98/665/EC: Commission Decision of 25 February 1998 concerning aid awarded by Germany to HIBEG and by HIBEG via Krupp GmbH to Bremer Vulkan AG, facilitating the sale of Krupp Atlas Elektronik GmbH from Krupp GmbH to Bremer Vulkan AG [notified under document number C(1998) 582] (Only the German text is authentic) (Text with EEA relevance)
Date: 1998-02-25
Institutions: European Commission
Subjects: Germany, State aid, common market, control of State aid, electrical industry, redemption

25.11.98

EN

Official  Journal  of  the  European  Communities

L 316/25

COMMISSION  DECISION

of  25  February  1998

concerning  aid  awarded  by  Germany  to  HIBEG  and  by  HIBEG  via  Krupp  GmbH  to  Bremer
Vulkan  AG,  facilitating  the  sale  of  Krupp  Atlas  Elektronik  GmbH  from  Krupp  GmbH  to
Bremer  Vulkan  AG

(notified  under  document  number  C(1998)  582)

(Only  the  German  text  is  authentic)

(Text  with  EEA  relevance)

(98/665/EC)

THE  COMMISSION  OF  THE  EUROPEAN  COMMUNITIES,

Having  regard  to  the  Treaty  establishing  the  European
Community,  and  in  particular  the  first  subparagraph  of
Article  93(2)  thereof,

Having  given  notice  in  accordance  with  Article  93  to
interested  parties  to  submit  their  comments  and  having
regard  to  those  comments,

Communities  annulled  Decision  93/412/EEC,  ruling  that
it  was  insufficiently  reasoned  on  four  points,  namely  on
the  value  of  the  new  BV  shares,  the  application  of
Council  Directive  90/684/EEC  of  21  December  1990  on
aid  to  shipbuilding (4),  as  last  amended  by  Directive
94/73/EC (5)  (seventh  Directive  on  aid  to  shipbuilding)
distortion  of  competition  and  the  effect  on 
intra-
Community  trade  and  the  alleged  aid  in  favour  of
HIBEG.

Whereas:

I

requested 

By  letter  dated  17  December  1991  Germany  notified  a
guarantee  given  by  the  Freie  Hansestadt  Bremen/Land
Bremen.  The  Commission,  by  letter  dated  20  January
1992, 
from
supplementary 
Germany.  Germany’s  answer  of  4  March  1992  was
received  on  9  March  1992.  On  6  May  1992  the
Commission  decided  to  open  the  procedure  provided
for 
in  Article  93(2)  of  the  EC  Treaty.  This  was
communicated  to  Germany  by  letter  of  20  May  1992
which  was  published  in  the  Official  Journal  of  the
European  Communities (1).

information 

On  6  April  1993  the  Commission  took  a  negative
decision, Decision 93/412/EEC (2), by which it declared as
incompatible  with  the  common  market  aid  awarded  to
the Hanseatische Industrie-Beteiligungen GmbH (HIBEG)
and by HIBEG via Krupp GmbH (hereinafter ‘Krupp’) to
Bremer Vulkan AG (hereinafter ‘BV’), facilitating the sale
of  Krupp  Atlas  Elektronik  GmbH  (hereinafter  ‘KAE’)
from  Krupp  to  BV.

By  its  judgment  of  24  October  1996  in  Joined  Cases
C-329/93, C-62/95 and C-63/95 (Germany and Others v.
Commission (3)),  the  Court  of  Justice  of  the  European

In  light  of  the  Court’s  ruling,  the  Commission  is  obliged
to  take  a  new  final  Decision  in  order  to  close  the
procedure.

II

The  notification  concerns  a  guarantee  given  by  the  Freie
Hansestadt  Bremen/Land  Bremen  to  support  the  buying
of  KAE  by  BV  from  Krupp.  Germany  described  a
complex  plan  involving  various  transactions  which,  in
combination,  effect  the  sale  of  KAE  to  BV.

In  order  to  further  diversify  out  of  shipbuilding  BV
bought a 74,9 % share in KAE from Krupp. The price of
DEM  350  million  was  not  paid  in  cash  but  whith  newly
issued  shares  in  BV.  The  following  transactions  took
place  or  were  agreed  on:

— 17 October 1991: the general meeting of shareholders
of  BV  decides  on  an  increase  in  the  share  capital,

— 21  November 

1991: 

Freie  Hansestadt
Bremen/Land  Bremen  gives  a  guarantee  of  DEM
126 million plus credit costs and interest to HIBEG, a
public  company  ownded  by  the  Land  Bremen,

the 

(1) OJ  C  171,  7.7.1992,  p.  3.
(2) OJ  L  185,  28.7.1993,  p.  43.
(3) [1996]  ECR  I-5151.

(4) OJ  L  380,  31.12.1990,  p.  27.
(5) OJ  L  351,  31.12.1994,  p.  10.

L 316/26

EN

Official  Journal  of  the  European  Communities

25.11.98

— 26 November 1991: a share-swap between Krupp and
BV  whereby  BV  gives  2,8  million  new  BV  shares
(total  value  according  to  BV,  DEM  350  million,  i.e.
DEM  125  per  share)  to  Krupp  in  order  to  acquire  a
74,9 %  holding  in  KAE,

— 26  November  1991:  Krupp  and  HIBEG  together
found  a  Gesellschaft  bürgerlichen  Rechts  (GbR),

— 31  December  1991:  Krupp  and  HIBEG  bring  both
their agreed holdings into the GbR. Krupp contributes
the  2,8  million  BV  shares  and  HIBEG  contributes
DEM  350  million  in  cash,  financed  by  a  bank  credit
partly  covered  by  the  Land’s  guarantee  mentioned
above,

the  GbR, 

— 31  December  1991:  on  the  basis  of  the  agreement
establishing 
the  GbR  gives  a  DEM
350  million  advance  to  Krupp.  HIBEG  gets  the
irrevocable entitlement to sell the BV shares to a third
person  at  a  minimum  price  of  DEM  125  per  share.
Every  share  sold  reduces  the  holding  of  the  two
partners  in  the  GbR,  by  effecting  both  a  reduction  of
the  balance  owed  on  the  advance  to  Krupp  and  a
rapayment  of  the  credit  brought  in  by  HIBEG,

— 28  February  1994  (at  the  earliest)  or  31  December
1994  (at  the  latest):  the  GbR  is  dissolved.  The
remaining  BV  shares  are  transferred  to  HIBEG  while
Krupp  holds  the  balance  of  the  advance.  HIBEG  has
the  option,  agreed  upon  with  the  banks  that  gave  it
the  credit,  of  repaying  (part)  of  the  credit  by  selling
the  BV  shares  to  those  banks  for  DEM  80  per  share
at  the  end  of  the  credit  term.

This means that BV acquires from Krupp a 74,9 % share
in KAE in exchange for 2,8 million BV shares. Within the
framework  of  the  GbR,  Krupp  exchanges  those  shares
with  HIBEG  and  Krupp  receives  DEM  350  million.  At
the time of the transaction, BV shares were quoted on the
stock market at a value of around DEM 80 per share, i.e.
the total of the 2,8 million shares was DEM 224 million.
The  Land  Bremen/Freie  Hansestadt  Bremen  supports
HIBEG  with  a  guarantee  of  DEM  126  million,  the
difference between the agreed purchase price of the share
of  KAE  and  the  prevailing  value  of  the  shares,  thereby
allowing  the  sale  of  KAE  to  BV  to  take  place.

turn direct to the guarantor and does not have to go first
to  the  debtor  should  the  deptor  be  unable  to  pay.

III

In  its  assessment  before  commencing  the  procedure
pursuant  to  Article  93(2),  the  Commission  considered
three  questions:  (1)  whether  aid  is  involved;  (2)  if  so,
how  much  aid  is  involved;  and  (3)  who  is  receiving  the
supposed  aid.

Its  position  on  the  first  question  was  affirmative.  The
average  share  price  for  BV  shares  in  November  to
December  1991,  when  the  most  important  transactions
took  place,  was  around  DEM  80  per  share.  This  price
already  reflected  the  lowering  effect  which  a  new  share
issue normally has, since as early as 17 October 1991 the
general meeting of shareholders of BV had decided on the
new issue. The issue price of new shares usually has to be
below  the  market  price  of  the  shares  in  order  to  avoid
failure  of 
the  Commission
issue.  Accordingly, 
concluded  that  DEM  80  per  share  was  the  maximum
share  price  that  could  have  been  asked  in  an  open  issue.
This  view  seemed  confirmed  by  the  banks’  willingness  to
accept  the  unsold  shares  by  the  end  of  the  credit  term  at
DEM  80  per  share.

the 

It  is  obvious  that  with  the  market  price  of  DEM  80  per
BV  share,  as  determined  by  the  Commission,  BV  could
not  have  bought  KAE.  The  2,8  million  shares  are  worth
DEM  224  million  and  not  DEM  350  million  (the  price
for  74,9 %  of  KAE).  HIBEG,  wholly  owned  by  the Land
Bremen  and  therefore  to  be  regarded  as  a  public
company, could only offer DEM 350 million in exchange
for  the  new  BV  shares  because  the  Land  Bremen  offered
a  guarantee  for  the  difference  of  DEM  126  million.  This
DEM  126  million  represents  exactly  the  difference
between  DEM  350  million  (the  total  credit)  and  DEM
224  million  (the  value  of  the  shares  on  the  basis  of  a
market  price  of  DEM  80  per  share).  The  Commission
therefore  could  not  accept  the  implication  that  HIBEG’s
involvement  was  normal  commercial  practice  because,  as
Germany  argues,  the  quoted  price  of  BV  shares  averaged
DEM 130,8 per share in 1990, even reaching DEM 170,5
per share on 1 June 1990, and fell at the end of 1991 as
a  consequence  of  the  general  down-turn  in  the  stock
market  caused  by  the  Gulf  War.

Germany  in  its  letter  of  4  March  1992  states  that  the
guarantee,  with  the  exception  of  some  modifications,
does  fulfil  the  requirements  of  the  Bürgschaftsrichtlinien
des  Landes  Bremen,  approved  by  the  Commission  by
letter  of  28  October  1991  (N  512/91).  The  main
amendment  that  the  letter  mentions  is  that  instead  of  an
‘Ausfallbürgschaft’ 
‘selbst-
schuldnerische  Bürgschaft’  (absolute  guarantee)  is  used,
the difference being that in the latter case the creditor can

(deficiency  guarantee),  a 

The Commission answered the second question as to how
much  aid  was  involved  by  looking  at  the  same  facts.  On
the basis of a market price of DEM 80 per share, the new
BV  shares  were  worth  DEM  224  million.  The  difference
as  against  the  agreed  purchase  price  for  KAE  of  DEM
350  million,  i.e.  DEM  126  million,  cannot  be  accounted
for by commercial motives as explained above. Therefore
the  total  value  of  this  difference,  being  equal  to  the
guarantee,  has  to  be  regarded  as  aid.

25.11.98

EN

Official  Journal  of  the  European  Communities

L 316/27

At the time of the opening of the procedure, an answer to
the third question as to the recipient of the aid could not
be given. It depends on the assessment of what is the real
commercial  market  price  for  KAE.  If  it  is  held  that
74,9 %  of  KAE  is  worth  only  DEM  224  million  then  all
the aid may be attributed to Krupp. If it is held, however,
that the price of DEM 350 million for 74,9 % of KAE is
a justifiable market price, then all the aid goes via HIBEG
to  BV  to  make  it  possible  for  BV  to  acquire  74,9 %  of
KAE.  If  the  real  market  value  of  74,9 %  of  KAE  is
between  those  two  values,  the  aid  is  to  be  apportioned
between  BV  and  Krupp  accordingly.

the  guarantee 

As  to  Germany’s  reference  to  the  Bürgschaftsrichtlinien
des  Landes  Bremen  (see  II),  the  Commission  could  not
accept  that  the  guarantee  fulfilled  the  requirements  of
the  approved  guarantee  scheme.  Not  only  is  the  form
of 
instead  of
‘Ausfallbürgschaft’)  not  in  conformity  with  the  approved
scheme, but also the Commission could not agree, on the
basis  of  the  facts,  that  there  is  a  normal  relationship
between  the  proceeds  of  the  investment  in  GbR  and  the
funds  needed  to  service  the  loan,  as  required  in  the
guarantee  scheme.

(‘selbstschuldnerisch’ 

Moreover,  the  guarantee  scheme  requires  that  securities
be  given  as  a  collateral  and  that  a  premium  of  0,5 %  of
the guarantee on delivery and 0,5 % annually be paid, yet
neither  requirement,  on  the  basis  of  the  available
information,  seemed  to  be  met.  Therefore,  conformity
with  the  approved  guarantee  scheme  did  not  seem  to  be
in  evidence  and,  on  the  basis  of  Commission  letters
SG(89)  D/4328  and  SG(89)  D/12772,  Germany  should
have  notified  the  guarantee  before  granting  it,  to  enable
the  Commission  to  investigate  it  pursuant  to  Articles  92
and  93  of  the  EC  Treaty.

Against  this  background  the  Commission  decided  to
initiate  the  Article  93(2)  procedure  in  order  to  allow  the
Commission  to  examine  the  guarantee  given  by  the  Freie
Hansestadt  Bremen/Land  Bremen  on  DEM  126  million
plus credit costs and interest of the bank credit of HIBEG
and  HIBEG’s  transactions  with  Krupp  in  the  GbR  and
assess 
the  common
market.

the  overall  compatibility  with 

IV

After  publication  of  notice  of  the  opening  of  the
following  other  parties  concerned
procedure, 
submitted  their  comments:

the 

— Bremer  Vulkan  AG,  Bremen,

and

— Fried.  Krupp  AG,  Essen.

It  pointed  out 

the  value  of  74,9 %  of  KAE  was  at  least  DEM  350
million. 
this  value  was  also
acknowledged by BV in its letter inviting its shareholders
to the meeting to approve the issue of new BV shares and
that  the  value  was  also  the  subject  of  scrutiny  by  two
independent  consultancy/accountancy  companies.

that 

The  comments  received  from  the  parties  concerned  were
transmitted  by  the  Commission  to  Germany  by  letter
the  German
dated  16  September  1992 
Government  the  opportunity  to  reply.

to  give 

V

Germany  reacted  on  the  opening  of  the  procedure  by
letter dated 1 July 1992. By letter dated 15 October 1992
it  reacted  to  the  comments  of  the  other  parties.  By  letter
IV.E.5  D/09810  dated  23  November  1992 
the
Commission  requested  additional  information,  to  which
Germany  replied  by  letter  dated  8  January  1993.  The
contents  of  the  letter  can  be  summarised  as  follows.

1. The  German  Government  does  not  agree  that  the
value  of  the  BV  shares  was  or  is  DEM  80  per  share,
although this was the traded price at the end of 1991
on  the  stock  market.  According  to  the  German
Governement,  the  share  price  on  the  stock  market
does  not  reflect  the  situation  of  the 
individual
company but is the expression of general national and
international  economic  developments.  The 
issued
price  was  not  to  tbe  based  on  the  actual  share  price
on  the  stock  market  but  on  past  and  future
developments 
expectations.  The  German
authorities  assess  the  value  of  the  BV  shares  at  DEM
125  each  at  least,  for  the  following  reasons:

and 

(a)

the banks value the shares at DEM 125 per share
or  more.  This  is  reflected  in  the  fact  that  the
banks give a credit on 50 to 60 % of the value of
shares offered as security. It is only for the credit
above  that  50  to  60 %  that  the  banks  needed
extra  security,  given  by  the  Land  Bremen  in  the
form  of  the  guarantee.

The very fact that the banks are prepared to buy
the  shares  in  BV  for  DEM  80  per  share  at  the
end of the credit period indicates, on the basis of
this  same  50  to  60 %  rule,  that  the  banks
estimated  the  value  of  BV  shares  to  be  at  least
DEM  125  per  share.

In  answer  to  the  Commission’s  request  for
submission  of  bank  analyses  or  reports  pointing
to  such  an  evaluation,  the  German  authorities
answered  that  they  could  not  supply  such
documents  as  it  had  no  access  to  them;

BV  claimed  to  have  received  no  aid  and  referred  to  the
point  of  view  of  the  German  Government.  Fried.  Krupp
AG was also of the opinion that it had received no aid, as

(b)

the  share  price  of  BV  averaged  DEM  130,8  per
share  in  1990  and  even  reached  DEM  170,5  on

L 316/28

EN

Official  Journal  of  the  European  Communities

25.11.98

later,  as  a
1  June  1990.  The  price 
consequence  of  the  Gulf  War  and  the  down-turn
in  the  economy,  something  that  could  not  be
foreseen  at  the  time  of  the  deal;

fell 

(c)

synergy  effects  would  result  from  integrating
KAE  in  BV;

(d) a  big  block  of  shares  (2,8  million  shares  is
around  20 %  of  all  BV  shares)  is  more  attractive
to  an  investor  than  individual  shares;

(e)

(f)

the annual balance sheet of GbR, as approved by
two  independent  accountants  and  tax  advisers,
testifies to the value of DEM 350 million for the
2,8  million  BV  shares;

of 

the  decisive  date  for  the  valuation  of  the  shares
was  12  July  1991,  the  date  of  the  signature  of
a  memorandum 
understanding.  That
memorandum, which was not to take effect until
it  had  been  approved  by  the  parties’  supervisory
organs,  provided  for  an  increase  in  BV’s  capital
by  2,8  million  new  shares,  to  which  Krupp
would 
the
acquisition  of  those  shares,  Krupp  was  to
transfer  to  BV  its  74,9 %  holding  in  KAE.  The
two  parties  to  the  agreement  valued  their
contributions  at  DEM  350  million  each,  which
means  that  the  new  BV  shares  were  valued  at
DEM  125  each.

In  consideration  of 

subscribe. 

2. On  the  question  as  to  the  value  of  74,9 %  of  KAE,
Germany  referred  to  extensive  assessments  made  by
two 
independent  accountancy  companies  at  the
request  of  Krupp  and  BV  at  the  time  of  the  trans-
action  between  the  two  last  mentioned.  Those  two
accountancy firms assessed the value of the holding in
KAE  at  DEM  350  million.

the 

gave 

following 

3. As  to  whether  the  guarantee  fulfils  the  requirements
of  the  Bürgschaftsrichtlinien  des  Landes  Bremen,
Germany 
answer.  The
Bürgschaftsrichtlinie  requires  that  guarantees  be  in
principle  (‘grundsätzlich’)  ‘Ausfall’  guarantees.  This
means 
‘selbstschuldnerisch’  guarantees  are
possible  under  the  Bürgschaftsrichtlinie.  As  HIBEG  is
State-owned,  an  ‘Ausfall’  guarantee,  with  its  possible
insolvency  procedures, 
inappropriate  from  an
is 
economic  point  of  view.

that 

As  regards  the  question  whether  the  proceeds  of  the
investment  will,  under  normal  conditions,  be
sufficient  to  service  the  loan,  Germany  answered  that
this  depended  on  the  valuation  of  the  BV  shares  and
referred  in  that  respect  to  its  arguments  mentioned
above  (see  1).

As  regards  the  securities  and  premiums  required
under  the  Bürgschaftsrichtlinien,  Germany  answered
that  they  were  not  necessary  as  HIBEG  is  State-

owned.  The  premiums  would  only  result  in  an
internal  transfer  (‘Umbuchung’).  As  regards  the
notification  before  the  granting  of  the  guarantee,
Germany  commented  that  the  notification  had  been
made  on  17  December  1991  and  that  the  guarantee
had  only  come  into  effect  when  the  credit  agreement
became  operative  (end  of  December).

in 

its 

4. The  Commission  requested 

letters  of  20
January, 20 May and 23 November 1992 information
regarding  ownership  of  BV  (private  and  public).
Germany  gave  as  an  answer  that  HIBEG  owned,  at
the  time  of  the  deal,  0,08 %  of  the  shares  of  BV  and
that  the  Land  Bremen  has  no  further  participation.

VI

The first question to be answered in this final assessment
of  the  facts  is  whether  there  is  aid  involved.  The
Commission’s  answer,  in  line  with  its  reasoning  at  the
opening  of  the  procedure  (see  III),  is  affirmative.  The
average  share  price  for  BV  shares  in  November  to
December  1991,  when  the  most  important  transactions
took  place,  was  around  DEM  80  per  share  (DEM  84,94
in  November  and  DEM  75,43  in  December).  According
to  the  Commission,  the  share  price  on  the  stock  market
does  reflect  the  situation  of  the  individual  company,  in
the  context  of  general  national  and  international  trends.
A  central  idea  in  the  financial  literature  is  that  capital
markets  are  efficient.  This  means  that  shareholders  value
a  company  by  its  future  profit  streams  and  the  share
price of a company whose shares are regularly traded on
the  stock  market  (as  in  the  case  of  BV)  reflects  the
present  value  of  future  profit  streams  and  dividends.
Indeed  the  capital  market  is  generally  considered,  with
the  currency  markets,  to  be  the  most  efficient  market
because  of  its  high  transparency,  rapid  response  to  new
information  and  high  number  of  knowledgeable  players.
Thus  the  stock  market  price  represents  a  genuine  market
evaluation  of  the  share  value  as  it  reflects  supply  and
demand  equilibrium 
in  a  fully  public,  transparent
environment. The issue price of new shares usually has to
be below the market price of the shares in order to avoid
a  failure  of  the  issue.  (This  situation  should  not  be
confused with that of a takeover bid where it is common
for  the  bidding  company  to  offer  a  premium  on  the
current  share  price).  This  implies  that,  given  the  stock
market  price  of  around  DEM  80,  the  issue  price  would
have  needed  to  be  below  DEM  80  per  share.  The
Commission  therefore  concludes  that  DEM  80  per  share
is  the  maximum  share  price  that  could  have  been  asked
in  an  open  and  commercial  issue.

The  reasons  given  by  the  German  Government  to  value
the  shares  of  BV  considerably  higher  at  DEM  125  per
share  (see  V)  cannot  be  accepted.  The  transaction  at  a
value  of  DEM  125  per  share  could  take  place  only
because  of  the  granting  of  the  guarantee  covering  the
difference  between  DEM  125  and  DEM  80  per  share.

25.11.98

EN

Official  Journal  of  the  European  Communities

L 316/29

Germany was unable to supply analyses or reports of the
banks to support such a high valuation. The fact that the
share  price  averaged  DEM  130,8  in  1990  does  not  take
account  of  the  fact  that  the  share  price  was  consistently
lower  than  DEM  100  since  as  early  as  1981,  with  the
exception of the periods from the end of 1985 until 1986
and  from  early  1989  until  the  end  of  1990.

The  Commission  does  not  accept  that  the  decisive  date
for the valuation of the shares was 12 July 1991, the date
of  signature  of  the  Memorandum  of  Understanding
between BV and KAE. That was not a binding document.
What counts is the date on which binding agreements are
signed.  The  value  at  the  time  of  the  binding  transaction
incorporates all market expectations about future profits.
Therefore  the  price  of  the  shares  at  the  time  of  the
transactions is the relevant real (market) value. The value
of  the  shares  in  the  past  is  simply  not  relevant.

Nor  does  the  Commission  accept  that  the  valuation  of
DEM  125  per  share  could  have  been  justified  by  any
inside information available to the parties that the market
did  not  have,  for  example  with  respect  to  the  likely
synergy effects. First, it is inconceivable that those effects
could  have  covered  the  gap  between  DEM  80  and  DEM
125.  Secondly,  there  are  market  and  industry  analysts
and  large  investors  which  normally  have  the  same
knowledge or are very quick in acquiring this knowledge
which is then transmitted to the market. In the event that
there had been any such inside information about synergy
effects  in  this  particular  case,  it  must  be  assumed  that
HIBEG,  in  order  to  sell  the  shares  at  DEM  125,  would
have  made  this  inside  information  public  and  widely
known.  A  rapid  positive  market  reaction  had  to  be
expected  in  the  case  of  any  significant  synergy  or  other
positive  effects.  However,  the  contrary  was  true.

A posteriori the actual development of the BV share price
contradicts  the  arguments  advanced  by  Germany  since
the  stock  market  price  for  BV  shares  fluctuated  in  1992,
1993  and  1994  at  a  much  lower  level  than  DEM  125.
From  September  to  the  end  of  December  1991  the  stock
market  quotation  for  BV  shares  constantly  declined
(DEM 73,50 on 30 December 1991). In 1992 the price of
the  shares  fluctuated  below  DEM  98  and  fell  by
30 December 1992 to DEM 68. In 1993 the price did not
rise  above  DEM  100,80  (20  October)  and  in  1994
reached  a  maximum  of  DEM  106,50  on  5  January.
HIBEG  has  stated  that  by  the  end  of  February  1994  it
sold  all  its  BV  shares  at  an  average  of  DEM  97,18  each.
BV  eventually  went  into  liquidation  in  early  1996.

As  regards  Germany’s  argument  that  a  big  block  of
shares is more attractive to an investor than single shares,

it  is  difficult  to  accept  that  this  could  give  a  plausible
explanation of the difference between DEM 80 and DEM
125 per share. It should also be borne in mind that a new
share  issue  runs  the  risk  of  having  the  effect  of  lowering
the  share  price.  Moreover,  it  is  quite  evident  in  this  case
that  Krupp  had  no  intention  of  selling  KAE  for  the
2,8 million shares. It wanted cash and for this reason the
Land  Bremen  was  called  upon.  Through  its  investment
arm  HIBEG,  the  Land/City  of  Bremen  was  prepared  to
buy the 2,8 million shares for DEM 350 million and take
the  risk  of  selling  the  shares  to  repay  the  DEM
350  million  credit  that  HIBEG  obtained.

As  regards  the  approval  of  the  balance  sheet  of  GbR  by
two  accountants/tax  advisers  the  following  should  be
noted:  in  general  when  an  opening  balance  sheet  is
established,  accountants  have  to  apply  the  principle  of
prudent  valuation  (Vorsichtsprinzip)  which  means  that
they  have  to  value  any  asset  at  the  lowest  possible  level.
If there is any market value, established for example by a
stock  exchange,  that  value  is  to  be  referred  to.  But  if,  as
is  the  case  with  the  BV  shares,  there  is  a  recent
established  price  which  differs  from  the  stock  market
price,  accountants  are  allowed  to  take  that  price  into
account for their valuation. Accordingly, the accountants
only  referred  to  the  price  of  DEM  350  million  recently
paid  for  the  2,8  million  BV  share  package,  which  was
established by Krupp and Bremer Vulkan in collaboration
with  the  Bremen  Senate  through  HIBEG  and  the  bank
consortium,  so  that  one  cannot  talk  in  terms  of  an
independent  valuation  of  the  accountants.  The  valuation
only  mirrored  the  valuation  of  the  parties  involved.

It  is  obvious  that  at  the  market  price  for  the  new  shares
at  the  time  of  the  main  transactions  of  DEM  80,  as
determined  by  the  Commission,  BV  could  not  have
bought KAE. HIBEG could only act in the interest of BV
and  pursue  the  arrangements  with  Krupp  in  the  GbR  as
described above (see II), as the risk was covered with the
guarantee  on  DEM  126  million  plus  credit  costs  and
interest.  This  DEM  126  million  represents  exactly  the
difference between DEM 350 million (the total credit and
price of 74,9 % of KAE) and DEM 224 million (the value
of  the  2,8  million  BV  shares  at  DEM  80  per  share).  The
Commission  cannot  accept  the  implication  that  HIBEG’s
involvement 
in
previous cases, HIBEG was intervening as the instrument
of  the  Land  Bremen  in  support  of  a  company  —  BV  —
whose  owners,  despite  many  inquiries,  remain  unknown
to the Commission. On a previous occasion, HIBEG took
upon itself to guarantee the issue in 1987 of BV shares to
finance  the  shipbuilding  activities  of  BV.  The  guarantee
to  purchase  the  new  shares  not  sold  at  issue  was
considered not to be a normal guarantee but to constitute
aid  for  the  full  amount  of  the  difference  between  the
guaranteed  price  and  a  stock  market  based  real  value  of
the  shares.  That  assessment  by  the  Commission  was  not
contested  by  Germany,  nor  was  its  approval  of  the  aid
under  the  prevailing  aid  ceiling  of  Council  Directive

is  normal  commercial  practice.  As 

L 316/30

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Official  Journal  of  the  European  Communities

25.11.98

87/167/EEC of 26 January 1987 on aid to shipbuilding (6)
(sixth  Directive  on  aid  to  shipbuilding)  by  letter  of
16  October  1990.

The foregoing also answers the question as to how much
aid  is  involved.  As  when  the  procedure  commenced,  this
can  be  calculated  as  the  full  amount  covered  by  the
guarantee. On the basis of a market price of DEM 80 per
BV  share,  the  2,8  million  BV  shares  are  worth  DEM
224  million.  The  difference  with  the  price  for  KAE  of
DEM  350  million,  i.e.  DEM  126  million,  cannot  be
accounted  for  by  commercial  motives.  The  total  of  this
difference,  being  equal  to  the  total  guarantee,  has  to  be
viewed  as  aid.  HIBEG  could  pay  DEM  350  million  for
the  BV  shares,  which  were  worth  no  more  than  DEM
224  million  only  with  the  cover  of  the  guarantee.

On  the  question  of  the  recipient  of  the  aid,  Germany’s
answer  concerning  the  value  of  the  74,9 %  holding  in
KAE  confirms  the  hypothesis  that  the  DEM  350  million
value,  established  in  negotiations  between  two  equal
partners  on  the  market,  reflects  the  real  market  value  of
the  74,9 %  stake.  The  Commission  considers  that  to  be
confirmed  by  Germany’s  explanation  that  the  value  of
74,9 %  of  KAE  was  set  at  DEM  350  million  by  two
independent  accountancy  firms  (see  V).

This  means  that  the  final  recipient  of  the  aid  is  BV.  The
total  of  the  transactions  and  the  aid  involved  made  it
possible  for  BV  to  acquire  74,9 %  of  KAE  worth  DEM
350  million  not  for  cash  but  in  exchange  for  2,8  million
BV  shares  worth  DEM  224  million.  Under 
the
arrangement chosen, the aid was given by HIBEG, subject
to  the  conclusion  of  the  transaction  between  BV  and
Krupp, in the form of a cash payment. In this regard it is
important  to  note  that  Germany  in  its  different  letters
described  the  whole  arrangement  as  seeking  to  achieve
the  diversification  of  BV  through  the  buying  of  KAE.
Although  it  was  Krupp  that  received  the  cash  payment
direct from HIBEG within the agreements concerning the
GbR,  it  is  BV  which  effectively  improves  its  financial
position  through  the  cash  contribution  by  HIBEG  and
the  related  State  guarantee  and  which  is  therefore  the
final  aid  recipient.

Hansestadt  Bremen,  Germany’s  answer  cannot  be
accepted by the Commission. It is disputable whether the
text  of  the  Bürgschaftsrichtlinien,  as  notified  to  the
Commission  by  letter  dated  31  July  1991,  allows  ‘selbst-
schuldnerische Bürgschaften’ instead of ‘Ausfallbürgschaf-
ten’. Article 2.1 of the Bürgschaftsrichtlinie provides: ‘Die
Bürgschaften  werden  grundsätzlich  gegenüber  Kredit-
instituten im Sinne von § 1 des Gesetzes über das Kredit-
wesen  als  Ausfallbürgschaften  übernommen’.  As  regards
the securities and premiums required under the Richtlinie,
it  is  clear  that,  as  these  were  not  required  from  HIBEG,
this constitues a deviation from the approved Richtlinien.
The  fact  that  no  securities  and  premiums  were  required
from  HIBEG  in  itself  constitues  aid.  The  costs  of  the
guarantee  should  have  weighed  on  the  transaction
between Krupp and HIBEG. Consequently, the guarantee
should  have  been  notified 
in  accordance  with  the
Commission’s letters SG(89) D/4328 of 5 April 1989 and
SG(89)  D/12772  of  12  October  1989  before  it  was
granted,  and  not,  as  Germany  did,  before  it  became
‘operational’.

The Commission has also considered whether the notified
aid  should  be  assessed  under  the  provisions  of  the
seventh  Directive  on  aid  to  shipbuilding.  As  can  be  seen
from  BV’s  annual  report  for  1991,  the  total  share  of
shipbuilding in BV’s overall results for 1991 was 42,4 %.
It is therefore arguable whether BV could be said to have
been active principally in shipbuilding. Moreover, the fact
that BV had shipyards does not mean that aid to BV has
necessarily to be examined under the seventh Directive on
aid  to  shipbuilding.  This  depends  on  which  of  BV’s
activities is being aided. Only if the aid had been awarded
in favour of shipbuilding activities could it be argued that
the  seventh  Directive  on  aid  to  shipbuilding  applied.  In
this  particular  case,  the  BV  activity  being  aided  was
marine  and  defence  electronics.  Similarly,  the  fact  that
KAE  was  operating  in  the  fields  of  marine  and  defence
electronics  did  not  make  it  a  shipbuilding  company
within  the  meaning  of  Article  1  of  the  seventh  Directive
on  aid  to  shipbuilding  (‘shipbuilding  is  building  of
metal  hulled  sea-going  vessels’).  Thus  the  Commission
concludes  that  the  acquisition  of  KAE  by  BV  does  not
come  within  the  scope  of  the  seventh  Directive  on  aid  to
shipbuilding.

Germany’s  unwillingness  or 
inability  to  supply  full
information  on  the  ownership  of  BV  makes  it  impossible
for  the  Commission  to  discover  why  it  is  necessary  in
the  present  case  for  HIBEG  (0,08 %  shareholder)  and
the  Land  Bremen,  rather  than  the  company’s  own
shareholders,  to  supply  finance.

Germany  failed  to  notify  those  aid  measures  in  advance
pursuant  to  Article  93(3)  of  the  EC  Treaty.  Germany
notified  the  aid  only  after  the  guarantee  had  been  given
and  after  Krupp  and  BV  had  sold  or  bought  74,9 %  of
KAE  and  after  HIBEG  and  Krupp  had  founded  GbR.

VII

As  to  whether  the  guarantee  fulfils  the  requirements
of  the  Bürgschaftsrichtlinien  des  Landes  Bremen/Freie

(6) OJ  L  69,  12.3.1987,  p.  55.

Since  Germany  did  not  notify  the  aid  before  granting  it,
as  it  should  have  done  pursuant  to  Article  93(3)  of  the
EC  Treaty,  the  Commission  was  unable  to  make  known
its  view  on  the  measures  before  they  were  implemented.
The  aid  was  thus  illegal  under  Community  law  from  the
date  on  which  it  was  granted.

25.11.98

EN

Official  Journal  of  the  European  Communities

L 316/31

VIII

At  the  time  of  the  transactions  in  question  (KAE  was
later  merged  with  the  BV  subsidiary  STN,  which  in  turn
was  taken  over  by  a  consortium  led  by  Rheinmetall),
KAE’s  main  activities  were  in  the  fields  of  marine  and
defence electronics (echo-sounding techniques, signal- and
data-processing).  There  is  competition  in  the Community
between  producers  in  these  fields  and  there  is  trade
between  the  Member  States  in  the  products  involved.

According  to  the  1991  yearly  report  of  (K)AE  (the  name
of  KAE  was  changed  to  AE  after  the  acquisition  by  BV),
KAE  itself  achieved  part  of  its  turnover  within  the
Community.  Of  its  DEM  689  million  turnover  for  1991,
DEM  45  million  was  derived  from  business  with  other
Member  States.  For  1990  those  figures  were  respectively
DEM  578  million  and  DEM  30  million.  KAE  had  a
workforce  of  3 242  in  1990  and  its  profits  in  the  period
from  1986  to  1990  ranged  from  DEM  11  million  to
DEM  20,2  million.

Within  the  marine  and  defence  electronics  sector,  KAE
operates  in  a  number  of  specialised  markets  for  which
there  is  evidence  to  show  that  intra-Community  trade
exists.  Such  information  is  summarised  in  the  following
table:

Imports  from  other  Member  States  1991

the 

the  acquisition  of  KAE 

In  its  invitation  to  the  general  meeting  of  BV  on
17  October  1991,  the  Board  made  clear  its  hope  that
through 
long-term
international  competitiveness  of  its  marine  electronics
subsidiary  STN  would  be  enhanced.  The  BV  Board  also
referred  to  the  expected  rapid  realisation  of  synergy
effects through the fusion of KAE and STN. The very aim
of the acquisition of the 74,9 % stake in KAE was clearly
to  improve  the  competitive  position  of  BV  in  the  marine
and defence electronics sector. Moreover, the aid enabled
BV  to  strengthen  its  position  in  that  sector  without
having to bear the full costs. Following the acquisition of
KAE,  the  share  of  the  BV  Group’s  total  turnover
accounted  for  by  electronics  and  systems  design  was
forecast  to  increase  to  55  to  60 %.  The  sector  was
characterised  by  strong  competition.  According  to  the
data  available  at  the  time  of  the  acquisition,  there  were
more than 40 companies in the defence electronics sector
alone  with  a  turnover  in  excess  of  ECU  30  million.

Consequently, the aid which Germany granted to BV and
HIBEG affects trade between Member States and distorts
competition  between  marine  and  defence  electronics
manufactures  within  the  meaning  of  Article  92(1)  of  the
EC  Treaty.

Different  products  categories

IX

Country

8531 (1)

8526 (2)

9014 (3)

(ECU  million)

France

114

Belgium/Luxembourg

Netherlands

Germany

Italy

United  Kingdom

Ireland

Denmark

Greece

Portugal

Spain

49

51

48

36

72

16

14

12

18

41

36

21

20

70

20

11

3

11

7

3

7

130

11

63

55

64

190

3

18

0,5

5

11

(1) 8531: electric  sound  or  visual  signalling  apparatus.
(2) 8526:

radar  apparatus,  radio  navigational  aid  apparatus  and  radio
remote  control  apparatus.

(3) 9014: direction  finding  compasses,  other  navigational  instruments

and appliances.

Article  92(1)  of  the  EC  Treaty  lays  down  the  principle
that  aid  having  the  characteristics  specified  therein  is
incompatible  with  the  common  market.  The  derogations
from  that  principle  set  out  in  Article  92(2)  of  the  EC
Treaty do not apply to the case in point, given the nature
and  objectives  of  the  aid.  The  aid  in  this  case  does  not
have a social character, does not serve to make good the
damage  caused  by  natural  disasters  nor  is  it  aid  granted
to  the  economy  of  certain  areas  of  the  Federal  Republic
of  Germany  affected  by  the  division  of  Germany.

As regards the exception pursuant to Article 92(3)(a), the
the  economic
aid  was  not  designed 
development  of  an  area  where  the  standard  of  living  is
abnormally 
serious
or  where 
underemployment. Nor has Germany attempted to justify
the  aid  on  such  grounds.

to  promote 

there 

low 

is 

As  far  the  derogation  pursuant  to  Article  92(3)(b)  is
concerned, the aid was clearly not intended to promote a
project  of  common  European  interest  or  to  remedy  a
serious  disturbance  in  the  German  economy.  Nor  has
Germany  attempted  to  justify  the  aid  on  such  grounds.

As  regards  the  derogation  pursuant  to  Article  92(3)(c)  of
the  Treaty  for  aid  to  facilitate  the  developement  of
certain  economic  activities  or  of  certain  economic  areas,

L 316/32

EN

Official  Journal  of  the  European  Communities

25.11.98

where  such  aid  does  not  adversely  affect  trading
conditions  to  an  extent  contrary  to  the  common  interest,
the Commission has examined the aid on its sectoral and
regional  aspects.  In  both  respects,  it  is  important  to  note
that the aid given to BV is investment aid to help BV buy
an  already  existing  company  (KAE)  and  not  to  create
new  production  facilities  or  employment.  It  is  also
important  to  refer  to  Part  VIII,  in  which  it  is  clearly
shown  that  there  is  competition  between  the  Member
States  in  the  products  involved.  As  regards  the  sectoral
aspect, it is the sector which receives investment that is of
importance.  This  case  concerns  the  electronics  sector  in
which  KAE  operates.

As  there  is  no  Community  sectoral  justification  for  this
aid,  it  has  to  be  regarded  as  adversely  affecting  trading
conditions  to  an  extent  contrary  to  the  common  interest.
The aid would give BV, in operating KAE, an unjustified
advantage  over  KAE’s  competitors  on  the  market,  which
did  not  and  will  not  receive  such  aid.  Germany  has  not,
indeed,  attempted  to  justify  the  aid  on  such  grounds.  As
regards the regional aspect, Bremen is an area eligible for
assistance  on  the  national  level  (‘Gemeinschaftsaufgabe:
Verbesserung  der  regionalen  Wirtschaftsstruktur’)  and
Community  level  (‘Objective  2  area’).  However,  the  aid
in this case was not, as is required, granted as part of an
approved  regional  scheme  but  was  given  as  an  ad  hoc
investment  aid.  In  addition,  the  buying  of  an  existing
company  or  part  of  an  existing  company  cannot  be
viewed  as  an  investment  eligible  for  aid  under  the
previously  mentioned 
‘Gemeinschaftsaufgabe’,  as  no
employment  is  thereby  created  and  as  Germany  has  not
supplied any evidence or indication that KAE would have
had  to  close  had  it  not  been  sold  to  BV.  Consequently,
the  aid  cannot  be  justified  on  the  basis  of  regional
grounds  pursuant  to  Article  92(3)(c)  of  the  EC  Treaty.
Furthermore,  Germany  did  not  notify  the  aid  as  regional
aid  nor  attempt  to  justify  it  on  regional  grounds.

of  Justice  in  Case  C-301/87  France  v.  Commission
(‘Boussac’  case) (7),

HAS  ADOPTED  THIS  DECISION:

Article  1

Aid  in  favour  of  Bremer  Vulkan  AG  totalling  DEM  126
million,  granted  within  the  context  of  the  acquisition  of
74,9 %  of  the  capital  of  Krupp  Atlas  Elektronik  GmbH
through  Hanseatische  Industrie-Beteiligungen  GmbH,  is
unlawful, since it was granted in breach of the procedural
rules  laid  down  in  Article  93(3)  of  the  EC  Treaty.
Furthermore,  the  aid  is  also  incompatible  with  the
common  market  purusant  to  Article  92(1)  of  the  Treaty,
since 
it  does  not  meet  any  of  the  conditions  for
exemption  provided  for  in  Article  92(2)  and  (3)  of  the
Treaty.

Article  2

Germany  shall  ensure  that  the  aid  of  DEM  126
1.
million  to  Bremer  Vulkan  AG  referred  to  in  Article  1
is 
to  Hanseatische
Industrie-Beteiligungen  GmbH  within  two  months  of  the
notification  of  this  Decision.

recovered 

fully 

paid 

and 

2.
Germany shall recover the amount of aid referred to
in  Article  1,  in  accordance  with  the  procedures  and
provisions  of  national  law,  in  particular  those  relating  to
interest  on  arrears  payable  on  State  claims,  with  interest
running  from  the  date  on  which  the  unlawful  aid  was
granted.

3.
Germany  shall  inform  the  Commission,  within  two
months  of  the  notification  of  this  Decision,  of  the
measures  taken  to  comply  with  it.

X

Article  3

In  conclusion,  the  aid  granted  by  the  Freie  Hansestadt
Bremen/Land Bremen to BV via HIBEG is not compatible
with the common market, since it was granted illegally in
breach of Article 93(3) of the EC Treaty and furthermore
does  not  meet  any  of  the  conditions  provided  for  in
Article  92(2)  and  (3)  of  the  Treaty.

The  aid  must  be  revoked  and  any  aid  granted  must
be  repaid  in  accordance  with  the  judgment  of  the  Court

This  Decision  is  addressed  to  the  Federal  Republic  of
Germany.

Done  at  Brussels,  25  February  1998.

For  the  Commission

Karel  VAN  MIERT

Member  of  the  Commission

(7) [1990]  ECR  I-307,  paragraph  22.