Preussag AG - Company Profile, Information, Business Description, History, Background Information on Preussag AG
D-30625
Hannover, Niedersachsen
Germany
Company Perspectives:
The Preussag Group has systematically repositioned itself since 1997. The acquisition of companies in tourism and disposals in the industrial sector have created a new group. Today Preussag is a leading European tourism and services group with strong brands and successful companies. Preussag intends to further streamline its portfolio, focusing on high growth services. Tourism is now the Preussag Group's core activity.
History of Preussag AG
Preussag AG has redefined itself for the 21st century. Once an internationally operating conglomerate with interests in steel and other metals; mining; gas and oil exploration and production; and other industrial activities, Preussag has pulled an about-face at the turn of the century, shedding nearly all of its industrial operations to focus almost exclusively on its new role as the leading travel and tourism group in Europe. An integrated travel group, offering the full range of services, from its own fleets of charter airplanes to travel agencies, packaged tour operations, hotel and resort accommodations, and incoming services, Preussag has also built a strong logistics business around its Hapag Lloyd subsidiary. Having locked up the leading place in Europe's two largest travel markets, Germany and the United Kingdom, Preussag is seeking to lead the further consolidation of Europe's travel industry by building up interests in France—through a strong share in Nouvelles Frontieres—Spain, Italy, and Portugal.
Prussian Steel: 1923–45
Preussag AG was founded in Berlin in December 1923 as Preussische Bergwerks-und Hütten-Aktiengesellschaft (Prussian Mine and Foundry Company) out of a collection of iron, lead, zinc, coal, oil, amber, and potash mining, foundry, and processing works formerly owned by the German state of Prussia. Liberated by the Prussian government from the restrictions imposed by the state budget, the new company's management was charged with building Preussag through the efficiencies and profit opportunities of the free market. Despite antiquated equipment dating to the prewar era and a German economy still reeling from the punitive reparations imposed by the Versaille Treaty of 1919, Preussag's diverse operations began to thrive, and by 1925 it was employing 31,000 workers. Only when the hyperinflation of the Weimar years began to stabilize in the late 1920s, however, was Preussag able to fill its backlog orders, increase production, and enlarge its plant capacity. By continuing to rationalize and mechanize its operations, almost all Preussag's businesses were reporting increased sales by 1928, and by 1929 gross profits stood at 26.6 million reichsmarks (RM).
Nevertheless, in 1929 the Prussian parliament decided to form Vereinigte Elektrizitäts und Bergwerk AG (VEBA AG) out of Preussag, Hibernia, and the Preussischen Elektrizitäts-AG in order to stimulate foreign investment in the three firms. Although Preussag alone claimed a share capital of RM 140 million no foreign investors rose to the Prussian government's invitation. The U.S. stock market crash at the end of the year signaled the beginning of a worldwide depression, and by 1931 Preussag's gross profits had fallen to RM 11 million. When Adolf Hitler was elected chancellor of Germany in 1932 he initiated a military and infrastructural expansion that offered Germany's steel industry some protection from the stagnant world steel market, and by 1933 Preussag's gross profits had bounced back to RM 60.1 million. However, the National Socialists' emphasis on German economic self-sufficiency as well as the general scarcity of foreign currency forced the German iron and steel industry to begin smelting, increasing amounts of low-quality native ore, and by 1934, when Preussag established its petroleum and petroleum products subsidiary Preussag Handel Gesellschaft mbH, German foreign trade in raw materials and semifinished products had fallen under rigid government control.
With the implementation of Hitler's four-year economic plan in 1936—which effectively placed the German economy on a war footing—the German iron and steel industry had largely subordinated its production and investment decisions to the state's industrial policy. Benefiting from the armaments-led expansion of the economy, however, between 1935 and 1938 Preussag's gross profits rose from RM 78 million to almost RM 100 million, and its workforce climbed to 34,000. On the eve of World War II, Preussag opened the Düsseldorf operation of its Preussag Handel Gesellschaft metal trading subsidiary and at the height of the war in 1942 began developing a major pit coal field in Ibbenbüren in northwestern Germany. Hibernia, one of Preussag's two sister firms in the VEBA Group, had converted some of its operations to armaments manufacture during the prewar buildup but unlike many German armaments firms escaped the wrath of Allied bombing until 1944. During the war, shipbuilder Howaldtswerke-Deutsche Werft AG (HDW) of Kiel, which would become a major Preussag acquisition in 1989, produced 50 U-boats for the German navy. As the war progressed, Allied air raids, the loss of labor personnel to military conscription, and plant relocations hampered the productivity of many German businesses. Following Germany's surrender in 1945, Preussag was placed under the control of the Allied occupation government, all its possessions in eastern and central Germany were lost to the Soviet-controlled government of East Germany, and its operations in West Germany were partly destroyed.
From the Rubble: 1945–59
In the immediate postwar years, the Allied powers pursued a policy of Entflechtung, or decartelization, in which many German firms were dismantled and large industry groups were broken up into separate companies with a maximum permitted share capital of RM 100,000 each. As Preussag began reconstructing its shattered operations in 1946–47, the historical alliances between German ore, coal, and steel production were being dismembered, and German steel companies were divested of their raw materials mining operations.
In 1948, however, the institution of the U.S.-sponsored Marshall Plan and the reform of Germany's currency system (in which the reichsmark was replaced with the deutsche mark [DM]) signaled the West's intention to allow the devastated German economy to recover, thereby bolstering the West against the increasing threat posed by the Soviet Union. In 1951 the dismantling of German plants was halted and bans, controls, and restrictions on German industry were lifted. Preussag immediately began construction of a coal power plant in Ibbenbüren, and as European reconstruction spurred a boom in the demand for steel Preussag's workforce grew to 22,800. In 1952, the lifting of limits on German steel production finally enabled German steel companies to once again become competitive in the world market. Preussag moved its headquarters from Berlin to Hannover and, with the German "economic miracle" now underway, Preussag's Ibbenbüren power station came on line in 1954.
Privatization and Expansion: 1959–89
By the late 1950s Preussag was beginning to reestablish itself as an essential part of the German raw minerals industry, but as a subsidiary of the still state-run company VEBA it faced severe limitations: expansion through acquisition was impossible and, unlike public, stock-selling companies, it could not turn to the financial markets to generate the capital needed for investment or financing. With the government of the Federal Republic of Germany its sole shareholder, Preussag could only raise funds by incurring debt through bank loans. While Preussag's fellow VEBA subsidiary, Hibernia, had managed to recover sufficiently from the war to prosper within the framework of a state-run enterprise, Preussag had not, and in December 1958 the German Bundeskabinett, in an attempt to spread the interest in German companies to a wider portion of the public (specifically, Preussag employees and low-income individuals), decided to initiate a partial privatization of Preussag, with VEBA retaining only 22.4 percent of Preussag's shares. In 1959, Preussag's controversial initial public offering raised DM 75 million, and within a day of the stock sale Preussag shares were worth more than DM 100 million, with roughly 200,000 investors registering purchases of the company's stock.
As world demand for steel began to decline around 1960 and the overproduction of steel of the 1950s created a global glut that lasted until the end of the 1960s, a newly privatized Preussag turned to diversification and acquisition. It founded Elektro-Chemi Ibbenbüren GmbH (ECI), a manufacturer of chloro-alkaline products, with the Dutch firm KNZ in 1960; purchased Europe's largest railroad tank car and transportation services agent, VTG Vereinigte Tanklager and Transportmittel GmbH, of Hamburg, a year later; and acquired its first shares in KIAG of Düsseldorf in 1962. Preussag also founded two offices of its Preussag Stahlhandel iron and steel products/metal services subsidiary in 1962 and then a year later a Stahlhandel operation in Hamburg. In 1963, Preussag's VTG subsidiary purchased the inland waterway shipbuilding operations of the Fanto, Luise, and Comos companies as well as an industrial tank plant in Amsterdam. Its aggressive expansion continued in 1964 with acquisition of container ship construction facilities on the North Sea and the purchase of the remaining shares of KIAG two years later.
In the mid-1960s the collapse of Germany's capital markets and a general recession in the national economy brought the first significant slowdown of Germany's postwar boom. Ironically, the introduction of new steelmaking technologies was enabling German steelmakers like Preussag to lift Germany's total steel production to more than 16 million tons just as worldwide demand for steel was bottoming out. Nevertheless, in the remaining years of the decade Preussag acquired France's largest railroad tank car leasing business through its VTG subsidiary (1966); purchased a three-quarters interest in zincing firm Berliner Grossverzinkerie (1966); expanded into the stationary and mobile fire extinguishing and protection markets with the purchase of Minimax GmbH (1966); established Preussag Energie GmbH to explore for and produce crude oil and natural gas (1968); and expanded its marine and shipbuilding holdings by founding container shipbuilder OSA (1968).
In 1969 Preussag turned to the U.S. market to form a joint venture with Kaiser Aluminum and Chemical Corporation to build an aluminum smelter on the Rhine River near Duisberg. Kaiser provided the technical expertise for the erection and operation of the new Kaiser-Preussag Aluminum GmbH facility, which by 1975 claimed a capacity of 143,000 tons. Ten months later Preussag announced another venture with Kaiser, acquiring a 50 percent interest in its aluminum smelting, fabricating, and sales operations in Germany, Switzerland, Italy, and Belgium under the name Kaiser-Preussag Aluminum. Finally, at the end of 1969, VEBA agreed to sell its remaining interest in Preussag to Westdeutsche Landesbank, making Preussag a wholly public corporation for the first time in its 47-year history.
With share capital now totaling DM 315 million and a workforce of 20,600, in the early 1970s Preussag acquired zincing firm Verzinkerei Bollmeyer of Neumünster; formed Kavernen Bau- und Betriebs-GmbH of Hannover with Salzgitter AG for the planning, construction, and operation of underground storage facilities; established two new subsidiaries, Preussag Anlagenbau GmbH, a pipeline and plant engineering and construction firm, and Preussag Stahl AG, its steelmaking subsidiary; established a large container tank operation through a joint venture between subsidiary VTG and a Dutch firm; formed a lead industry joint venture, Preussag-Boliden-Blei GmbH, with the Swiss firm Boliden; and acquired the zincing operations of Zinkelektrolyse Nordenham. Several economic trends conspired to make the 1970s a difficult decade for Germany's steel producers, however. Revaluations of the deutsche mark, burdensome wage levels, and government-imposed financial controls squeezed steelmakers' margins, and the onset of the worldwide oil crisis in 1973 drove manufacturing costs higher, further reducing demand. The increased use of thinner gauges of steel and the substitution of other materials for traditional steel-based applications joined with the rise of new, low-priced steelmaking countries and slumps in critical steel-using industries to hand the European steel industry its worst drought since World War II. In its 50th anniversary year, Preussag moved to repair the structural weaknesses exacerbated by the poor economic climate and in 1974 sold off its consumer goods and brand-name product businesses.
By 1975 Preussag had begun testing projects for new technologies in its oil business, dissolved its partnership with Kaiser Aluminum, established a helicopter service business through its VTG subsidiary, and acquired an interest in a French industrial tank firm. It also established a British subsidiary, began constructing an offshore drilling supply base in northwestern Germany, and in a joint venture with the German firms Metalgesellschaft AG and Salzgitter AG founded a study group to explore the offshore extraction of raw materials.
As the second oil crisis of the 1970s began in the latter half of the decade, the West German government began offering Germany's beleaguered steel companies financial inducements to stimulate industry mergers and cooperative arrangements. Preussag turned to new foreign markets to bolster declining revenue in its traditional European base. Between 1976 and 1985, for example, it began a copper exploration operation on the Pacific island of Fiji; participated in the building and operation of two lead mines in Canada; initiated oil drill-boring projects in Egypt and the United Arab Emirates; acquired a crude oil field operation in the Gulf of Mexico, and participated in an offshore drilling platform joint venture in mainland China. Preussag subsidiaries were meanwhile introduced in Brazil, Nigeria, Gabon, Denmark, and Saudi Arabia. Closer to home, the company acquired zincing firm Grossverzinkerei Schörg GmbH and a majority interest in the construction firm Bauer Grundbau, founded the zinc producer Preussag-Weser-Zink GmbH with French metals manufacturer Penarroya, and began developing natural gas fields in northern Germany. (A decade later Preussag and Penarroya merged their lead, zinc, and special metals businesses as a France-based Preussag subsidiary named Metaleurop, forming the world's largest lead-processing company.) Preussag's 1977 purchase of Patino N.V., a Dutch metals, mining, and mineral processing company, also positioned it a year later to gain a majority interest in Amalgamated Metal Corporation of the United Kingdom. By 1979 Preussag's sales stood at $1.66 billion, and in 1980 its stock began trading on Germany's eight stock exchanges.
A public relations setback in the mid-1980s, however, inaugurated a string of publicity embarrassments that would dog Preussag for the next ten years. In 1984 the European Community fined Preussag and five other European zinc producers for violating antitrust laws by fixing prices and restraining production. Then in 1988 the U.S. government accused Preussag and four other firms of constructing a poison gas plant in Libya and a chemical arms factory in Iraq, a violation of international trade law. Preussag denied the allegations, claiming it had built a desalinization plant for Libya and nothing more. Within three years, German federal prosecutors officially charged Preussag employees—though not the firm itself—with breaking export laws by selling Iraq $16 million worth of equipment for its chemical weapons program. Finally, in April 1995, 2,000 U.S. veterans of the Gulf War sued Preussag and several other German firms for their alleged Iraqi chemical weapons work, a claim Preussag officials continued to describe as "substanceless."
As the world steel industry moved gradually toward the recovery that would finally take hold in the late 1980s, Preussag enjoyed its best postwar year ever in 1981 while adding German container shipbuilding businesses to its stable (1980), initiating crude oil and natural gas projects in the United States (1981), achieving technological advances in its oil machinery production capabilities (1982), jettisoning its freight forwarding holdings (1983), and restructuring its construction engineering and technology operation (1984). With sales topping $4.44 billion in 1985, Preussag continued its ambitious expansion by buying a tin mining business in Indonesia, increasing its holdings in the U.K.-based Amalgamated Metal Corporation and the Swedish firm Boliden, solidifying its presence in the fire protection technology industry, and gaining a majority interest in the German metals trading firm W. & O. Bergmann GmbH. Expansion also necessitated consolidation, however, and in the closing years of the 1980s Preussag sold off coal acid holdings and closed exhausted ore mines; spun off its metal refining businesses to its new Metaleurop subsidiary formed in a joint venture with Penarroya; consolidated its W. &. O. Bergmann holdings; broke its UB Metall operations into four metal industry subsidiaries; and restructured its VTG container shipbuilding operation.
From "Realignment" to Transformation in the 1990s
The biggest restructuring of all, however, occurred in 1989, when, under new Chairman Erwin Moeller, Preussag converted itself into a holding company comprised of four legally independent business units centered on its four core businesses: coal, crude oil, natural gas, and plant construction. It then merged with the 50-year-old, state-held steel firm Salzgitter AG, creating a DM 27 billion conglomerate employing 70,000 workers. The two monumental moves enabled Preussag to post sales of $15.3 billion in 1990, and with the formation of two new subsidiaries—Preussag Anthrazit GmbH (coal mining) and Preussag Noell Wassertechnik GmbH (offshore engineering and technology)—as well as the new markets opened up by Germany's reunification, Preussag's announcement that it was "optimistic about overall developments" seemed to understate its position.
The readiness with which Preussag expanded and consolidated its businesses in the years since privatization seemed only to increase in the 1990s. It made acquisitions in the limestone, oil drilling, automobile recycling, mining transport, plaster board, industrial freight forwarding, lead oxide, transport services, engineering, and petroleum industries between 1991 and 1994 and, with the purchase of air-conditioning manufacturer Hagenuk Fahrzeugklima GmbH, began an association with Hagenuk that would soon lead to a short-lived and ill-starred entrée into the telecommunications business. As another recession struck the European steel industry in the mid-1990s, Preussag was forced to admit that it had "joined the ranks of the other steelmakers, which are all posting large losses." Consequently, in 1993 Chairman Michael Frenzel announced Preussag's intention to further expand its international base—which already accounted for 44 percent of total sales—with a special focus on the North American and Asian markets, as part of a new restructuring plan intended to buffer Preussag from the intense competition of the European steel market. In three short years this policy would result in new ventures in Kazakhstan, Russia, China, Croatia, Brazil, and Albania. Moreover, Preussag's submarine-building subsidiary, HDW, landed naval contracts in southeast Asia, and Preussag Energie pursued new projects in Colombia, Ecuador, Tunisia, Australia, Cuba, Argentina, and Syria. In 1995 Preussag launched Preussag North America as a holding company to promote the establishment of new U.S. ventures, such as its acquisition a few months later of an interest in the Indiana-based steel mill operator Steel Dynamics Inc. By 1994–95, Preussag's foreign sales had edged up to 48 percent of total turnover, and its still young North American and Asian markets were accounting for roughly 14 percent of international sales, with plans to double Asian sales to DM 2.4 billion by the turn of the century.
A second thrust of the restructuring program was to streamline Preussag down to its "core competencies"—now steel, energy, logistics, shipbuilding, and plant and building engineering and technology. Rail-car construction, auto supply, mobile radio, automated transportation systems, telecommunications, and other loss-leading or niche-threatened businesses were therefore discarded in a series of "strategic disinvestments." Free to concentrate on its historical strengths, in the mid-1990s Preussag found a partner for Metaleurop, its long-troubled French subsidiary, and opened two new blast furnaces, an electric steel plant, and an oxygen steel plant in Germany.
Yet Preussag's restructuring soon gave way to a complete transformation of the former industrial giant. Tired of fighting the cycles of its core industries, Frenzel began looking to bring the company into a more stable market. The opportunity came when Frenzel learned that its major shareholder, Westdeutsche Landesbank (WLB), was selling off its stake in major German tourism and logistics business Hapag Lloyd, which included its 30 percent holding of travel group TUI. In 1997, Frenzel and WLB agreed to a transfer of both businesses to Preussag—marking the beginning of Preussag's transformation into one of the world's largest tourism groups. After paying $1.5 billion for Hapag Lloyd, Preussag turned toward building its TUI holding into one of Europe's leading travel businesses.
By the end of 1998, Preussag's new travel division had swelled to include the rest of TUI, the leading German travel agency chain First Reiseburo, and a 25 percent share of Thomas Cook, one of the leaders in the United Kingdom's travel industry. The following year the company boosted its stake in Thomas Cook to 50.1 percent. By the end of 1999, Preussag had successfully recreated itself as a fully integrated travel company—offering the full range of tourism-related services from its own charter airlines operations to tour packages to resort hotels and incoming services. The company then merged its Hapag Lloyd and TUI operations into a single entity, Hapag Touristik Union, which was subsequently renamed TUI Group the following year.
Preussag's travel purchases had left the company saddled with a heavy debt load. Frenzel now moved to enact the second part of the company's turnaround, that of selling off what had once been its core assets in an effort to pay down debt. This began in 1999 with the transfer of much of its plant engineering division and its shipbuilding holdings to the Babcock Borsig company. The company's logistics subsidiary, VTG, then merged with German freight-forwarding company Lehnkering.
By 2000, Preussag's travel and tourism wing had become sufficiently powerful to encourage the company to announce plans to sell off nearly all of its former industrial activities—keeping only its oil and gas subsidiary. The company continued shopping for new add-ons to its travel division, including the February 2000 purchase of Austria's GTT Holding, giving it that group's Gulet Touropa Touristik, the leading tour operator in Austria. Then in May 2000 Preussag jump-started a broader consolidation of Europe's travel industry with the announcement that it had made a takeover offer worth more than £1.8 billion for U.K. tourism leader Thomson Travel Group.
As part of the Thomson deal, Preussag agreed to sell its 50.1 percent holding in Thomas Cook. The company stepped up its sell-off of its newly non-core operations, with plans to complete this operation by 2002. At the same time, the company, which had successfully captured a leading position in the northern European travel industry, turned its sights to the south. In February 2001, the company began acquiring a stake in troubled French travel giant Nouvelles Frontiers, expected to reach more than 30 percent in the early years of the new century. Preussag also targeted Spain, Italy, and Portugal—which represented the primary destination markets for Europe's holiday makers.
In May 2001 the company made a first move into these markets with the indirect acquisition of 10 percent of Italy's Alpitour, the leader of that country's packaged tour and travel market, through a holding in Italian conglomerate Agnelli. This purchase was widely viewed as a possible precursor for Preussag's eventual involvement in another Agnelli holding, the internationally known Club Med. Preussag had successfully negotiated a transition from a relatively minor industrial player into a full-fledged travel and logistics services giant.
Principal Subsidiaries: TOURISM: TUI Group GmbH; First Reisebuero Management GmbH & Co. KG; Hapag-Lloyd Fluggesellschaft mbH; Hapag-Lloyd Geschaftsreise GmbH; Nouvelles Frontières (France); Thomson Travel Group (UK). LOGISTICS: Hapag-Lloyd AG; ALGECO S.A.; (France); Hapag-Lloyd Container Linie GmbH; Pracht Spedition + Logistik GmbH; VTG-Lehnkering AG.
Principal Competitors: Airtours Plc; American Express Company; Carlson Wagonlit Travel; First Choice Holidays PLC; Thomas Cook Holdings Ltd.
Chronology
- Key Dates:
- 1923: Preussische Bergwerks-und Hütten-Aktiengesellschaft is formed in Berlin.
- 1929: Company merges into Vereinigte Elektrizitäts und Bergwerk AG (VEBA AG).
- 1945: Allied occupation government takes control of Preussag.
- 1952: Company moves headquarters to Hanover.
- 1958: Preussag, which had been functioning as a subsidiary of state-run VEBA, is partially privatized.
- 1959: Preussag goes public.
- 1969: Westdeutsche Landesbank (WLB) buys out German government share of Preussag.
- 1989: Preussag is restructured as a holding company.
- 1997: Company acquires German tourism and logistics business Hapag Lloyd from WLB.
- 1998: Company acquires 50.1 percent of Thomas Cook.
- 1999: Preussag acquires leading German travel agency First Reiseburo; merges VTG logistics subsidiary with German freight-forwarding company Lehnkering.
- 2000: Company begins sell-off of industrial operations; acquires GTT Holding and Thomson Travel Group and agrees to sell its Thomas Cook holding.
- 2001: Preussag acquires minority share of Nouvelles Frontieres and 10 percent of Alpitours.
Additional Details
- Public Company
- Incorporated: 1923 as Preussische Bergwerks-und Hütten-Aktiengesellschaft
- Employees: 76,956
- Sales: EUR 20.40 billion ($17.96 billion) (2000)
- Stock Exchanges: Düsseldorf Frankfurt
- Ticker Symbol: PRS
- NAIC: 561510 Travel Agencies; 561520 Tour Operators; 541614 Process, Physical Distribution, and Logistics Consulting Services
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