VEBA A.G. - Company Profile, Information, Business Description, History, Background Information on VEBA A.G.

Karl-Arnold-Platz 3
D-4000 Dusseldorf 30
Federal Republic of Germany

History of VEBA A.G.

With interests in electricity, oil, chemicals and transportation, VEBA A.G. is Germany's fourth-largest conglomerate. While over two-thirds of its annual revenues are generated in the European Community, the business also has operations in North America, Latin America, the Asia/Pacific region, and Africa. VEBA was state-owned for most of its history, from its creation by the Prussian government in 1929 as an amalgamation of private and public companies, through the era of Nazism and postwar partition to the reunification in the late 1980s. The Federal Republic of Germany sold 60 percent of VEBA's shares to the public in 1965, but remained the company's largest shareholder (with a 25 percent stake) until 1987, when privatization was completed.

Founded as Vereinigte Elektrizit&aumlĂ— und Bergwerke A.G. (VEBA) in 1929, the company traces its roots to the mid-nineteenth century, when William Thomas Mulvaney emigrated from London to Germany. Mulvaney was born in Northern Ireland in 1806 and began his working life as a surveyor in London. When the British Civil Service was restructured in the 1850s, Mulvaney was among the many who were made redundant. Upon moving to Germany in 1855, he used his surveying skills to select for purchase a number of coal fields in Westphalia. He employed new procedures for the construction of extremely efficient mine shafts, which put his mines ahead of others in production. By 1865 his 1230 miners were mining 330,000 tons of coal per year, much more than others with the same number of miners. After the war of 1870-72, coal prices fell and Mulvaney's Irish shareholders sold out. In 1873 he formed, with two German banks, the Hibernia & Shamrock-Bergwerksgesellschaft zu Berlin, with 5.6 million marks as capital. Mulvaney served as the chairman of the board until his death in 1885.

Leo Gräff succeeded the founder and led the company through the depression of the 1880's and a strike in May 1889 when 80,000 miners walked out. Gräff died shortly after the end of the strike and was replaced by Carl Behrens, who led the company through a period of expansion. The company's growth attracted the unwanted attention of the Prussian government, which accumulated a 46 percent stake in the energy company by 1904. In spite of opposition from privately-held banks and mining companies, the state acquired full control of Hibernia in 1917.

Hibernia formed the core of a state-owned energy cartel created through the 1929 amalgamation of the coal company with Preussischen Elektrizit&aumlĂ—-G.G. (PreussenElektra), the federal electric utility formed in 1927, and Preussichen Bergwerks-und HĂĽtten AG (Preussag). The purpose of the formation of VEBA was to entice international financing for the companies. No foreign capital was invested, though some internal investments were obtained.

In the meantime, a businessman named Hugo Stinnes was creating what would become the biggest business concern in German history. His namesake company, Hugo Stinnes A.G., would become part of the VEBA group in 1965, while another affiliate, Rheinisch-Westfälische Elektrizit&auml×werk A.G. (RWE), developed into one of VEBA's key competitors. Born in 1870, Stinnes was the grandson of the successful coal merchant Mathias Stinnes. Hugo learned business in Coblenz, and the trade in the mines of Wiethe, where he worked for a few months, and then in Berlin's School of Mines. He was taken into his grandfather's firm upon graduating, but left at the age of 23 with a capital of 50,000 marks to found his own firm, Hugo Stinnes A.G.

Initially, Hugo Stinnes followed his grandfather's formula for success, acquiring mines, building ships, and setting up coal depots throughout the North, Baltic, and Mediterranean seas. In partnership with August Thyssen, he founded a holding company, Mülheimer Bergwerksvereins in order to acquire more mines. He bought into the huge Deutsch-Luxemburgische Bergwerks-und Hütten A.G., a company which had grown via acquisition from one million marks at its founding in 1901 to over 100 million in 1910. Stinnes was also involved in the massive expansion by amalgamation of the gas and electricity supplier Rheinisch-Westfälische Elektrizit&auml×werk A.G. In 1909 he began to build up a trading center for his businesses in Hamburg, and it was here that he was most active during World War I.

Under the guise of the patriotic industrialist helping his country's cause, Stinnes took over every business he could during the Great War. He was a welcome guest at official functions and served as an advisor and supplier to the government. Thus given free rein, he bought out, in 1916, Eduard Woermann and acquired the Hamburg-Amerika and the Norddeutscher-Lloyd, as well as shares in the Woermann and German East African lines. The following year he bought the entire business of coal merchants H.W. Heidmann, and threw in a couple of hotels, one of which he turned into offices for his empire. After wiping out his competitors at home, he moved toward those in the occupied countries of Belgium and France, amalgamating and incorporating at will, and encouraging the German government to deport Belgian workers.

Unperturbed by the damage done to his business by the peace terms, Stinnes continued after the war as he had done before. His Deutsch-Luxemburg concern had been most seriously damaged, so in 1920 Stinnes arranged for its merger with the Gelsenkirchener Bergwerks A.G., founded in 1873 by Emil and Adolf Kirdorf, to form the Rheinelbe Union. He linked this with the Siemens-Konzern, which dealt in electrical appliances, instruments, automobiles, and trucks. The huge Siemens-Rheinelbe-Schuckert-Union now had absolute control of both supply and market. With a capital of 615 million marks, it was bigger than even the Klöchner group, and made Stinnes the most powerful businessman in Germany, if not in Europe.

Stinnes may have sensed his lack of popularity, particularly with the press. He tried to earn their favor by purchasing book publishers, paper mills, book binders, printers, and, finally, a few newspapers. For variety, he bought an automobile factory, the Esplanade Hotel in Berlin, and a few other hotels in ThĂĽringen. Lastly, he began to move into banking, where he met his greatest opposition.

Stinnes once said that he had worked hard in order to make money for his children. If so, his efforts were in vain. Within a year after his death in 1924, his sons had argued with the directors of the empire and with the banks their father had offended, and the whole concern collapsed. Hugo Stinnes Jr. did get some American backing to form a couple of new companies, the Hugo Stinnes Corporation in New York, and Hugo Stinnes Industries. The last remains of his father's empire can be found in Rheinisch-Westfälische Elektrizit&auml×werk A.G., Essen (RWE).

While VEBA did not profit so much from the First World War as did Stinnes's business, it survived, as a stateowned business, very well in the 1930s. In 1933 the company was politicized, and in 1935 Wilhelm Tengelmann was appointed chairman of the board. VEBA was a major participant in the Third Reich's Four Year Plan, and converted some of its works into armaments factories. VEBA expanded into the petroleum industry in 1935, when it created a chemical refinery called HĂĽls. Intense wartime research led to the development of coal-derived gasoline and synthetic rubber. The company managed to avoid bombing by the Allies until 1944, and by the end of 1945 the works were all repaired and in full operation again. After the War, most of the members of the board were arrested; one managed to disappear.

The Allies turned VEBA over to the Federal Republic of Germany (West Germany) at the war's end. The government formed a new 21-member board of directors in 1952 and inaugurated a period of expansion. There were major extensions to chemical works and power plants. In 1956, because of the high cost of coal production, VEBA turned to oil production. Initially, share prices were high, but when they dropped VEBA bought quite a few of its own shares. This led to an investigation, which was dropped. The court was satisfied not only that VEBA needed to buy its own shares, but that it had committed no crime in failing to mention its purchases in the annual report for that year. Soon afterward, another VEBA subsidiary built the first nuclear power plant in West Germany. By the early 1990s, nuclear generators would provide nearly half of VEBA's power.

Rudolf von Benningsen-Foerder was appointed chairman of the board in 1971. He immediately tried to improve VEBA's image, and embarked upon a grand reorganization scheme. One part of this plan involved the disbanding of Hibernia, and of putting nearly all of its shares into VEBA Chemie A.G. VEBA was restructured along four main lines of operation: the supply of energy, chemicals, glass, and trade-transport services. The concern seems to have inherited some of Hugo Stinnes's talents, for twice, in 1973 and then in 1979, the Federal Antitrust Commission ruled against VEBA's share dealings. In both cases, the Commission's ruling was ignored and the deals permitted by means of "ministerial permission." By this time, VEBA had some 900,000 shareholders, and was the biggest joint stock company in Europe.

VEBA encountered difficulties in the 1970s, when overcapacity and the global oil shortage combined to put the squeeze on the energy company's oil business. In 1981, VEBA added the United States-based exploration firm Mark Producing to its oil-seeking arms in Libya and Syria. When oil prices started to decline, VEBA again found itself on the wrong end of the energy industry's cycle. While the purchase and eventual divestment of Mark Producing was judged a "disaster" by Sharon Reier of Financial World, VEBA's subsequent affiliation with the state-owned Petroleos de Venezuela (PDVSA) helped build VEBA Oel into the largest German-owned oil company, supplying 60 percent of its own petroleum needs.

Rudolf von Benningsen-Foerder remained at the helm of VEBA through 1989, occasionally selling off a company or two or buying a few others. In 1987 the government's last 25.55 percent was sold and VEBA became a public company. Two years later, 53-year-old Klaus Piltz succeeded Benningsen-Foerder as managing director of VEBA. Piltz had joined the conglomerate in 1961, advancing to chief financial officer in 1976. But Piltz's administration was tragically short, ending in April 1993 when he, his son, his daughter, and an associate died in an avalanche in the Austrian Alps. Chief Financial Officer Ulrich Hartmann advanced to CEO and led the company through the mid-1990s.

VEBA's sales fell by 6.8 percent from 1992 to 1993 as declining chemical prices contributed to a 47.3 percent drop in net income. In 1991, when British investment bank S.G. Warburg's report that VEBA's constituent parts were more valuable than the whole, the company instituted a reorganization, selling several divisions and restructuring those that remained. The program included the elimination of 10,000 jobs. HĂĽls was the hardest hit, with 27 percent work force reduction by the end of 1994. According to The Economist, Hartmann hinted that VEBA could possibly shed its petrochemical core in the years to come.

The criticism, combined with a general downturn in the petrochemicals market, helped prompt an early 1990s diversification. In 1991, VEBA formed Baltic Cable, a joint venture with Swedish utility Sydkraft, to provide cable services in the two countries. The impending opening of Germany's telephone market in 1998 propelled VEBA's 1995 strategic alliance with Britain's second-largest telephone company, Cable & Wireless. VEBA also acquired Lion, a small software company, in the early 1990s. At the same time, VEBA faced wider competition in the energy business, as Germany opened that industry to international competition.

These measures helped fuel a seven percent rise in sales, from DM66.3 billion in 1993 to DM 71.0 billion in 1994, and a healthy 51 percent rebound in profits, from DM 1.01 billion to DM 1.53 billion over the same period. Morgan Stanley predicted that VEBA's earnings per share would increase 16 percent a year.

Principal Subsidiaries: PreussenElektra A.G.; HĂĽls A.G. (99.6%); VEBA OEL A.G.; STINNES A.G.; RAAB KARCHER A.G.; VEBA IMMOBILIEN A.G.; Chemcinschaftskernkraftwerk Grohnde GmbH (50%); Karnkraftwerk Kruemmel GmbH (50%); Energie und Umwelttechnik GmbH (50%); Gemeinschaftsckraftwerk Kiel GmbH (50%); Badische Gas- und Elektrizitatsversorgung A.G. (59.7%); Kraftwerk Mehrum GmbH (50%); Kraftwerk EV 3 IS (50%); CYRO Industries (United States) (50%); GAF HĂĽls Chemie GmbH (50%); Daicel-HĂĽls Ltd. (Japan) (50%); RUHR OEL GmbH (50%); ARAL A.G. (55.9%); Induboden GmbH (50%).

Additional Details

Further Reference

Breskin, Ira, "VEBA to Streamline Chemical Operations after 'Marked' Loss," Journal of Commerce and Commercial, December 11, 1992, p. 7A."Die Doppelganger: German Utilities," The Economist, July 8, 1995, p. 64."Falling Chemical Prices Tip VEBA Into the Red," ECN-European Chemical News, August 23, 1993, p. 15."German Company VEBA A.G. to Lay Off 10,000 by 1995," The Oil and Gas Journal, September 13, 1993, p. 40."Klaus Pilts, VEBA Director, Dies in Avalanche," Journal of Commerce and Commercial, April 16, 1993, p. 7A.Reier, Sharon, "At the Crossroads," Financial World, July 7, 1992, p. 27."VEBA Results Held Back by Chemical Prospects," ECN-European Chemical News, April 4, 1994, p. 21."Why West Germany is Selling Two Gems in the Crown Jewels," The Economist, July 5, 1986, p. 57.

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