Frankfurt At the electricity producer Steag, the cash register is filling up in view of the sharp rise in electricity prices. But the joy about this is marred by a dispute between the municipal shareholders about the right course and the planned sale of the company. “Steag is a real war profiteer. Now it’s important to use the tailwind properly and not destroy everything in an argument,” said an insider. An agreement is not yet in sight.
At the end of 2021, Steag, which had been making losses for a long time, agreed on a restructuring with its creditor banks. In the meantime, however, the economic situation has improved. At the end of the first half of the year, Germany’s fifth-largest energy company reported a jump in profits. The investment bank Morgan Stanley was commissioned in the summer to organize a sales process and is now sounding out the interest of investors.
“The fact that Steag has become significantly more attractive to investors, particularly due to the strong performance of the power plant division in the current energy crisis, is also reflected in the result of the market sounding carried out by the investment bank Morgan Stanley,” explained a company spokesman. With market sounding, potential investors receive initial information in order to clarify the basic interest. Steag and Morgan Stanley owners declined to comment.
Despite encouraging signals from interested parties, the Steag owners – six Ruhr area municipalities united in the investment company KSBG – are having a heated argument behind the scenes about the structure of the sale and the management staff. The 36 percent owner Dortmund stands against Essen, Bochum, Duisburg, Oberhausen and Dinslaken, which hold the rest of the shares.
Top jobs of the day
Find the best jobs now and
be notified by email.
“A situation has arisen that is actually not that difficult to solve economically, but has become incredibly complex due to the people involved,” said a person familiar with the situation. The sale is endangered by the dysfunctional ownership structure, said another person.
A key point of contention is whether the company will be sold as a whole or in two parts — the traditional coal-fired power generation business and the new wind or solar farm business. Both owner camps emphasize that they want to sell Steag as a whole, also to protect jobs and not to be stuck with the long-term unwelcome charcoal piles.
At the same time, the overall sale is more important to some – such as Dortmund – than to others, who primarily have a price-maximizing sale in mind. According to investment bankers, the price could be highest if sold in parts.
Dispute over two top personalities
While Steag’s renewable energy business is popular, coal-fired power plants are currently profitable but unattractive in the long term. Half of the interested parties are willing to buy Steag as a whole under certain conditions, according to documents from the sales consultant that are available to the Handelsblatt.
However, potential bidders all want Steag to be presented in two separate units. This should enable them to make accurate yield estimates. Two different bank financings can also be organized for the two parts.
Half of those interested have signaled that they would decarbonize Steag by 2025, i.e. close or sell the charcoal piles. In principle, the Steag shareholders have already spoken out in favor of legally separating the two businesses. An official decision on this has not yet been made. However, if things go well, that could happen in the next month.
Another point of contention among the Steag owners revolves around two top personalities: Steag supervisory board chairman Gerhard Jochum and the restructuring director appointed by the banks, Ralf Schmitz. The five municipalities allied against Dortmund want Jochum gone, a decision should be made at the KSBG supervisory board meeting at the end of the week.
As a possible successor at the top of the supervisory board, the supervisory board member Dietmar Spohn from Stadtwerke Bochum is being traded. Peter Schäfer from Stadtwerke Essen could take Jochum’s place on the supervisory board. Dortmund supports Jochum. Jochum declined to comment.
Jochum are accused of going it alone. Most recently, a dispute had flared up about consultant costs, which Dortmund believed were too high and recently increased unusually sharply, but which are reasonable from the point of view of other municipalities. The auditor EY started a forensic investigation into the amount of the consulting costs, but as soon as it started, EY was stopped again.
Jochum had officially commissioned EY, from the point of view of the five municipalities without the necessary supervisory board resolution. The Steag trustee Jan Markus Plathner, appointed by the Steag owners at the beginning of the year, came to the conclusion at the end of July that a change at the top of the supervisory board was necessary. Plathner noted this in a corporate governance review available to the Handelsblatt. Plathner was previously unavailable.
Another bone of contention is the role played by Ralf Schmitz, managing director of the restructuring, who was appointed by the creditor banks. With his current sole right of representation, he has the last word on important decisions at Steag, such as the sales process.
From the point of view of some municipalities, this is too much influence, especially since they believe Steag is about to be completed. Representatives from Dortmund, but also from Bochum and Duisburg, as well as from the employee side, decided in August that Schmitz should withdraw from the KSBG management and that his influence at Steag should be curtailed.
This is to be discussed at a meeting of the KSBG supervisory board at the end of the week. But Schmitz also has strong advocates there. “Schmitz organizes the Steag sales process. Why should you change horses now?” said an involved local representative. Schmitz declined to comment.
IGBCE proposes alternative to sale
In order to get rid of it completely, Steag would have to strip off its status as a restructuring case anyway, as stipulated in the contracts with the banks. Dortmund in particular wants to accelerate this process. The reasoning: Steag could earn 989 million euros before interest and taxes by March. As of June, the company had 741 million in liquid funds on its balance sheet. This is offset by net debts of around 1.1 billion euros at Steag and KSBG. A so-called S6 report has been available since last weekend, which Steag gives a positive continuation prognosis.
Last week, IGBCE boss Michael Vassiliadis brought another variant into play. He wants to work with the federal government to ensure that, with the help of the federal government, the state bank KfW provides loans with which the existing liabilities could be redeemed. This means that a sale could possibly be avoided, even if this has actually been firmly decided by the municipalities, so the hope of some. The IGBCE declined to comment.
However, people familiar with the restructuring warn against exaggerated hopes for business development. It is still unclear how much of the profits will remain given rising coal prices and the expected tax on random profits. Should the energy market suddenly turn around again, the profits could end up being significantly lower than expected.
According to industry circles, the dispute over management personnel and the structure of the sale could scare off potential bidders. According to financial circles, during the so-called market sounding, Morgan Stanley sought contact with the Czech investor EPH, which had bought Vattenfall’s lignite business in eastern Germany in 2016, with the Czech utility CEZ, which continues to rely heavily on coal, and the RAG Foundation, which is responsible for remedying the problems caused by coal mining in Germany financed damage caused.
In addition, two dozen infrastructure investors were approached. Many infrastructure investors have indexed exposure to coal from an ESG standpoint, and are particularly interested in the renewables business.
At the beginning of 2023, Steag wants to obtain non-binding offers, then invite a few bidders to an in-depth audit and sign a sales contract in the second quarter. According to the sales consultant’s sales documents, Steag could be valued at up to three billion euros. Some potential bidders consider a valuation of up to two billion more realistic.
Cooperation: Kathrin Witsch, Catiana Krapp
More: Germany’s fifth largest energy group is considering selling the entire business.