Metall may go on the block as German parent restructures

The fallout continues from the restructuring of Germany’s giant resource conglomerate Metallgesellschaft (MG).

Rumors circulated this week that MG plans to sell its 50.1% interest in Canadian subsidiary Metall Mining (TSE). These rumors seem more plausible now, following a restructuring agreement worked out between MG and its more than 120 creditors and shareholders.

Speculation that Teck (TSE) might be interested in buying selected core assets of Metall (in particular, Metall’s interest in either Teck or Toronto-listed Cominco) is also prevalent.

With Metall’s market capitalization around $450 million and Teck’s 1992 financial statements indicating it has more than $214 million in cash and short-term investments, Teck might nibble.

Other companies which, according to analysts, might be interested in buying Metall outright include: Minorco, a subsidiary of South African Anglo American; Rio Algom (TSE), the Canadian subsidiary of British-based RTZ; and Canadian-based multinational Placer Dome (TSE).

Since Metall’s main focus is copper mining, interest will depend on how these possible suitors expect the red metal to perform in the long term. In a telephone conversation with The Northern Miner, Metall President Klaus Zeitler gave no indication that a takeover is imminent.

“I haven’t heard anything officially about being sold and, as we said a week ago, it’s business as usual,” he said.

Any further comment from the company is unlikely at present. When MG sold a 17.9% stake in Metall last year, a clause in the underwriting agreement stipulated that MG must wait six months before it can publicly comment on any intention to sell additional shares, unless it has the consent of the underwriting group.

Nevertheless, the uncertainty about who will end up owning the 50.1% interest in Metall is a direct result of the financial difficulties encountered by its parent MG.

The problems started in 1992 when MG reported losses as a result of poor metal prices. Further losses of 1.8 billion German marks ($1.4 billion) in 1993 coupled with losses of 1.5 billion marks ($1.13 billion) from oil future contracts in late 1993 led MG to expect possible bankruptcy. A new source of capital, in conjunction with a restructuring plan, was needed to help MG cope with its enormous debt.

A 3.2-billion mark ($2.4-billion) restructuring plan was proposed, which was to have the more than 120 creditors extend 2.7 billion marks ($2 billion) of new capital and an extra 500 million marks ($380 million) in credit facilities to the troubled group. In addition, MG was to have issued 5.6 million shares at 250 marks ($189.80) each for a gross amount of 1.4 billion marks ($1.1 billion).

Although the plan had its supporters, it soon became apparent that many would not approve it as it existed. Earlier last week, the French banks announced they were united in their objection to the plan. A spokesman for the group said they had not been given sufficient information about MG’s newly proposed corporate structure and, consequently, they felt current shareholders should shoulder more of the burden by contributing more capital.

Observers said that, despite the negative reaction, the plan could still go ahead if there were support from MG’s largest group of creditors, the German banks.

However, Norddeutsche Landesbank Girozentrale, one of those banks, chose not to support the plan. The negative reaction halted approval of the decision and MG’s shares were suspended from trading on the Frankfurt Borsque. Subsequently, the minor differences were addressed and a new restructuring plan was negotiated. Approval was granted by MG’s shareholders and creditors last Saturday.

Shares of the company closed yesterday at 245 marks ($185) — up from the closing price — before the plan was approved of 209.5 marks ($159) and just off the 250-mark new issue price as determined in the restructuring agreement.