Karl Ehlerding dislikes the corporate raider rap. The 58-year-old financier from Hamburg sees himself as a German Warren E. Buffett, a seeker of undervalued assets. In fact, shares in his main investment vehicle, WCM Holdings and Property, delivered a Buffett-worthy eighteenfold increase from 1995 until they began a 50% decline in late 1999.
Whatever you want to call Ehlerding, Germany Inc. just wishes he would go away. In January, WCM completed its $1 billion takeover of packaging and machinery maker Klockner-Werke. Now, WCM has declared its intention to make a bigger move, which could be worth as much as $3.5 billion. Press speculation focuses on MG Technologies, the Frankfurt engineering and chemical company once known as Metallgesellschaft. Regardless of the target, in the boardrooms of Germany Inc. nervousness about Ehlerding's next move is palpable. "It will come this year," promises Ehlerding.
Ehlerding represents the next wave in German corporate restructuring. Until recently, companies in the same industry attacked each other in hostile takeovers or merged peacefully, all in a quest for global dominance. But in a throwback to the 1980s, the aim now is to buy an undervalued company that can be quickly resold at a profit--usually in pieces. "We don't do turnarounds," says Ehlerding protégé Roland Flach, WCM's CEO.
That kind of deal is about to get a further push. From next Jan. 1, German companies will be able to sell their stakes in other, publicly listed companies without paying capital-gains tax. That should unleash a wave of deals as Germany's banks, insurers, and utilities unravel their holdings. Ehlerding can't wait. "Germany is a good place to do business," he enthuses.
Ehlerding, the son of a Bremen crab dealer, has shown a knack for dealmaking since he was a business student in the mid-1960s. While doing research, he stumbled on a nearly defunct local railroad in Hildesheim that held undervalued tracts of land. He scraped together $135,000 from friends and family and bought control, stunning management. Ehlerding quickly shut down the line and resold the land, more than tripling his investment.
HUGE GAINS. In the past five years, Ehlerding has bought and resold grocery chain Spar Handels, a stake in clothing retailer Wünsche, and auto parts maker Ymos. He has also bought some 60,000 apartments. Under German law, WCM can apply the losses at companies it acquires against gains in its real estate portfolio. So WCM historically pays little or no tax on profit.
Ehlerding's methods lead to charges he is cold-blooded. In 1999, WCM had to give ground in a bitter battle for control of a suburban streetcar line near Bremen. It turned out part of the track was home to a collection of antique locomotives. Big mistake: Vintage trains are sacred objects in Germany. In the end, WCM accepted a compromise that allowed the trains to keep operating.
Ehlerding is not infallible. In the Klockner takeover, WCM spent almost a year negotiating an agreement with Klockner managers to avoid a bloody takeover. As talks dragged on, arbitrageurs sold WCM shares and bought Klockner. WCM shares slid from $35 to $12, forcing Ehlerding to sweeten his cash and stock offer. The shares have since risen to $16.30, but WCM managers vow not to waste so much time making nice the next time around.
What's the new target? Analysts are betting it's MG Technologies, which has profitable chemical assets but an anemic stock price. Ehlerding denies the speculation, though he won't reveal the real target. Regardless, vows Flach, "once we start it, we'll see it through." No one who knows Ehlerding has any doubt about that.
By Jack Ewing in Frankfurt
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