Friday 20 September 2019

Billionaire Merckle family caught short by VW shares

VEM got caught in a short squeeze after betting against Volkswagen stock. Sean Gallup/Getty Images
VEM got caught in a short squeeze after betting against Volkswagen stock. Sean Gallup/Getty Images

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, according to a number o sources familiar with the situation.

The family that controls HeidelbergCement, the Ratiopharm GmbH generic drug- maker and the Phoenix Pharmahandel pharmaceuticals wholesaler may use part of its wealth to finance the rescue of Dresden-based VEM Vermoegensverwaltung, the sources.

Adolf Merckle (74) who heads an empire operating in the cement, machinery and drugs industries, had previously resisted giving guarantees on as much as the €1.1bn he needs to plug losses at VEM and refinance loans to Spohn Cement GmbH, an investment company that holds about 54pc of HeidelbergCement.

Agreeing to contribute some of his estimated €7.2bn personal fortune may give lenders the reassurance they seek to provide the loans.

"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."

VEM may be forced to file for insolvency if a so-called standstill agreement that would freeze banks' claims isn't extended, sources said 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, sources said.


As many as seven of the banks have not signed the standstill agreement. It remains unclear whether the Merckle family's guarantees are sufficient to satisfy the 40 banks and whether these are "irrevocable and unconditional," the sources added. The Merckle family faces a liquidity shortage after losing as much as €700m on wrong-way bets on VW stock and the value of HeidelbergCement plunged. A failure of VEM could have repercussions for the Merckles' other holdings. They may be forced to sell assets including German Ratiopharm.

HeidelbergCement, Germany's biggest cement maker, extended losses in Frankfurt trading yesterday. 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 €3.3bn of debt under review for a possible downgrade, Matthias Hellstern, analyst at the credit-rating company said yesterday.

HeidelbergCement yesterday said it's "not affected" by Merckle's attempts to prop up struggling VEM. The stock has declined 63pc so far this year, cutting the company's market value to €4.9bn.

VEM got caught in a so-called short squeeze after betting Wolfsburg, Germany-based Volkswagen stock would fall.

Porsche SE's October 26 announcement that it planned to increase its stake in Volkswagen to 75pc 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)

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