Frankfurt trading today. The company may face a credit rating downgrade at Moody’s Investors Service on concern that the indebtedness of Merckle will constrain finances.

Moody’s put about 3.3 billion euros of debt under review for a possible downgrade, Matthias Hellstern, analyst at the credit-rating company said today in a statement.

HeidelbergCement yesterday said it’s “not affected” by Merckle’s attempts to prop up struggling VEM. The stock has declined 63 percent so far this year, cutting the company’s market value to 4.9 billion euros.

Seeking Guarantees

In addition to VEM’s holding in HeidelbergCement, stakes held by other Merckle firms and associated companies mean the family controls about 86 percent of the cement maker, data compiled by Bloomberg show. The cement maker’s declining share price led banks that were given stock as loan collateral to seek additional financial guarantees from Merckle, the people said.

HeidelbergCement bought Hanson Plc, a producer of building materials, for 7.85 billion pounds ($11.6 billion) last year, financed in part with loans. Merckle has also increased the stake in the cement maker with financing from the banks, the people said.

VEM became caught in a so-called short squeeze after betting Wolfsburg, Germany-based Volkswagen’s stock would fall, according to the people. Porsche SE’s Oct. 26 announcement that it planned to increase its stake in Volkswagen to 75 percent sparked a race by short-sellers to buy from a shrinking pool of stock, causing Volkswagen shares to surge more than fourfold in two days.

BLOOMBERG