95/422/ECSC: Commission Decision of 4 April 1995 concerning State aid that the Freistaat Bayern, a regional authority of the Federal Republic of Germany, intends to grant to the ECSC steel undertakings Neue Maxhütte Stahlwerke GmbH, Sulzbach-Rosenberg, and Lech- Stahlwerke GmbH, Meitingen-Herbertshofen (Only the German text is authentic) (Text with EEA relevance)
Date: 1995-04-04
Institutions: European Commission
Subjects: Bavaria, State aid, application of EU law, competition, control of State aid, iron and steel industry













EUR-Lex - 31995D0422 - EN






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31995D0422

95/422/ECSC: Commission Decision of 4 April 1995 concerning State aid that the Freistaat Bayern, a regional authority of the Federal Republic of Germany, intends to grant to the ECSC steel undertakings Neue Maxhütte Stahlwerke GmbH, Sulzbach-Rosenberg, and Lech- Stahlwerke GmbH, Meitingen-Herbertshofen (Only the German text is authentic) (Text with EEA relevance)  


Official Journal L 253 , 21/10/1995 P. 0022 - 0032 





COMMISSION DECISION of 4 April 1995 concerning State aid that the Freistaat Bayern, a regional  authority of the Federal Republic of Germany, intends to grant to the ECSC steel undertakings Neue  Maxhuette Stahlwerke GmbH, Sulzbach-Rosenberg, and Lech-Stahlwerke GmbH, Meitingen-Herbertshofen  (Only the German text is authentic) (Text with EEA relevance) (95/422/ECSC)THE  COMMISSION OF THE EUROPEAN COMMUNITIES, Having regard to the Treaty establishing the European Coal and Steel Community, and in particular  Article 4 (c) thereof, Having regard to Commission Decision No 3855/91/ECSC of 27 November 1991 establishing Community  rules for aid to the steel industry  (1), Having given notice, in accordance with Article 6 (4) of that Decision, to the other Member States  and the parties concerned to submit their comments, Having regard to the comments received, Whereas: I On 14 September 1994 the Commission decided to initiate the procedure pursuant to Article 6 (4)  of Decision No 3855/91/ECSC ('steel aids code`, hereinafter referred to as 'the SAC`) with respect  to various financial measures proposed as part of the privatization of the shares which the German  Federal State Freistaat Bayern holds in Neue Maxhuette Stahlwerke GmbH (hereinafter referred to as  'NMH`) and Lech-Stahlwerke GmbH (hereinafter referred to as 'LSW`). It concluded, on the basis of  the information provided by the German Government, that the intended injection of public finance  into the equity capital of both companies and the intended public contribution to the financing of  certain investments could be regarded as State aid that would not be compatible with the SAC. The Commission informed the German Government, by letter dated 24 October 1994, of its decision to  initiate the procedure and requested its comments and such additional information as it might  consider relevant. The reply of the German authorities dated 9 December 1994 contained some  additional information on the intended financial measures, some additional arguments to back up the  position of the German Government that these measures would not constitute aid or had already been  approved by the Commission, and a draft business plan for NMH's future after the intended  privatization. The letter by which the Commission informed the German authorities of its decision to initiate the  procedure was published in Official Journal of the European Communities No C 377 of 31 December  1994, page 4, inviting the other Member States and interested third parties to submit their  comments. The Commission decided on 30 November 1994 to initiate a second procedure covering shareholders'  loans granted to NMH by Bavaria in 10 tranches totalling DM 49,895 million (ECU 26,26 million),  between March 1993 and August 1994  (1). These loans may represent illegal State aid, because no  other shareholder, or not all of the other shareholders, participated in this financing of the  company. This decision does not deal with those loans. However, the second procedure has some  implications for this Decision because the German authorities intend to grant a part of the  intended financial contribution to NMH through waiving claims arising from the loans covered by the  second procedure. If the Commission were to authorize the intended financial contribution in favour  of NMH, such a decision would de facto also cover the shareholders' loans subject to the second  procedure. If the Commission does not do so, the procedure concerning the loans will remain  unaffected. In the course of this procedure the Commission received the following comments: -  The Government of a Member State stated that it would consider the injection of public capital  to represent State aid that would distort competition inside the Community to the disadvantage of  its national competitors. Concerning the investment aid it pointed out that the Commission was  supposed to ensure full compliance with the Community rules concerning State aid for the steel  industry. -  A German law firm acting on behalf of a German producer of steel tubes competing with the NMH  subsidiary, Roehrwerke Neue Maxhuette GmbH (RNM), analysed the intended financial measures of Bavaria  on the basis of the information published in the Official Journal and concluded that the measures  would represent State aid incompatible with the SAC. It pointed out that the aid would indirectly  also favour the RNM so that the direct competitor of its client would be improperly subsidized if  the plan of the Bavarian Government were carried out. -  A French producer of steel tubes described in detail the situation on the European tube market  and its own situation, and reported a 48  % reduction in the workforce that it had been forced to  carry out between 1986 and 1993. It called upon the Commission to enforce fully the relevant  provisions of the Treaties in relation to any financial measures that might, directly or  indirectly, favour the tube-producing subsidiary of NMH. -  A British steel company, pointing out that NMH has already been rescued with the involvement of  the State in 1987, urged the Commission to implement its stated policy to eliminate subsidies to  the steel industry which are incompatible with the Treaties, and not to authorize aids designed to  offset operating losses or to finance new investment if they are incompatible with the SAC. -  A national steel producers' association expressed its full concurrence with the Commission's  initial conclusions that the intended financial measures of the Bavarian State would constitute aid  incompatible with the ECSC Treaty and with the SAC, and submitted that the Commission should not  authorize the injection of any capital by the Bavarian Government into either NMH or LSW. -  A national steel tube association supported the initial view of the Commission that any capital  injection by the Bavarian Government into NMH or LSW might be contrary to the ECSC Treaty and the  SAC, and requested the Commission to implement its stated policy to stop subsidies to the steel  industry. -  A 'Komitee Erhaltet unsere Arbeitsplaetze` ('save-our-jobs committee`), a group with unknown  membership based in Sulzbach-Rosenberg, pointed out the need to invest in technical improvements of  the NMH installations to protect the environment from pollution and explained the outstanding  importance of NMH to the regional economic situation. It asked the Commission to give its assent to  the intended restructuring of the company. The City of Sulzbach-Rosenberg and a citizen of that  city submitted similar comments. The comments were communicated to the Federal German Government by letters dated 13 February 1995,  with the request that it state its position. By letter dated 9 February 1995, the German authorities submitted some additional information and  some examples of rescue measures carried out by private undertakings. It also submitted copies of  the contracts between Bavaria, Mr Aicher and the Max Aicher GmbH & Co. concluded on 27 January  1995, covering the sale of the Bavarian State's shareholding in NMH and LSW and the obligation on  Bavaria to pay a financial contribution. The contracts were to enter into force after approval by  the Commission of the financial contributions. A meeting between representatives of the Bavarian Government, the German Federal Government and the  Commission was held on 14 February 1995. The position of the German Government and some details of  the contracts submitted were explained and discussed. By letter dated 1 March 1995, the German  authorities submitted its remarks on the comments of other Member States and third parties, as had  been requested. II On the basis of the information received, the relevant facts appear as follows: On 16 April 1987, formal insolvency proceedings concerning Eisenwerk-Gesellschaft Maximilianshuette  mbH ('Maxhuette`) were initiated. The administrator in the insolvency decided to continue operations  in order to prepare a restructuring plan. In mid 1990, two newly-created companies, Neue Maxhuette  Stahlwerke GmbH (NMH), covering the ECSC product-range of Maxhuette, and Rohrwerke Neue Maxhuette  GmbH (RNM), covering tube production, took over the business of Maxhuette iK. NMH is an 85  %  shareholder of RNM, the remaining 15  % being held by Kuehnlein, Nuernberg, the main sales agency for  the tubes produced. The initial shareholders of NMH were the Federal State of Bavaria (45  %), Thyssen Edelstahlwerke  AG (5,5  %), Thyssen Stahl AG (5,5  %), Lech-Stahlwerke GmbH (LSW) (11  %), Krupp Stahl AG (11  %),  Kloeckner Stahl GmbH (11  %) and Mannesmann Roehrenwerke AG (11  %)  (1). In order to enable LSW to  participate in NMH, the Bavarian State took over a 19,734  % share in LSW in 1988. By decision  dated 26 July 1988, the Commission concluded that the participation of the State in both companies  did not contain State aid elements  (2). By agreement dated 7 December 1992 and 3 March 1993, Kloeckner Stahl GmbH transferred its shares in  NMH to Annahuette Max Aicher GmbH & Co. KG, Hammerau, for a purchase price of DM 1. On 14 June 1993,  Krupp Stahl AG, Thyssen Stahl AG and Thyssen Edelstahlwerke AG transferred their shares in NMH to  LSW for a purchase price totalling DM 200  000. The Federal German Government informed the  Commission in its letter dated 9 December 1994 that the transfer of the shares had become effective  independently of any assent on the part of the creditors. The present shareholding situation therefore appears as follows: >TABLE> LSW and Annahuette are controlled by the entrepreneur Mr Aicher. NMH produces approximately 299 kilotonnes per year (kt/y) of crude steel (capacity: 444 kt/y), 81  kt/y of semi-finished products and approximately 85 kt/y of light and heavy sections (capacity: 258  kt/y). Its subsidiary RNM produces approximately 70 kt/y of tubes (capacity: 136 kt/y). NMH  currently employs 1  040 persons; RNM employs 560 persons. NMH has never made a profit since its  creation in mid 1990. The total losses up to the end of 1994 are now quantified at DM 156,4 million  (ECU 82,31 million). LSW produces approximately 600 kt/y of steel in an electric arc furnace and  approximately 450 kt/y of hot-rolled long products (light profiles and rebars). The Bavarian State and Max Aicher GmbH & Co. agreed by contract dated 27 January 1995 that the  State would sell its 45  % share in NMH to Max Aicher GmbH & Co. for DM 3 (ECU 1,58). They further  agreed that the Bavarian State should pay 80,357  % of the losses of NMH accumulated until the end  of 1994. The losses were finally fixed at DM 156,4 million (ECU 82,31 million), so that the payment  from Bavaria would amount to DM 125,7 million (ECU 66,15 million). Bavaria's contribution would not  be an injection of capital into the equity of the company by Bavaria in its capacity as shareholder  but would be treated as miscellaneous income reducing the losses of the company. The contract would  enter into force after approval from the Bavarian Parliament and the Commission. The shareholders' loans granted by Bavaria  (3) may be set off against the proposed contribution of  DM 125,7 million (ECU 66,15 million) once the contract enters into force. The contribution will  therefore be granted partly through the waiving of claims arising from the loans under  consideration in the procedure opened by the Commission's decision of 30 November 1994 as explained  above. The other shareholders Mannesmann Roehrenwerke AG and Annahuette Max Aicher GmbH & Co. KG, each  holding 11  % of the shares of NMH, are not prepared to contribute towards the financial  restructuring of NMH. The parties to the said contract further agreed that Bavaria should pay up to DM 56 million (ECU  29,47 million) to cover costs of investments for 'old burdens` ('Altlasten`), e.g. environmental  protection and protection against noise and air pollution. The Bavarian State and Mr Aicher agreed in a second contract dated 27 January 1995 that the State  would sell its 19,734  % share in LSW to Mr Aicher for DM 1 (ECU 0,52) and that it should pay a  'compensatory payment` of DM 20 million (ECU 10,52 million) to LSW. Bavaria's contribution would  not be an injection of capital into the equity of the company by Bavaria in its capacity as  shareholder but would be treated as a miscellaneous income reducing the losses of the company. The  contract would enter into force after approval from the Bavarian Parliament and the Commission. The other shareholder in LSW, Max Aicher GmbH & Co., would become the sole shareholder in LSW.  Accordingly, it would have to assume the financial responsibility for losses of this company,  limited through the provisions of German law concerning private limited companies. Such a  contribution by Max Aicher GmbH & Co. is not comparable to the proposed contribution of Bavaria  because Max Aicher GmbH & Co. would have at least the prospect of a return on its financial  participation as shareholder. The agreement on transfer of profits and losses between NMH and RNM was terminated by February  1995. III The German authorities stated their position on the Commission's decision to initiate the  procedure, and on the comments received from other Member States and third parties. The position of  the German Government and its supporting arguments are as follows: 1.  The German Government is of the opinion that the proposed contribution of DM 125,7 million (ECU  66,15 million) to NMH is in keeping with the normal behaviour of a private market investor in a  comparable situation and therefore does not constitute State aid. 2.  The German authorities point out that the sale of the shares held by the State of Bavaria is  part of an overall privatization plan which covers a number of State holdings in different  companies, e.g. DASA, Bayernwerk, Rhein-Main-Donau AG, IABG, Ferngas Nordbayern, BHS AG, etc. Most  of those holdings attract high purchase prices. The Federal German Government is of the opinion  that the 'negative purchase price` for the sale of Bavaria's shares in NMH and LSW is only one part  of the positive total sales proceeds Bavaria receives for its entire portfolio. Any calculation  covering the entire privatization programme leads to a positive purchase price, with the result  that the action proposed in the case of NMH would be offset by the sale of the profitable  companies. The German authorities are of the opinion that a private investor selling off an entire  portfolio would behave similarily in certain sales, provided that the entire operation led to  positive sales proceeds reflecting the market value of the portfolio. 3.  The German Government further argues that a private investor would consider not only the  possible return on investment or the mere limitation of losses caused by an engagement when selling  his share in an ailing company. A private investor - at least one who assumes his due  responsibilities - would also bear in mind his reputation, his social responsibility and his  standing on the market. In a comparable situation, a private investor would therefore, according to  the German authorities, also contribute some of his own capital without any prospect of a return  when selling his shares in two companies to another shareholder for a nominal purchase price. 4.  The German authorities reported some cases which they consider to be illustrative of their  opinion that private investors would behave comparably. The cases referred to are the rescue of  Metallgesellschaft by private creditors and shareholders, the management buy-out of Maschinenfabrik  Weiherhammer, backed by financing from its parent company Bayerische Berg-, Huetten- und Salzwerke  AG (BHS, a company recently privatized by Bavaria to VIAG AG), the financial restructuring of  Textilgruppe Hof through the shareholding banks, the management buy-out of a certain part of  Digital Equipment and of Graetz Holztechnik GmbH (a former subsidiary of Nokia), the financial  restructuring of Kennametal Hertel AG and the sale of Heilit & Woerner Bau AG to Walter Bau AG for  a purchase price of DM 1 and with a capital injection of DM 50 million from the seller. During the meeting on 14 February 1995 the German authorities further argued that the Commission  should bear in mind the different approaches of market investors in the different Member States  when comparing the behaviour of the State with the hypothetical behaviour of a market investor. 5.  The behaviour of the former private shareholders of NMH (Krupp Hoesch, Thyssen, Kloeckner), who  sold their shares at a nominal or low purchase price and transferred their claims arising from  shareholders' loans, to the company taking over these shares without any further financial  contribution, is not, according to the German Government, evidence to the contrary, because these  private shareholders intended only to shed participation in a loss-making company that competed  with their own core business. The fact that Mannesmann Roehrenwerke AG, a 11  % shareholder of NMH, is not prepared to grant a  financial contribution towards the restructuring of the company does not, according to the Federal  German Government, indicate that the State's proposed action differs from that of normal market  investors, because Mannesmann is only interested in keeping its shareholding in RNM in which its  provides the industrial leadership. Even the fact that Annahuette Max Aicher GmbH & Co. KG, holding another 11  % share in NMH, is not  willing to contribute to the financial restructuring of NMH should, according to the German  Government, not cause doubts, because it became a shareholder very recently and its management,  controlled by Mr Aicher through Stahlwerk Annahuette Beteiligung GmbH, considers the company not to  be responsible for the losses accumulated by NMH. 6.  The German Government explained that the Aicher group would also contribute to the financial  restructuring of NMH with a total of DM 188 million (ECU 98,95 million), consisting of DM 32  million (ECU 16,8 million) to maintain liquidity of LSW until 1994, DM 32 million (ECU 16,8  million) intended purchase price to be paid by Mr Aicher for claims of banks vis-à-vis NMH, DM 99,6  million (ECU 52,4 million) basic cash-flow of NMH in 1995 to 1999 and DM 24,3 million (ECU 12,79  million) arising from synergy effects of the grouping of NMH with LSW and Annahuette. This  contribution would prove, according to the German Government, that even a private entrepreneur  would, in a comparable situation, provide financial assistance in a comparable way. 7.  The German Government is further of the opinion that the Commission approved in 1988 the  participation of Bavaria in NMH. The intended conditions of the sale of this share as presented  represent, according to the German authorities, only the consequence of this participation so that  the intended behaviour of the State should be regarded as already covered by the decision of the  Commission of 1988. 8.  As regards the intended contribution of DM 20 million (ECU 10,52 million) to LSW in connection  with the transfer of the 19,734  % share of Bavaria to Mr Aicher, the German authorities put  forward largely the same arguments as those concerning the contribution to NMH. It explained that  the DM 20 million is intended to cover the losses that LSW suffered owing to its 11  %  participation in NMH. Bavaria had taken over the share in LSW to allow it to take a share in NMH. 9.  As for the intended contribution of maximum DM 56 million (ECU 29,47 million) to cover  investments of NMH, the German authorities refer to an agreement between the State of Bavaria,  Thyssen Edelstahlwerke AG, Thyssen Stahl AG, LSW, Saarstahl Voelklingen GmbH, Krupp Stahl AG,  Kloeckner Stahl GmbH and Mannesmann Roehrenwerke AG of 4 November 1987 which was handed out to  representatives of the Commission during a meeting on 17 November 1987. This agreement outlined the  plan to continue operations of the old Maxhuette under the newly created NMH, and contained the  following provision: '5.5.  The installations are taken over free of old burdens. Where a takeover free of old burdens  is impossible, the State of Bavaria will ensure that MHN (i.e. NMH) will not be affected by the  resultant economic responsibilities.` The German Government contends that this provision was subjected to the appraisal of the Commission  when adopting its decision of 26 July 1988 and has therefore to be considered as approved. It  presented an expert report of a German law firm commissioned by the management of NMH, concluding  that an interpretation of the term 'altlastenfreie UEbernahme der Anlagen` (takeover of  installations free of old burdens) indicates that it includes an obligation on the part of the  State to ensure that the technical installations will be transferred technologically updated, with  the result that outstanding repairs and investments will have to be paid by the State. The Bavarian  Government did not share this legal opinion but decided not to risk legal proceedings in order to  avoid the impression that Bavaria would endanger the future of NMH by withdrawing from its legal  obligations. Consequently, the German authorities are of the opinion that the said provision obliges the State  to pay for repairs and installations that are necessary to comply with technological standards,  concerning mainly the protection of the environment from noise, dust and exhaust fumes. They  consider such payments to have been already approved under the Community State-aid rules by the  Commission decision of 26 July 1988. IV The Neue Maxhuette Stahlwerke GmbH and Lech-Stahlwerke GmbH are companies falling under Article  80 of the ECSC Treaty because they produce products listed in Annex I to the ECSC Treaty, so that  the provisions of the ECSC Treaty and the steel aids code are applicable. RNM, a producer of  products falling under the EC Treaty, would not benefit from the intended financial measures of the  State because the agreement on transfer of profit and losses between NMH and RNM has been  terminated. The fact that NMH is shareholder of RNM is irrelevant to the applicability of the ECSC  Treaty in this case. The Commission initiated the procedure concerning the State coverage of about 80  % of the total  losses accumulated by NMH by the end of 1994. The estimate made at the outset of procedure has now  been corrected by the German authorities. The relevant losses are now established at DM 156,4  million (ECU 82,31 million) so that the intended contribution of Bavaria is fixed at DM 125,7  million (ECU 66,15 million). In such a situation the Commission does not consider an extension of  the procedure to be necessary. State aid within the meaning of Article 4 (c) of the ECSC Treaty is any transfer of State resources  to public or private steel firms, in the form of acquisitions of shareholdings or provision of  capital or similar financing if the financial transfer is not a genuine provision of risk capital  according to usual investment practice in a market economy, allowing for a prospective future  return on investment or other revenue  (1). 1.  The intended payment by the State of DM 125,7 million (ECU 66,15 million) to NMH, intended to  coincide with the sale of Bavaria's shares in the company for a nominal price to a private company,  constitutes a transfer of State resources to steel firms. The outstanding question is whether this transfer of State resources may be considered a genuine  provision of risk capital according to usual investment practice in a market economy allowing a  prospect of future return on investment or other revenue. The German authorities explained during the procedure that the provision of public capital would  not represent an injection into the equity capital of the companies by Bavaria as a shareholder in  those companies having any attendant expectation of future revenue from that capital. The payments  would be treated as a lost subsidy, paid in order to allow business to continue after the sale of  the State's shares, and would be used in the accounting of the companies to reduce the accumulated  losses. The State of Bavaria as shareholder participating in a private limited company is not  legally obliged to provide finance in excess of its share in the stock capital, so that the  operation may be seen as a purchase of shares at a negative purchase price. Bavaria could also  decide not to inject further capital and thereby accept the possible bankruptcy of the company.  Such an arrangement would be in line with its legal obligations as a shareholder of a private  limited company. 2.  The fact that Bavaria is currently selling a number of shares in different undertakings and  that the total purchase price would be positive even if it accepted a 'negative purchase price` for  NMH and LSW is irrelevant to the current procedure, because every single case has to be considered  on its facts. The Treaty does not allow a Member State to grant aid to a company as part of  privatization on the sole justification that the State budget is balanced by the sale of some other  valuable company. Article 83 of the ECSC Treaty provides that the Community shall in no way prejudice the system of  ownership of the undertakings to which this Treaty applies. Therefore, the Commission has to be  neutral on the privatization of shares in ECSC undertakings by the State. It is not permissible to  give a premium for the intended privatization when assessing the financial measures of the State in  favour of a steel undertaking in that context. 3.  The German authorities claim that even a private investor would behave similarly in a situation  where a company in which he has held a stake for some years has accumulated losses such as to  threaten its survival, and to which he wishes to terminate his commitment. The German Government  admitted that there is no legal obligation on a shareholder to cover losses of a company beyond his  share in the stock capital. Nevertheless, it is of the opinion that considerations concerning the  image, the reputation, the standing and the social responsibility of the investor may lead him to  the conclusion that a final contribution covering a major part of the debts accumulated would be  proper when selling his share for a nominal sum. In this context it shall be recalled that the Court of Justice held in its judgment of 21 March  1991  (2) that: '.  .  . a private shareholder may reasonably subscribe the capital necessary to secure the  survival of an undertaking which is experiencing temporary difficulties but is capable of becoming  profitable again, possibly after a reorganization. It must therefore be accepted that a parent  company may also, for a limited period, bear the losses of one of its subsidiaries in order to  enable the latter to close down its operations under the best possible conditions. Such decisions  may be motivated not solely be the likelihood of an indirect material profit but also by other  considerations, such as a desire to protect the group's image or to redirect its activities. However, when injections of capital by a public investor disregard any prospect of profitability,  even in the long term, such provision of capital must be regarded as aid.` The intended final injection of capital to coincide with the sale of the shares of Bavaria would,  however, disregard any prospect of profitability, even in the long term, because the Bavarian State  will never receive any return on this capital. 4.  The examples given by the Federal German Government to prove that the State in taking over  losses to preserve its image would be in line with normal market investors' behaviour are not such  as to bear out its position. A shareholder may decide to inject additional risk capital to ensure the survival of a company in  which he remains a shareholder so that he may still have the chance of receiving a return on  investment in the future (see the first paragraph of the quotation under 3). A company, such as  Metallgesellschaft, which ran into economic difficulties on account of management mistakes may be  supported by the crediting banks and the shareholders to overcome those past mistakes and to allow  for a future return on investment and the limitation of losses caused by them. The supporting banks  and shareholders, however, would always decide on the basis of strictly economic considerations  covering the limitation of losses or the preservation of revenue prospects. In the case of Kennametal Hertel AG, the Federal German Government reported that the majority  shareholder, a bank, sold its stake at the nominal price of DM 1 and waived more than DM 70 million  of claims arising from loans for the financial restructuring of the company. This description does  not fully cover the background of the case: the company had run into difficulties through the  mistakes of its management and was close to insolvency in mid 1993. In this situation, the  shareholders' meeting decided to carry out a reduction of capital under the Aktiengesetz. The  shares of a Bavarian bank (25  %) and Mr G. Hertel (also 25  %), who was a member of the management  until the crisis became obvious, were sold at a nominal price to the United States company  Kennametal Inc., a competitor of Hertel AG, which already had a 25  % stake in the company.  Kennametal injected DM 75 million of fresh capital as part of an increase of capital stock, so as  to provide a proper basis for its new European subsidiary, in which it came to hold 81  %. The  other shareholders who were willing to terminate the engagement were offered DM 128 per share.  Employees and banks contributed towards the financial restructuring DM 128 per share. Employees and  banks contributed towards the financial restructuring by foregoing salaries and partly waiving  claims arising from the loans. The only shareholder who terminated his commitment without having  any economic interest in the limitation of losses (unlike banks, which waived part of their claims  in order to save more than they would have done in the event of insolvency) or future return on  investment was Mr G. Hertel, who sold his stake for DM 1 and did not agree to inject any further  capital, although he had been part of the management team responsible for the deterioration of the  company's financial situation. The situation of Bavaria in this case is comparable to the situation  of Mr Hertel in the context of Kennametal Hertel AG. The illustration does not therefore bear out  the views of the Federal German Government. A provision of capital to allow the management buy-out of a company which is bound to its parent  company by an agreement of transfer of profit and losses (as with Maschinenfabrik Weiherhammer) is  based on a comparison of the costs of a liquidation and the costs of the necessary injection of  capital. The legal responsibility for the outstanding liabilities of the subsidiary is not limited  in the same manner as that of the shareholder in a private limited company (Gesellschaft mit  beschraenkter Haftung GmbH) not bound by such agreement. The costs for the outsourcing of certain  parts of companies (e.g. Digital Equipment and Graetz Holztechnik GmbH) are borne to ensure the  future supply of specific parts of in-house products while reducing the costs of those parts and  therefore to realize an economic benefit. In the case of Heilit & Woerner Bau AG (Munich), the Schoerghuber group, based in Munich, mainly  active in real estate investment and development and the brewery sector, acquired three independent  building undertakings and subsequently merged them to form the new Heilit & Woerner Bau AG. The  background was its intention to extend the activities of the group to cover the entire real-estate  sector, including investment, development, construction and holding. The financial results of the  company deteriorated steadily, so the group introduced several restructuring measures which finally  led to a 'red zero`. In this situation the group decided to terminate the engagement and to leave  the construction sector altogether. The 98  % stake in the company was sold to Walter Bau AG  Augsburg at the nominal price of DM 1 and a final contribution to the equity of DM 50 million (ECU  26,3 million) was paid. According to the management of the Schoerghuber group, this final  contribution was calculated on the basis of existing construction contracts, mainly with customers  abroad, which would have caused losses after the transaction. The desire to protect the reputation  of the group persuaded the management to end its involvement by providing this final lost payment  of equity capital. This case seems to illustrate behaviour on the part of a private company which might be considered  comparable to the proposed behaviour of the State in the present procedure. However, the following  differences need to be pointed out: the Schoerghuber group remained active in the real-estate  business and therefore was highly interested in retaining good business contacts with other  companies working in this sector which would have reacted critically on seeing that the group was  prepared to let a number of institutional creditors of Heilit & Woerner slip into economic  difficulties or even insolvency; by contrast, Bavaria is about to terminate its industrial  participation in NMH and therefore has no similar interest. Furthermore, the Schoerghuber group had  a vital interest in keeping its good relations with the regional public administration in charge of  town planning. All these considerations are not focused on a long- or short-term profit arising  direct from the injected capital of DM 50 million, but rather on the indirect economic advantage  arising from a good future standing and reputation of a group which is being observed by other  companies, and indeed by the public. The good name of the group may indeed be considered an  important element in ensuring the profitability of future activities. It seems to be useful to recall the distinction drawn in the ENI/Lanerossi case between an  investor, whose sole motive is profit, and private entrepreneurs, such as an industrial holding  whose decisions may be governed not merely by short-term profitability but also by the intention to  protect its reputation. In the case of Heilit & Woerner, the holding group Schoerghuber acted as  such a private entrepreneur, having regard to its future business and to the standing of its entire  group on the market and in the public eye. The State's behaviour, however, is to be compared with  the behaviour of a normal private investor  (1) whose intention is always to realize at least a  long-term profit. This is the basis of the criterion laid down by the Court of Justice in the case  of ENI/Lanerossi, quoted above. There is no example amongst those given by the German authorities in which a private investor has  paid out his own money in order to transfer the shares be held to a private entrepreneur without  receiving any economic advantage, in preference to the legal alternative, which is to do nothing  and to accept the possible bankruptcy of the company rather than to inject more capital into a  company that would yield no return on investment. Following the above analysis of individual examples of investors' behaviour the argument of the  Federal German Government that the Commission should consider the differences in the typical  behaviour of investors in different Member States does nothing to resolve the present questions  because there is no typical behaviour on the part of German investors comparable to that of the  Bavarian Government in this case which would support the conclusion that Bavaria had acted like a  private investor. 5.  When establishing whether a given public provision of capital would correspond to normal market  practice, the Commission has always focused on the behaviour of private investors who are exactly  in the same situation as the State. The private shareholders of the very company concerned would  consider not only general policies but also the company's particular economc situation, when  deciding whether an investment would be economically advisable. The former private shareholders of NMH (Krupp Hoesch, Kloeckner, Thyssen) disposed of their shares  less than one year before the finalization of the privatisation plan of the Bavarian Government  covering the transfer of the shares in NMH and LSW to the Aicher group and did so, at a nominal  price or even a positive purchase price at a time when the situation was comparable to the present,  or indeed less threatening for NMH. The shareholders also sold their claims arising from  shareholders' loans, but only on condition that they would be treated equally with any other  creditor as far as the price for these claims was concerned. They were not prepared to inject  additional capital on top of what they had already agreed. Their behaviour was a normal operation  to terminate a loss-making commitment at the lowest possible economic penalty. The desire to get  rid of a competitor cannot have been the motive, because it would then have been better to acquire  other shares as cheaply as possible so as to take control of the management. The management could  then have sought a winding-up order or could have decided to liquidate the company. Mannesmann Roehrenwerke AG is still a shareholder of NMH but is not prepared to grant any financial  contribution to allow NMH to be restructured. The motive of maintaining the industrial leadership  in RNM may be an explanation for the fact that it did not behave in the same way as Krupp Hoesch,  Thyssen and Kloeckner, but does not prove that the proposed behaviour of the State is a genuine  provision of risk capital in an market economy. 6.  Even the Aicher group, consisting of LSW, Annahuette Max Aicher GmbH & Co KG and some other  companies controlled by the entrepreneur Max Aicher, holding 44  % of the shares of NMH (only 1  %  less than Bavaria), is not prepared to inject its own capital. The explanation of the German Government, that the Aicher group is proposing to inject DM 188  million (ECU 98,94 million) is misleading. The earlier contributions designed to maintain the  liquidity of LSW are not comparable to the proposed behaviour of the State, because the shareholder  providing finance remains a shareholder and therefore has at least the chance of realizing future  revenue in return for the provision of funds. The purchase price for the claims of banks on NMH is  also not comparable because Mr Aicher, although paying some 40  % of the nominal value, would do so  only on condition that the financial restructuring of the company through the proposed public  contribution was finally carried out. After the proposed public contribution the purchase price for  the claims can indeed be considered to be the market value of the claims. The 'basic cash flow` of  NMH is not a contribution of the Aicher group but only reflects the intention of the management  controlled by this group to re-invest any future income of NMH. The synergy effects of the  industrial group are similarly not a contribution from the Aicher group comparable to the provision  of capital, because these effects work to the advantange of every participant of the group - a  group which already exists. Therefore, the Aicher group which would become the 89  % shareholder of NMH and the sole  shareholder of LSW after the intended transactions and consequently would be the main or the only  beneficiary of any investment or provision of capital to the two companies is not prepared to  inject any further capital of its own into either of the two companies. 7.  The Commission decided on 26 July 1988 that the participation of the State in NMH did not  constitute State aid because other private investors, taking over the majority of the shares,  participated on equal terms. Such a decision cannot prejudge any future behaviour the State might  consider necessary or desirable in connection with that investment. Every single transfer of public  resources needs to be considered in the light of its own particular circumstances. A decision of  the Commission that a certain investment does not constitute State aid cannot be considered to  include the decision that also any future dealing of the State in connection with such investment  would not represent State aid, regardless of whether or not the State considers this behaviour to  be a consequence of its participation. It may therefore be concluded that no private investor in exactly the same situation as the State  of Bavaria would be prepared to contibute to the company's survival in a comparable way. It is  consequently concluded that the intended payment of DM 125,7 million (ECU 66,15 million) to NMH in  connection with the sale of Bavaria's shares does not qualify as a genuine provision of risk  capital in a market economy, and that it thus constitutes State aid. 8.  As regards the intended contribution of DM 20 million (ECU 10,52 million) to LSW in connection  with the transfer of the shares of Bavaria at a nominal price, it should be pointed out that the  majority shareholder would not contribute to the coverage of the losses of this company in a  comparable way. The earlier contribution to maintain LSW's liquidity is not comparable to the  proposed action of the State, because the shareholder injecting capital remains a shareholder and  therefore receives at least the chance of future revenue from this provision of capital. The Aicher  group may in future decide to cover the losses of this company, but such behaviour would be matched  by the prospect of participating in a possible future profit of the company. Bavaria, however,  would inject public financial resources without any such prospect. As a shareholder of a private  limited company Bavaria is not obliged to inject its own capital beyond its share in the stock  capital of the company. It may decide not to contribute further and to accept the possibility that  LSW may not have enough capital to cover the losses suffered, so that its management would have to  seek a winding-up order. Here again, the same arguments as those put forward above (under Part IV  (1) to (4) and (6)) in relation to the intended contribution to NMH hold good for the intended  contribution to LSW. A normal private investor would not make a financial contribution to a company  when terminating his participation, because he would never realize any return. It may therefore be concluded that no private investor exactly in the same situation as the State  of Bavaria would be prepared to contribute to the company's future in any comparable way.  Consequently, the intended payment of DM 20 million (ECU 10,52 million) to LSW in connection with  the sale of Bavaria's shares does not constitute a provision of risk capital in a market economy  and is therefore to be seen as State aid. Any State aid to steel companies is prohibited under Article 4 (c) of the ECSC Treaty. The SAC,  adopted with the unanimous assent of the Council pursuant to Article 95 of the ECSC Treaty,  provides for the possibility of designating certain types of aid as compatible with the common  market, such as aid for research and development (Article 2), environmental protection (Article 3),  closures (Article 4) and aid under general regional investment aid schemes in certain territories  of the Community (Article 5). The intended State aid in the form of a contribution of DM 125,7 million (ECU 66,15 million) to NMH  and of DM 20 million (ECU 10,52 million) to LSW would not be covered by any of those provisions, so  that it is not compatible with the SAC. 9.  As regards the intended contribution of DM 56 million (ECU 29,47 million) to cover the costs of  certain investments it should be recalled that the Commission decided on 26 July 1988 only that the  participation of Bavaria in NMH would not constitute State aid. It did not consider the provision  of the agreement of 4 November 1987, quoted above (Part III (9)). The general understanding of 'Altlasten`, which was initially subscribed to by the officials of the  Bavarian Government, covers past contamination of the site and installations. It should in this  context be recalled that the old Maxhuette had had an ore mine which was closed in 1987 and which  presented serious environmental problems requiring a solution. The Commission is sometimes confronted with a similar arrangement when it comes to the takeover of  the installations of an insolvent company by another or a newly founded company. The risk of being  made liable for contamination caused in the past by a different management is, in particular where  steel or chemcial production is concerned, very high and incalculable. There would be no  possibility at all of selling such land, even at a nominal price, or of finding anybody willing to  own such a site. The result would be that industrial sites, mainly in regions affected by severe  restructuring problems, would never be re-used. The State taking over the economic risk therefore serves only the public interest without  conferring any real economic advantage on the purchaser of the land, who would never buy it without  such provision. The only possible beneficiary of such a provision might be the company liable for  the environmental damage, which in such cases has ceased to exist. The German Government had never submitted, whether in writing or orally, that the contractual  arrangement would include an obligation on the State to bear the costs of repairs of, and  investments in, the installations for production. The 53-page expert report of the law firm  commissioned by the management of NMH, on the interpretation of the therm 'Altlasten`, had not been  disclosed to the Commission before it took its decision of 26 July 1988 so that it had no  opportunity to consider that particular interpretation of the term in question under State aid  rules. Therefore the intention of the Bavarian authorities to grant up to DM 56 million investment  aid is not covered by the Commission's decision of 26 July 1988. The nature of the intended payment  is thus to be established in the current procedure. The financial contribution to finance investment costs would be a transfer of State resources to a  steel firm without being a genuine provision of risk capital in a market economy, and would  therefore constitute State aid. The intended payment of DM 56 million (EU 29,47 million) is designed for investments that would  help to comply with requirements on the protection of the environment. The Commission therefore  pointed out, in opening the procedure, that it might be possible to consider this payment pursuant  to Article 3 of the SAC, but that the German authorities would have to provide information that  would allow the Commission to establish whether the conditions of this provision were met. The  German authorities did not provide such information but repeated their arguments that the payment  was covered by the Commission's decision of 26 July 88. The German authorities have not  demonstrated an interest in having part of those investment costs approved pursuant to Article 3 of  the SAC. The intended contribution of DM 56 million (ECU 29,47 million) may therefore only be considered to  be a general investment aid which would not be compatible with the SAC. Article 5 of the SAC does  not apply because neither company is located in the territory of the former German Democratic  Republic. V The Commission therefore concluded that the intended financial measures of the State of Bavaria  would constitute State aid that would not be compatible with the ECSC Treaty or the SAC, HAS ADOPTED THIS DECISION: Article 1 The intended contribution of DM 125,7 million to cover past losses,  and the intended contribution of up to DM 56 million to cover the costs of certain investments to  the ECSC steel undertaking Neue Maxhuette Stahlwerke GmbH, Sulzbach-Rosenberg, and also the intended  contribution of DM 20 million to cover past losses of the ECSC steel undertaking Lech-Stahlwerke  GmbH, Meitingen-Herbertshofen, constitute State aid prohibited pursuant to the provisions of the  ECSC Treaty and not permissible pursuant to Decision No 3855/91/ECSC; such aid shall therefore not  be granted. Article 2 Germany shall inform the Commission, within two months of being notified of this  Decision, of the measures taken to comply therewith. Article 3 This Decision is addressed to the Federal Republic of Germany. Done at Brussels, 4 April 1995. For the Commission Karel VAN MIERT Member of the Commission (1)  Court of Justice Cases C 40/85, Belgium v. Commission, [1986] ECR, p.  2321, 2345; C 303/84, Italy v. Commission, [1991] ECR I, p. 1433, 1476; Commission Decision No  3855/91/ECSC of 27 November 1991 (OJ No L 362, 31. 12. 1991, p. 57) fifth paragraph under II and  Commission communication to Member States concerning public undertakings (OJ No C 307, 13. 11.  1993, p. 3, paragraphs 10 to 21).  (2)  Italian Republic v. Commission, [1991] ECR I, p. 1433, 1476, paragraphs 21 and 22.  (1)  See Decision No 3855/91/ECSC of 27 November 1991, paragraph 5 under II.