Enemy At The Gates

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

16 May 2005

The coup at Deutsche Boerse, which saw investors in Deutsche Boerse remove Chief Executive Werner Seifert and Chairman Rolf Breuer, has led German Chancellor Gerhard Schroeder to consider legislation to limit the power of hedge funds.

Shortly before the boardroom putsch, Franz Muentefering, leader of Schroeder's ruling SPD, 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.

Schroeder told an SPD policy forum last week that tighter controls and greater transparency may be needed, and has asked the finance and economy ministries to look into the issue.

While many leading German figures have given some support to Muentefering, European Central Bank Governing Council member Klaus Liebscher (an Austrian) said in an interview with Reuters that the discussion was negative: "I do not understand this discussion. We need companies that make profits. We know that only companies and corporations are able to create jobs. This is not done by politics. Political life can only give you the framework. Job creation is done by the corporate sector. I do not understand how, if you want to be attractive to foreign investors, why you have a discussion like that in Germany."

Venture capitalists, German or otherwise, also see the discussion as being negative for investor perception. Thomas Pütter, head of the German Private Equity and Venture Capital Association said that Müntefering's remarks were unhelpful to those trying to promote Germany as a place to invest. "It is certainly not helping to improve its attractiveness," he told a conference in Frankfurt.

Meanwhile, German financial sector watchdog BaFin is investigating whether some Deutsche Boerse shareholders acted in concert to force out the management. If it could be shown that investors owning over 30% of the company joined forces to block Boerse's bid for the London Stock Exchange and subsequently remove top Boerse managers, then under German law they would have to make a public offer to buy all of Boerse. That would do wonders for investor perception of Germany!

Apart from British hedge fund TCI, opponents to the LSE bid included Generali Asset Management, US hedge fund Atticus, global mutual fund firm Fidelity, Merrill Lynch Investment Management, Standard Life Investments, and New York-based Third Point LLC.

Boerse shares rose 2.6% on the news of the coup, ending just below a record high. "If you look at the reaction of the stock, Seifert has created more value with the announcement of his resignation than he did with any other corporate action," said Daniel Loeb of shareholder Third Point LLC.

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