BaFin Finds Collusion Among Deutsche Shareholders

by Ulrika Lomas, for LawAndTax-News.com, Brussels

24 May 2005

Germany's financial sector supervisor BaFin said on Thursday it had found indications that some shareholders had acted in concert to oust the Chairman and Chief Executive at Deutsche Boerse.

"We have investigated whether there are indications for joint actions of shareholders. The investigation was positive," BaFin president Jochen Sanio told a news conference. BaFin is will now try to establish whether the shareholders in question (primarily US and UK hedge funds who became dissatisfied with management) together hold a controlling stake in Deutsche Boerse's capital.

Under German law, a 'concert party' owning more than 30% of the stock of the company would have to make a public offer for all of Deutsche Boerse stock. Predictably, BaFin's comments caused Deutsche Boerse shares to drop. In fact, German investment law would force the concert party to make a bid at the volume-weighted average price of the previous 90 days, which would be well below the current market price.

The reality however is that collusion would be next to impossible to prove, and BaFin's moves are almost certainly politically motivated, as were the comments by Franz Muentefering, leader of Schroeder's ruling SPD, who compared intrusive investors to a plague of locusts, meaning of course the 'anglo-saxon' hedge funds which have begun to flex their muscles as shareholders in the orderly world of German corporate governance.

Although Muentefering's comments were widely seen as being designed to send a political message to voters in an upcoming state election, the Deutsche Boerse affair has stirred up wider concerns about foreign intervention in German capital markets, with both the Chancellor and Finance Minister Hans Eichel jumping onto the 'anti hedge funds' bandwaggon with enthusiasm.

Eichel said he wanted German standards of regulation to apply across Europe: "I want a Europe-wide supervisory body for hedge funds based on the German model. What we have managed to achieve in the German market to improve regulation and transparency I would like to see exported." He added: "In this way we could minimise the risk from certain black sheep among hedge funds, who are only out to maximise their profits in the short-term."

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