VIAG AKTIENGESELLSCHAFT - Company Profile, Information, Business Description, History, Background Information on VIAG AKTIENGESELLSCHAFT



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History of VIAG AKTIENGESELLSCHAFT

The beginnings of VIAG (Vereinigte Industrie-Unternehmungen Aktiengesellschaft) date back to World War I. Some of the divisions which determine the character of VIAG today--aluminum, chemicals, and energy--developed in the economy of the war years. Soon after the beginning of World War I it became clear that a free enterprise economy would not be able to satisfy wartime production requirements, and that for many sectors a state-run economy was necessary. As early as August 13, 1914, on the instigation of Walther Rathenau, the organizer he German war industries, and initially undier his direction, the Kriegsrohstoff-Abteilung (KRA--War Commodities Department) of the Prussian War Ministry was founded, to guarantee the supply of raw materials needed for military purposes--in specific terms, materials for the arms industry, for clothing, and for other military equipment. The KRA used new Kriegsgesellschaften (war companies), founded under civil law, to fulfill these functions. These companies were to procure the required products or to arrange for their procurement or manufacture. Kriegsmetall AG, Kriegschemikalien AG, and Kriegswollbedarfs AG were only a few of these large-scale organizations. As a consequence of the economic measures connected with the Hindenburg Program--an economic plan embarked upon in 1916 to strengthen the adaptation of German industry for armaments production--the Prussian War Ministry combined under one organization all the military raw materials businesses and the procurement of substitutes by establishing the Kriegsamt (KA--War Office) for the entire Reich in November 1916.

The businesses owned by the Reich, accumulated during the course of World War I and later combined to form VIAG, were administered after 1919 by Department I (the Industry Department) of the Treasury Ministry.

The German aluminum industry, which had come into being shortly before the war, received a significant impetus from the war; the Hindenburg Program in particular gave further stimulus for its expansion. The company Vereinigte Aluminium Werke AG (VAW), based in Berlin, was founded on April 21, 1917, to manufacture the aluminum needed for the war. All of the country's aluminum interests were gradually collected in this company. Initially owned half by the Reich and half by a consortium made up of Chemische Fabrik Friesheim-Elektron AG and Metallbank and Metallurgische Gesellschaft AG, at the end of the war the Reich took over full ownership. The newly constructed Lauta plant, which started operation in October 1918, consisted not only of an aluminum works but also of an aluminum oxide factory and a large power station connected to the brown coal--or lignite--mine Erika, owned by Ilse-Bergbau AG; the power station was sold in 1920, however, to Mitteldeutsches Kraftwerk AG. The high energy requirements of the aluminum industry meant that electricity from brown coal and from water power were particularly important. After the war, Erftwerk AG, running an aluminum works at Grevenbroich, and, like VAW, half-owned by the Reich until the end of the war, when it assumed full ownership, and the aluinum works at Töging am Inn were incorporated into VAW. The locations of these production sites were primarily determined by the energy supply--constant, where possible--offered by neighboring electricity plants. Only a few days after the foundation of VAW, on April 27, 1917, the Innwerk Bayerische Aluminium AG--known as Innwerk AG from 1938--was established at Munich-Töging. The purpose of this company was to provide a constant energy supply for the operation of the aluminum works.

Like VAW, the Reich's nitrogen works owed their creation to the shortage of raw materials which arose during World War I. Before the war, the production of explosives and of fertilizers containing nitrogen was based principally on the processing of Chilean saltpeter, imports of which to Germany could be cut off in the event of war. For this reason, Bayerische Stickstoff-Werke AG (BStW) was founded at Trostberg as early as 1908, basing its production on the Frank Caro method and partly owned by the Deutsche Bank. In 1915, commissioned by the Reich, BStW began to construct two calcium cyanide factories, at Piesteritz near Wittenberg and at Chorzow in Upper Silesia. The Oberschlesische Stickstoff-Werke AG (OStW), to which the Chorzow factory was sold, was founded in December 1916. After the separation of Upper Silesia in 1922, the factory was appropriated by the Polish state. The Piesteritz factory remained under the Reich's ownership. It was incorporated into Mitteldeutsche Stickstoff-Werke Ag (MStW) on February 24, 1920, and all the company's shares--amounting to 60 million marks--were acquired by the Reich. Finally, on May 28, 1920, Bayerische Kraftwerke AG--BKW, from 1939 known as Süddeutsche Kalkstickstoffwerke (SKW) AG--was formally incorporated, with its headquarters in Munich.

Apart from aluminum and nitrogen, the country's industrial interests were directed toward the electric power industry, as the production processes of both the aluminum and calcium cyanide industries were dependent on a sufficient supply of energy. As early as February 9, 1915, the BStW and the Braunkohlenwerk Golpa-Jessnitz AG (BG-JAG) at Halle had signed a treaty, by order of the Reich, whereby the BG-JAG brown coal works undertook to establish a large power plant for the production of nitrogen at Piesteritz. Until this time BG-JAG, founded in 1892, had operated a pit in the Bitterfeld brown coal field. As brown coal was now only used to produce electrical current, the company changed its name to Electrowerke AG (EWAG). The large Zschornewitz power station had already begun operation by the end of 1915. In 1918 EWAG began to develop grid electricity supply as its core activity. Deutsche Werke Aktiengesellschaft (DW) was founded at Berlin on December 4, 1919, with the object of converting about 20 armaments workshops and war shipyards owned by the Reich and the states of Prussia, Bavaria, and Saxony to peace-time production.

Another important company which was later to form the basis of VIAG was the Reichs-Kredit-Gesellschaft, which dated from 1919. In order to regulate the financial management of the Kriegsgesellschaften, founded during the economic control of World War I, the Imperial Treasury established a Statistical Office for War Companies. After the end of World War I, this office was gradually extended, producing the Reichs-Kredit- und Krontrollstelle GmbH, based in Berlin and founded on July 20, 1919. This company in turn was transformed into the Reichs-Kredit-Gesellschaft mbH (ERKA) in September 1922. After the foundation of VIAG, ERKA, which remained stock-owned, became the company's bank.

At the end of March 1923 the National Treasury Ministry, in particular concerned with administering and supervising the Reich's industrial interests, was dissolved, in connection with the government's cost-cutting plans. At the same time, efforts were made to find a means of managing the Reich's wide-ranging industrial interests, hitherto assigned to the Industry Department, in an unbureaucratic way, organizing them on consistent, purely commercial principles. The two functions of the Industry Department were separated: the actual management of the companies was to be transferred to a specially created holding company, while the pure financial custody and management were transferred to the National Finance Ministry.

The holding company, based in Berlin, was founded on March 7, 1923, under the name Vereinigte Industrie-Unternehmungen Aktiengesellschaft (VIAG). The objects of the company were as follows: the holding of shares in commercial enterprises of every type; the operation, administration and financing of companies, as well as the undertaking of related banking transactions; and, in general, the adoption of any measures which seemed appropriate to the management board in order to attain or further the aims of the company. The company was entitled to establish branches both in Germany and abroad and to enter into cooperation agreements. Thus VIAG was defined purely as a stock holding company, which was not directly involved in production.

The founder of VIAG was the German Reich. In the foundation proceedings of March 7, 1923, the share capital was set at 600 million marks, divided into 600,000 shares at 1,000 marks apiece. The Reich was shareholder. Subsidiaries were the Reichs-Kredit-Gesellschaft mbH, Elektrowerke AG, Vereinigte Aluminium-Werke AG, and Duetsche Werke AG. Shareholdings in Elektrowerke AG and the Württembergische Landes-Elektrizit&auml× AG, in Vereinigte Aluminium-Werke AG and Innwerk, in Bayerische Aluminium AG and Deutsche Werke AG were among the most important of the assets transferred.

In the years following its foundation, VIAG concentrated on its core activities of aluminum, nitrogen, and electricity and strengthened the economic integration of these areas. The geographical centers of the group's activities emerged as central Germany and upper Bavaria. In central Germany, the company had EWAG, operating the Lauta power station using brown coal from Ilse-Bergbau AG, the aluminum works of VAW, and the calcium cyanide works at Peisteritz, supplied with electricity by the Mitteldeutsche Stickstoffwerke. Similarly, in upper Bavaria the hydroelectric power stations of Innwerk, Bayerische Aluminum AG, and Alzwerke GmbH worked together with the Töging aluminum factory--acquired by VAW in 1925, and the carbide factory of Bayerische Kraftwerk AG. Most of VIAG's shareholdings which did not fit with the core group activities were disposed of in the following years.

Before the beginning of the 1930s, the management of VIAG restructured its individual factories to attain profitability. The only income earned by VIAG was the dividends from its group companies. VIAG's net profits rose by 42% to 12 million reichsmarks between 1925 and 1929. In the financial year 1924-1925, a dividend of 5% was paid out for the first time. In the following years the dividend rose to 8%. A significant initial undertaking by the group was the conversion in 1925 of the separate factories of Deutsche Werke AG into independent companies better able to acquire production requirements for themselves, such as the factory at Spandau, which was converted into Deutsche Industriewerke AG (DIW), and was the only one of these companies to remain in the VIAG group.

After the years of crisis, the armament process which began in 1933 brought an upturn in business for VIAG as for other companies. The number of employees rose by 66% over 1932-1933 to 30,387. In the years before the outbreak of war, the number rose to 70,000. VIAG and its companies, as a group owned directly or indirectly by the Reich, were harnessed into the armament program of the National Socialist government, especially after 1936. By 1935 the production capacities of group subsidiaries were already being used to the full. All VIAG's businesses extended their plants. VAW built a new aluminum oxide plant, Nabwerk, at Schwandorf, for example. At the same time, nitrogen production was increased considerably.



The Anschluss--or annexation--of Austria to the German Reich in March 1938 brought a significant increase in VIAG's sphere of activity. One task was looking after electro-industrial interests in the territories which had been adjoined to the German Reich. In accordance with this objective VIAG founded the Österreichische Elektrowerke in Vienna on April 22, 1938; the company was renamed Alpen-Elektrowerke Aktiengesellschaft (AEW) one month later. In connection with the takeover of the Austrian National Bank by the Reichsbank and the transfer of the Österreichische Industriekredit AG to the Österreichische Creditanstalt-Wiener Bankverein (CA), VIAG received 76% of the bank's converted share capital of 70.7 million reichmarks as a contribution to an increase in its own capital base.

High demand for aluminum, nitrogen, and electricity in the German war economy ensured that the capacity of the individual factories was used to the full. New investments were required in all these sectores. In 1943, the fully owned subsidiaries of VIAG made investments to the value of around 220 million reichsmarks.

VIAG expanded its activities during the war. In 1939, for example, the group raised its shareholding in Ilse-Bergbau AG to more than 60% by acquiring further ordinary shares worth 10 million reichsmarks. It also acquired further shares in Innwerk AG from the state of Bavaria, as well as 50% of the share capital the electricity company Bayernwerk Aktiengesellschaft (BAG) in Munich. Together with the state of Bavaria and the electricity company Rheinisch-Westfälisches Elektrizit&auml×werke AG (RWE), VIAG founded the Bayerische Wasserkraftwerke Aktiengesellschaft (BAWAG), based in Munich on January 26, 1940.

When the war ended, VIAG was sequestrated and administered, at first, by trustees. VIAG's situation between May 1945 and July 1951 was determined by the military rule in the four zones of occupation. Ludger Westrick, the general trustee appointed by the Bavarian state authorities and previously a director of VAW, is largely to be credited with extricating VIAG from military law through his attempts to restructure the business in cooperation with the Allies. This was made all the more difficult as dismantling of works under the Allied war repatriations program and a shortage of raw materials dominated the day-to-day business. Only when the relevant Allied authorities lifted all bans, restrictions, and controls in 1951 could a complete reorganization of VIAG begin with the election of a management board and the formation of a supervisory board. Bonn became the base of the new company, which in its first deutschmark accounts recorded a share capital which had dwindled to DM160 million.

After 1945 VIAG'S subsidiaries were again divided into three groups, into companies producing electricity, companies consuming electricity, and other companies of various sorts.

After the financial year 1949-1950, net profits increased every year, reaching DM1.45 million in 1951-1952. In 1952-1953 a dividend, of 3%, was paid for the first time. VIAG had created a solid foundation for further progress. Shareholdings of VIAG totaled DM254.06 million making up 95.9% of total group assets.

During the period from 1953 to 1960, processes of consolidation, rationalization, and modernization dominated the business activities of the separate VIAG works. Dividends were raised by 1% each year, so that by 1959-1960 VIAG was able to pay out dividends of 10%. Bayernwerk AG raised its capital by DM50 million to DM150 million in order to increase its utilization of primary energy sources in Bavaria, such as brown coal, which were cheap at the time. This strategy led to a decisive change in VIAG's energy supply base in subsequent years. Whereas, in 1956, two-thirds of the electricity was produced by hydroelectric power and only one-third by steam power, by 1960 thermal electricity generation from brown coal had already overtaken hydroelectric power. VIAG and its subsidiaries now formed a modern, stable group. In the following years the company devoted itself to expanding its subsidiaries to meet the continually growing markets for electricity, aluminum, and chemical products. Between 1960 and 1972, VIAG invested over DM5 billion in its subsidiaries.

In the 1970s, two issues were at the center of public interest: capital-raising for investments and privatization. The government's privatization plans--after its successes with Preussag and the Volkswagen works--aroused heated public debate and dominated the headlines in press articles on VIAG from the end of the 1950s until the actual privatization in 1986. Every now and then--as in 1968-1969--the plans to privatize VIAG escalated to become an electoral issue and a subject of dispute between the parties. Another significant problem for VIAG was the fact that the company could not go to the capital markets to raise funds for financing and investment. The group could only obtain the funds needed for investment through bank loans, that is, by incurring debt. VIAG could not develop freely in the market and so could only work with restricted resources; in spite of its successful evolution, the group faced a serious obstacle to growth. Expansion through acquisition, indispensable for the effective development to growth. Expansion through acquisition, indispensable for the effective development of an industrial group, was impossible. Internal expansion also proved extremely difficult. The consequences of these problems could be seen in high reserves, depreciation, and dividends which were disproportionately low in relation to the company's success.

Although the federal government, as sole shareholder, had received DM124 million in dividends since 1953, it could not make funds available for any increase in capital. Because of this, VIAG was forced to increase its own reserves by drawing on current profits. In 1968 the share capital of DM254 million was raised by DM50 million to DM304 million at a rate of 220%. The Kreditanstalt für Wiederaufbau--a bank for reconstruction founded in 1948 offering middle- to long-term loans from the Marshall Plan as well as its own funds-took up the new shares. In this way VIAG acquired new funds amounting to DM110 million. From this time onwards, the Kreditanstalt für Wiederaufbau held around 16% of the increased share capital.

Associate companies continued to form the basis of VIAG's success in the 1970s. Growing industrialization and the progressive mechanization of work processes led to an increase in electricity consumption in VIAG's aluminum and calcium cyanide business. The aluminum works in particular, with the expansion and increased use of their capacity, needed significantly more electricity. Electrochemical production, with electricity consumption of just over four billion kilowatt hours (kWh), had a correspondingly high share of the total. Through the continuing expansion of electricity production, especially in the field production from steam power, VIAG's need for externally generated electricity was steadily reduced. VIAG's share of total electricity production in the federal republic stood at around 8% in 1965; by 1970 it had sunk to around 7%.

Since VIAG's foundation, aluminum had been regarded as the principal business of the group. Although electric power production grew faster after World War II, VAW remained the group's largest business in terms both of turnover and of work force. VAW--with its subsidiaries, Vereinigte Leichtmetall-Werke GmbH (known from 1971 as VAW Leichtmetall GmbH), Aluminum Norf GmbH, Aluminium-Oxid Stade GmbH, and V.A.W. of America Inc.--dominated VIAG's business activities throughout the 1970s and until the beginning of the 1980s. In 1960, VAW had a 70% share of aluminum production in the federal republic and met 30% of the country's aluminum requirements. In 1971 VAW produced 248,000 tons of primary aluminum in total.

The aluminum crisis dominated the whole of the 1970s and the first years of the 1980s. The crisis had begun as early as 1968, when the federal republic placed high taxes on exports but reduced taxes on imports. This measure was equivalent to a revaluation of the deutschmark by 4%. In 1969 the federal government raised the value of the deutschmark by 8.5% making US$1 equivalent to DM3.66. As the aluminum price was largely dependent on the dollar, any speculation on the currency exchange market involving an upward valuation of the deutschmark or a devaluation of the dollar had catastrophic results for the aluminum market. The two oil crises of 1973 and 1976, with the attendant rise in the price of oil required for electricity production, exacerbated the situation. In 1975, production declined significantly, leading to a reduction in working hours for VIAG's employees; the company lost DM120 million. Only in 1983 was the crisis successfully overcome. SKW at Trostberg was restructured during this period. While the share of the main product, calcium cyanide, declined to around a third of the total output, acrylic nitril production increased substantially. In 1981-1982 Hoechst AG sold its 50% share in SKW to VIAG, which now owned 100% of the company.

In the 1970s, electrical power production acquired increasing importance. Of the total profits of over DM47.5 million produced by subsidiaries in 1973, DM42 million came from the electrical sector. In particular, Bayernwerk AG, in which VIAG had a 38.86% shareholding--it had to hand over some of its BAG shares to the Bavarian state after the war--was operating with great success. Electricity production by VIAG companies in this sector amounted to 22.6 billion kWh in 1973. Gradually nuclear energy came to play an increasingly important role. The share of electricity produced by nuclear power, which had amounted to only 4% in 1978, had risen to 70% by 1988, after the incorporation into the grid system of the nuclear power, which had amounted to only 4% in 1978, had risen to 70% by 1988, after the incorporation into the grid system of the nuclear power station Von Isar II in Bavaria. Hydroelectric power now only played a minor role. By the mid-1980s, VIAG had managed to overcome the crisis in the aluminum sector and had successfully completed the restructuring of its activities. At the beginning of 1981 VIAG acquired 50% of Thyssengas GmbH--an important step on the path of acquisition.

After a partial privatization in 1986 the group was fully privatized in 1988. From May 3, 1988, onward, the federal government and the Kreditanstalt Für Wiederaufbau sold their remaining shares in VIAG at a rate of DM210. In the second stage of the privatization, 6.96 million shares of DM50 each, with a nominal value of DM348 million were placed with a consortium of 51 banks under the leadership of Deutsche Bank AG.

Apart from the privatization, the period from 1984 to 1990 was marked by the sale and purchase of new shareholdings and by the restructuring of subsidiaries. Freed from state restrictions, VIAG was now able to be active on the capital markets, and could think of further acquisitions. At the beginning of 1986, VIAG acquired 15% of the share capital of Didier-Werke AG, at Wiesbaden. In subsequent years, further shareholdings were added. On January 1, 1990, VIAG took over Köckner & Co. (KlöCo), at Duisburg-Hamborn, a company which had gotten into difficulties, together with Bayernwerk AG. Steel accounted for about half of the KlöCo's turnover amounting to nearly DM12 billion; one-third of turnover came from energy, building products, heating technology, machine tools, transport, and textile importing; 14% of turnover came form raw materials, chemicals, and environmental technology; and 4% from trading in industrial plant.

Bayernwerk AG, Munich and VIAG established a joint industrial holding company, based in Berlin and named VBB Viag-Bayernwerk-Beteiligungs-Gesellschaft mbH. VIAG and Bayernwerk AG each had a 50% share in this company. On January 1990, VBB acquired a 24.99% stake in Gerresheimer Glas AG at Düsseldorf. Apart from these acquisitions, VIAG also acquired a series of other shareholdings between 1985 and 1990 through its subsidiaries, especially VAW, SKW-Trostberg AG, and Bayernwerk AG. The reunification of Germany offers VIAG possibilities for a new field of activity, especially in the central German factories which were lost at the end of World War II.

Principal Subsidiaries: Vereinigte Aluminium-Werke AG (99.99%); SKW Trostberg AG (99.99%); Innwerk AG (99.96%); Ilse Bergbau GmbH(99.99%); Thyssengas GmbH (50%); VBB VIAG-Bayernwerk-Beteiligungsgesellschaft mbH (50%); Bayernwerk AG (38.8%); Didier-Werke AG(51%); Klöckner & Co. AG; Gerresheimer Glas AG (51%).

Additional Details

Further Reference

Guggenheim, Felix, Der deutsche reichseigene Industriekonzern, Zürich, Girsberger & Co. Verlag, 1925.Karplus, Egon, Die Deutschen Werke, Ein Beispiel für die Stellung des Staates als Unternehmer in KinKurrenz mit der Privatindustrie, GieBen (Philosophische Dissertation), 1927.Heissmann, Ernst, Die Reichselektrowerke, Ein Beispiel für die Wirtschaftlichkeit von Staatsunternehmungen, Berlin, Verlag R. & H. Hoppenstadt, 1931.30 Jahre Bayernwerk AG,Bayerische Elektrizit&auml×versorgung 1921-1951, München, Bayernwerk AG, Ilseder Hütte, 1951.Treue, Wilhelm, Die Geschichte der Ilseder Hütte, Peine, 1960.MRauch, Ernst, Geschichte der Hüttenaluminiumindustrie in der westlichen Welt, Düsseldorf, Aluminium-Verlag GmbH, 1962.Hofmann, Walter, Private Bank in Öffentlichem Besitz, Kleine Geschichte der Reichs-Kredit Gesellschaft AG, Mainz, V. Nase & Köhler, 1980.

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