Locusts or knights in shining armor? The osram takeover

Locusts or knights in shining armor? The osram takeover

The management of lighting manufacturer osram is promoting the takeover of the munich-based company by two U.S. Financial investors.

The price offered of just under 3.4 billion euros is "very attractive" for shareholders, said chief executive olaf berlien on friday. And for osram and its 26,000 employees, according to berlien, it offers the chance to finance investments for which there would otherwise be no money: "we have access to capital that we don’t have today with our firepower."

The two investors bain capital and carlyle also emphasized in their statement that they wanted to make "substantial investments in future-oriented technologies".

Both osram and the americans are of course aware that a takeover by financial investors raises fears: if the traditional company, whose light bulbs once lit up a large proportion of german households, falls into the hands of locusts? But the americans want to be "knights in shining armor" who help osram achieve a better future – not recyclers who cannibalize ailing companies.

Because osram has a problem: the financial firepower berlien mentioned is diminishing. In the second quarter, the company made a loss of 90 million euros.

But to stay at the forefront of technology, osram needs money for investment. Lighting technology is changing rapidly – and that requires high spending on research and development as well as the constant modernization of production facilities.

The market, however, is ungraded. Osram products generate the light in car headlights and smartphone displays, but global car sales have fallen just like smartphone sales. And at the same time, sales prices for leds are declining, according to industry trend reports. So it’s no surprise that the osram stock price has roughly halved since the beginning of 2018.

Actually, companies go public in order to gain additional financing opportunities. In the case of osram, the management board and supervisory board have apparently come to the conclusion that the capital market would be more of a hindrance than a help in the coming years: the company is to be delisted from the stock market.

Bain capital and carlyle have promised the money needed for investment and growth, even though no one has named specific sums.

The motive of a financial investor is always to increase value, and the two us companies are no exception. But both funds tend to hold their investments for the medium term, berlien says, for an average of five to seven years. "The patents and technologies will stay with us," the manager emphasized.

Berlien emphasizes that the two U.S. Companies intend to finance the takeover largely with their own money and not on credit: bain capital and carlyle themselves contributed 2.6 billion euros.

In the words of osram’s CEO, this is not a "classic leveraged buyout" – a company purchase on credit. This is the practice that has brought takeovers by financial investors into disrepute. Because some funds then saddle the hijacked companies with their debts and try to make their cut by setting sharp yield targets or selling them off in parts. Bain capital and carlyle have pledged to maintain the sites and respect the rights of the employees.

The IG metall union is not protesting: "we therefore do not oppose a takeover by the financial investors and expect them and the management board to keep the agreements made for a future dialog on the preservation and further development of the jobs," said klaus abel, commissioner for osram and vice chairman of the supervisory board.

Shareholders now have until the beginning of september to accept the 3.4 billion euro offer. But one thing is clear: the takeover is not a long-term solution for osram. If everything goes well, osram will be in a better position in a few years than it is today. But employees will again have to worry about who will own osram in the future.

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