1999/225/EC: Commission Decision of 13 May 1998 on aid granted by Germany to Herborn und Breitenbach GmbH (ex- Drahtziehmaschinenwerk Grüna GmbH) (notified under document number C(1998) 1687) (Only the German text is authentic) (Text with EEA relevance)
Date: 1998-05-13
Institutions: European Commission
Subjects: Germany, State aid, aid to industry, industrial restructuring

L 83/62

EN

Official Journal of the European Communities

27. 3. 1999

COMMISSION

COMMISSION DECISION

of 13 May 1998

on aid granted by Germany to Herborn und Breitenbach GmbH (ex-Drahtzieh-
maschinenwerk Gr(cid:129)na GmbH)

(notified under document number C(1998) 1687)

(Only the German text is authentic)

(Text with EEA relevance)

(1999/225/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),

Having regard to the Agreement on the European
Economic Area, and in particular Article 62(1)(a) thereof,

Having given the interested parties, pursuant to those
Articles, a period in which to submit their comments (1),

Whereas:

I

On 15 March 1995 the Commission decided to initiate
proceedings under Article 93(2) of
the EC Treaty in
respect of State aid for SKET Schwermaschinenbau
Magdeburg GmbH, Magdeburg (SKET SMM) (2). The
proceedings also concerned the SKET SMM subsidiaries,
i.e. Entstaubungstechnik Magdeburg GmbH, Magdeburg
(ETM)
and Drahtziehmaschinenwerk Gr(cid:129)na GmbH,
Chemnitz (DZM). The aid in question had been received
by SKET SMM before, and in the course of, its privatisa-
tion and restructuring. Previously, SKET SMM had
already received aid, to which the Commission had not
objected (NN 46/93 and NN 95/93). The proceedings
were given the number C 16/95.

On 30 July 1996 the Commission decided to extend the
C 16/95 proceedings to the State aid paid since the initia-
tion decision, which was not covered by that decision (3).
The investors (Oestmann & Borchert Industriebeteili-
gungen GbR) had withdrawn from the restructuring plan
at the end of 1995, and a new plan with additional aid
had been notified.

In October 1996, SKET SMM was forced to file for
a ‘Gesamtvollstreckungsverfahren' (GV) (bankruptcy pro-
ceedings in the new L(cid:132)nder). The plan which was the
subject of the initiation decision of 30 July 1996 had thus
not been able to restore SKET SMM to viability. On 26
June 1997 the Commission adopted the negative final
Decision 97/765/EC (4) with regard to the aid for SKET
SMM. The GV does not apply to the two subsidiaries ETM
and DZM, which were transferred to the Federal Office
for Special Unification-related Tasks (the BvS). Decision
97/765/EC terminated Case C 16/95 in respect only of
that part of SKET SMM which was covered by the GV.
The case was therefore split into three separate parts, as
follows: C 16a/95 for SKET SMM, C 16b/95 for ETM and
C 16c/95 for DZM. In 1995 DZM merged with a west
German company and trades today as Herborn & Breiten-
bach GmbH, Chemnitz (H&B). This Decision refers only
to H&B.

(1) OJ C 215, 19. 8. 1995, p. 8.
(2) OJ C 215, 19. 8. 1995, p. 8 and OJ C 298, 9. 10. 1996, p. 2.

(3) OJ C 298, 9. 10. 1996, p. 2.
(4) OJ L 314, 18. 11. 1997, p. 20.

27. 3. 1999

EN

Official Journal of the European Communities

L 83/63

By letters dated 13 January 1997 (registered on 14
January) and 6 August 1997 (registered on 7 August),
Germany informed the Commission that H&B had been
transferred to the BvS and notified the aid granted to
H&B since the initiation of the GV concerning SKET
SMM. The second letter presented the restructuring plan,
which had again been adapted to H&B’s new situation. By
letter dated 30 October 1997, Germany notified the
conditions of the H&B privatisation agreement and the
changes to the August 1997 restructuring plan.

II

On 24 March 1995 and 12 April 1995 SKET SMM
acquired from Kolbus GmbH & Co. KG, under the direc-
tion of the investors Oestmann & Borchert Industriebetei-
ligungen (which withdrew from the privatisation project
at the end of 1995), all the shares of H&B Beteiligungsge-
sellschaft GmbH and H&B GmbH & Co. KG. The
combine merged with the subsidiary, DZM, and, under
the name H&B, remained a subsidiary of SKET SMM
until 31 December 1996. H&B was transferred,
in its
condition at that time (i.e. with debts), to the BvS by
agreement dated 16 January 1997.

West Merchant Bank, which had been charged by the BvS
with finding an investor, had by l May 1997 received four
bids in response to an open tender in the course of which
112 firms throughout
the world had been contacted.
Negotiations were begun with two of the bidders and,
job maintenance
taking account of the business plan,
guarantees and financial
indicators, the best offer was
selected. The option of dissolving the company, which
would probably have entailed lower costs than a sell-off
with accompanying financial measures, was not consid-
ered in the selection process. In accordance with the
general principles applied by the Commission in its
assessment of company privatisations (5), the privatisation
of H&B thus contains aid.

The investor selected, Mr Henrich, is a natural person
with experience in the wire-drawing machine industry. In
1994 he sold his
family firm manufacturing such
machines to a financial investment holding company, the
EIS Group, after he had been a manager of that company
for four years. Mr Henrich still has a contract of employ-
ment with the EIS Group, which agreed to the acquisition
of H&B. On 24 September 1997 the investor took over
H&B, assuming, first, 50 % of the management and then,
on 1 January 1998, 100 %. He will also assume the
position of chairman of the supervisory board of the
Cable and Wire Division of
the EIS Group, which
consists of holdings in three companies. In this way, the

investor supplies contacts and potential synergies as well
as knowledge of the business.

The structure of the H&B combine is as follows:

(a) Herborn & Breitenbach GmbH, Chemnitz (ex-DZM),
with a share capital of DEM 1 million. At the same
time,
the company is a general partner in H&B
GmbH & Co. KG, Herborn. It has 107 employees,
and its business is the planning, design and produc-
tion of wire-drawing machines;

(b) Herborn & Breitenbach GmbH & Co. KG, Herborn
(Hessen), with a limited liability capital of DEM 6
million and a general-partner capital of DEM 0,1
million. The firm has 78 employees, and its business
is planning, design and production;

(c) Herborn & Breitenbach Beteiligungs GmbH, Unna
(North Rhine-Westphalia), wholly owned by Herborn
& Breitenbach GmbH, Chemnitz. Its capital is DEM
0,1 million. The company acts as a simple shell
company without
It has no
employees.

specific object.

a

H&B’s business is the sale, design, production, installa-
tion, testing and maintenance of wire-drawing machines
at both the Chemnitz and Herborn sites. The machines
are intended for very different branches of industry, for
example, automobiles, structural steelwork, shipbuilding,
telecommunications and
construction, energy supply,
lightbulb manufacture.

The investor’s restructuring plan is aimed in short at
protecting market share and reducing production costs.
H&B was already in the restructuring phase when it was
bought up by the investor; the latter intends to continue
the firm’s efforts and contribute his own contacts. It is
planned:

(a) to maintain the two production sites of Herborn and
Chemnitz. To reduce costs, however, the division of
tasks will be clarified and rationalised: R&D, manufac-
turing and assembly in Chemnitz; administration,
sales and customer demonstration in Herborn;

(b) to streamline the product range, so as to reduce the

cost structure;

(c) to adapt machines to customer requirements (R&D) ;

(d) to concentrate more on after-sales service in view of
the large stock of used DZM and H&B machines;

(e) to develop the production of spare parts and package
the modernisation and inspection of

deals
for
machines;

(5) See the Twenty-third Report on Competition Policy, 1993,

points 402-3.

(f) to increase outsourcing, which the company already

uses;

L 83/64

EN

Official Journal of the European Communities

27. 3. 1999

(g) to cut jobs. The investor, however, has kept all 186
current jobs for the time being and has guaranteed to
keep 150 of them, of which 90 in Chemnitz and 60 in
Herborn. The guarantee is valid for the next three
that production will
years. He
continue at the Chemnitz site for a further two years
with at least 25 jobs. The job guarantees are backed by
contractually agreed fines.

also guarantees

H&B must protect its market shares (in Germany, Europe,
the CIS, South-East Asia and the United States), initially
by using the investor’s contacts and business know-how
but also through a programme for reducing costs and
modernising the product range. The investor believes
considerable synergies can be obtained from cooperating
with other firms (chairmanship of the supervisory board
of the Cable and Wire Division of the EIS Group).

In the past, DEM 16,5 million was invested in particular
in the improvement of existing buildings and the
modernisation of technical plant. For the next three years,
the investor has guaranteed investment of approximately
DEM 0,5 million a year (contractual fines).

According to the latest turnover forecasts, the combine
will probably achieve a pre-tax profit for the year in 1999
[ . . . ] (6).

III

H&B remained in the SKET combine until 1997 and
received restructuring aid on several occasions. In point of
fact, the difficulties which SKET SMM was faced with
(and which led to a ‘Gesamtvollstreckung') delayed the
restructuring of H&B.

The aid disbursed to H&B had been granted under
successive restructuring plans. H&B was part of the SKET
combine, and the plans provided for the restructuring of
the group as a whole. After H&B was transferred to the
BvS and hence split off from the combine, the plans for
the company became significantly more precise. It was
only then that the sale of the separate company was
contemplated. Today, H&B has been privatised, and a
restructuring plan with new financial indicators, adapted
by the investor (see section II), has been examined by the
Commission.

For clarity’s sake, only those financial measures are listed
which were actually implemented in the past or are
provided for,
in the
current plan (7). The following measures are concerned:

in connection with privatisation,

1. 1990 to 91: granting of special-purpose allocations
(redundancy programme) amounting to DEM 1,4
million.

(6) Parts of this text have been edited to ensure that confidential
those parts are enclosed in

information is not disclosed;
square brackets and marked with an asterisk.

(7) See footnotes 1 and 2

2. 1993: DEM 26,5 million in interest-free loans and

waived claims, of which:

(a) interest-free loans granted by the BvS (DEM 13,9
million), to repay inherited credits from before 1
July 1990;

(b) a second loan from the BvS (DEM 4,5 million), to
redeem inherited credits from before 1 July 1990;

(c) interest-free credit from the BvS (DEM 1,7 million)

to repay the interest on inherited loans;

(d) waiver of claims (DEM 4,6 million) in connection
with the discharge of equalisation liabilities;

(e) waiver of interest (DEM 0,9 million) in connection

with these liabilities.

The above credits and waiver of claims, totalling DEM
26,5 million, were transformed on 31 December 1994
into grants (DEM 15,9 million) and the formation of
capital reserves (DEM 5,6 million plus DEM 5 million)
via SKET SMM.

3. 1996: DEM 11 million in loans, of which:

(a) the granting of a loan of DEM 3,2 million to repay
inherited credits from before 1 July 1990 via SKET
SMM. The BvS will pay this amount to the bank-
ruptcy trustee;

(b) a DEM 5,4 million loan from the BvS (DEM 2,2
million for financing orders via SKET SMM (the
the bankruptcy trustee), DEM 2,1
BvS repays
million for maintaining liquidity and DEM 1,1
million for discharging liabilities to suppliers);

(c) settlement by the BvS, in the form of an interest-
free shareholder
loan, of a customer payment
(DEM 2,4 million) erroneously made to SKET
SMM.

At the end of 1996, H&B’s liabilities amounted to
DEM 38,9 million (DEM 26,5 million in loans which
were transferred into non-repayable grants, DEM 11
million in loans and DEM 1,4 million in special-
purpose allocations). In addition, there were guarantees
of DEM 15 million on the following terms: 0,25 % per
half year (1 January and 1 July), charged on the
financing advanced by the BvS, and 0,5 % on the
moneys retained by the bank, plus the conditional
financing of DEM 1,377 million.

4. 1997: Privatisation (conditions of

the privatisation

agreement)

The BvS releases H&B from all inherited debts and
gives grants for the completion of restructuring.

27. 3. 1999

EN

Official Journal of the European Communities

L 83/65

(a) Obligations of the seller (BvS):

(i) waiver of claims in respect of loans amounting
to DEM 11 million (conversion into non-
repayable grants);

(ii) waiver of claims in respect of the shareholder
loan of DEM 3 million granted in 1997 (in
connection with the GV of SKET SMM);

(iii) payment of

a non-repayable restructuring
grant of DEM 4 million (in two parts of DEM
2 million each, on 1 January and 30 June
1998)
to maintain liquidity and
finance investment;

in order

(iv) share in the costs of eliminating inherited
burdens (from before 1 July 1990) in excess of
DEM 2 million, up to a ceiling of DEM 4
million;

(v) assumption of the possible risk of a repayment
claim from the tax authorities, which could
amount to DEM 0,3 million.

(b) Obligations of the investor:

(i) purchase price of DEM 0,25 million;

(ii) assumption of called guarantees of DEM 3,3
million in his own name and provision of
guarantees totalling DEM 9 million;

(iii) assumption of an irrevocable, absolute guar-
antee, without time limit, of DM 3,0 million to
the benefit of the BvS. From 30 August 1998
the guarantee is reduced by DEM 0,5 million
annually, if the seller has met its contractual
obligations;

(iv) assumption of

the elimination of

inherited
burdens up to DEM 2 million (above this
figure, the BvS assumes 80 % of the costs up
to a ceiling of DEM 4 million);

(v) contractual guarantees with penalties attached:
implementation of a DEM 1,5 million invest-
ment by 30 June 2000, maintenance of jobs at
the Chemnitz site (90 persons for three years),
and maintenance of the Chemnitz production
site with 25 jobs guaranteed for a further two
years;

(vi) the investor, H&B GmbH and H&B GmbH &
Co. KG have undertaken not to make profit
distributions or withdrawals (whether open or
disguised) until 2 December 2002.

IV

As part of the C 16/95 proceedings the Commission
received observations from third parties, including one
German competitor’s comments which related directly to

H&B. These concerned the takeover of H&B by SKET
SMM (the competitor itself is supposed to have been
interested in a takeover) and the sale of products by H&B,
apparently on terms below the market price level.

These remarks were communicated to Germany by letter
dated 19 November 1996. The German authorities replied
by letter dated 6 January 1997 (registered on 7 January
under reference A/30033) with regard to H&B, giving
detailed explanations. Thus the German competitor had,
through a lawyer, already in 1995 raised its objections
with the Commission, claiming that there was a problem
of price dumping at DZM. Even at this stage, the German
authorities could show that the competitor concerned
enjoyed genuine opportunities on the market and that
DZM’s prices were not below the market price level.

competitor’s purchasing

With regard to the takeover of H&B by SKET SMM and
the
intentions, which are
supposed to have been ignored in order to favour SKET
SMM, Germany explained that the competitor had not
been excluded from the privatisation negotiations but was
considered to have withdrawn of its own accord.

V

The aid which DZM/H&B has received was granted from
1991. This consists first of all of aid granted during the
period of validity of the Treuhand arrangements (NN
108/91, E 15/92 and N 768/94). The Treuhand arrange-
ments applied up to l January 1996. Under these, the
financing of firms was covered by the Treuhandanstalt
(THA),
if certain threshold values for the number of
employees and the level of the aid were met. DZM/H&B
could not, as a subsidiary of SKET SMM, be covered by
these arrangements,
since SKET SMM exceeded the
maximum threshold values for the number of employees
and the level of aid. The aid granted to the company,
therefore, had to be notified to the Commission and
examined by it separately.

The financing measures granted or planned (see section
III) involve a total of DEM 50,2 million. In addition, the
BvS has made available guarantees of DEM 3,3 million for
financing the company’s business activity.

Of these financial measures, DEM 28,2 million may be
regarded, in accordance with the decisions on the Treu-
hand arrangements, as not constituting State aid within
the meaning of Article 92(1) of the EC Treaty. This sum
comprised DEM 24,2 million for the financing of inher-
ited credits and a maximum of DEM 4 million for costs
associated with the possible elimination of
inherited
burdens.

L 83/66

EN

Official Journal of the European Communities

27. 3. 1999

The aid to be examined here thus amounts to DEM 22
million, a figure which breaks down as follows:

(a) 1990 to 91: DEM 1,4 million in special-purpose al-
locations (financing of the redundancy programme);

(b) 1993: DEM 5,5 million in waived claims relating to

equalisation liabilities (including interest);

were not responsible, moreover, for the ultimate restruc-
turing of the companies. Their task was to prepare the
companies for privatisation. The ultimate restructuring
was a matter, therefore, for the investor. Undoubtedly,
what distinguishes this company is that its parent, SKET
SMM, could not be successfully privatised. During this
period, DZM/H&B was integrated into the restructuring
plans of the entire SKET group.

(c) 1996: DEM 7,8 million in loans converted into non-

repayable grants;

(d) 1997: DEM 3 million in loans for financing business
activity, converted on privatisation into non-repayable
grants;

At the end of 1995 the investors, Oestmann & Borchert,
withdrew from the privatisation plans for SKET SMM.
Following this breakdown, the group’s restructuring plan
had to be adapted to the new situation by the Roland
Berger consultancy. This plan still had the objective of
restructuring the group as a whole.

(e) 1997: DEM 4 million in non-repayable restructuring

grants;

(f) DEM 0,3 million for the assumption of possible tax

liabilities.

In addition, there are the guarantees made available in
recent years by the BvS (provision of DEM 15 million, of
which only DEM 3,3 million has actually been called).

The notified aid for DZM/H&B is intended for the
restructuring of the company and must satisfy the tests set
out in point 3.2 of the Community guidelines on State aid
for rescuing and restructuring firms in difficulty (8) of
1994 (the Guidelines).

The aid in question (i.e. the loans) was for the most part
originally granted at a time when DZM/H&B was part of
the SKET combine, one of the largest industrial groups
on the territory of the new L(cid:132)nder. The difficulties of the
combine, whose privatisation had proved to be impossible
because of its cumbersome structure, and the associated
GV have adversely affected the viability of DZM/H&B,
which in 1990 and 1991 was still making a profit. In 1992
the results were negative [ . . . ], then they slowly improved
[ . . . ], becoming positive in 1995 [ . . . ] but negative again
in 1996 [ . . . ](*). A probable factor in the improvement of
the results in 1995 was the merger of DZM with the H&B
combine. The collapse of the result in 1996 is linked to
developments at SKET SMM, which ultimately led to the
opening of the GV in October 1996. H&B’s results for
1997 continue to be influenced by this (see section II).

While the Treuhand arrangement applied, H&B received
aid in 1990 to 1991 (financing of
the redundancy
programme) and 1993 (waiver of equalisation liabilities).
The purpose of this aid was to make it possible to start
restructuring the company. The THA, and later the BvS,

(8) OJ C 368, 23. 12. 1994, p. 12.

After the GV against SKET SMM was initiated in October
1996 and H&B was transferred, H&B received further aid.
This was partly to make it possible to finance orders
which had been paid to SKET SMM as the parent
company, and to repay loans which SKET SMM had
granted to H&B. These amounts had been claimed for the
bankrupt estate by the liquidator when the GV proceed-
ings were initiated. The aid likewise provided the
company with necessary liquidity and enabled it to pay
suppliers (see section III, point 3).

Following the transfer of ETM and H&B to the BvS, the
purpose of which was to prevent the two companies from
being counted in the bankrupt estate, the plan for H&B
was again revised. H&B had to overcome the difficulties
which its parent’s GV created for its business activity.

After the privatisation, Germany renotified the restruc-
turing plan as amended by the investor, which however
contained lower amounts of aid than before, since a
private investor had not previously been involved.

The first condition of the Guidelines is the preparation of
a plan which will make it possible in the long term for
the company to return to profitability and viability
without additional aid.

The forecasts of turnover and costs seem reasonable, and
the results will probably be positive in 1999. The restruc-
turing includes internal measures to reorganise produc-
tion and redistribute tasks at the two sites. The investor
contributes contacts and a considerable knowledge of the
industry (see section II). Under the plan, the firm can
meet all
its costs. The plan will probably permit the
company, under the conditions laid down, to return to
viability (a positive pre-tax result is achieved from 1999).

27. 3. 1999

EN

Official Journal of the European Communities

L 83/67

The Guidelines also require firms operating in industries
where there is excess capacity to reduce their capacity in
proportion to the aid received.

H&B operates in the mechanical engineering industry, or
more precisely in the manufacture of cable-spinning and
wire-drawing machines. In this particular sector there are
no signs of excess capacity. Growth declined generally in
the mechanical engineering industry in the Community
in 1996, but is now noticeably accelerating again (9). The
industry was radically restructured in the Community and
has gained in importance in eastern Europe as a result of
the upturn in various countries and in Asia. The upturn
in the United States is also producing an important
market. Apart from Germany and the Community, the
for H&B cable-spinning and wire-drawing
markets
machines are the United States and South-East Asia.
Furthermore, H&B is traditionally represented in the
countries of eastern Europe, where signs of an economic
recovery can be observed. In addition, H&B ranks as a
medium-sized firm.

A third criterion in the Guidelines is proportionality
between the costs and benefits of recycling. The amount
of aid must be limited to the strict minimum for
financing the restructuring.

guarantees of DEM 3,3 million, and the provision of
additional guarantees (up to DEM 9 million overall). The
is contributing, as well as his
investor, Mr Henrich,
personal
considerable know-how and
commitment,
contacts in the industry concerned. He has also given a
guarantee that he will implement investment, preserve
jobs and maintain the Chemnitz site.

The Guidelines require the restructuring plan to be
carried out in full. If it is not, the Commission may take
measures calling for the aid to be repaid. Since the
German authorities are the Commission’s interlocutors in
this examination of State aid, the Commission has noted
their assurance that they will see the plans are properly
implemented. The Commission is requesting that annual
reports be submitted, so that it can itself monitor the
implementation of this restructuring plan.

VI

In view of the foregoing, the Commission finds that the
restructuring aid to Herborn & Breitenbach GmbH,
Chemnitz (ex-Drahtziehmaschinenwerk Gr(cid:129)na GmbH)
may be regarded as compatible with the common market,
provided that it satisfies the conditions set out in the
Guidelines on State aid for rescuing and restructuring
firms in difficulty,

The aid which H&B has received since 1991 was limited
to the financing of demand, in order to be able to main-
tain the firm as a going concern. The total involved is
DEM 22 million, plus DEM 3,3 million in guarantees
called. In 1996 it was necessary to cover claims and liabil-
ities and to meet the demand for liquidity. In 1997 it was
a question of finding the liquidity necessary for business
activity and of funding investment. The total of DEM 4
million in non-repayable grants is allocated in tranches
and paid out only if an audit shows they will be used in
accordance with the objectives. The guarantees are being
assumed by the investor. The BvS is assuming respons-
ibility for possible claims for the recovery of tax of DEM
0,3 million.

The investor’s contribution in this case to the restruc-
turing costs (DEM 5,25 million, plus the provision of
guarantees up to DEM 9 million) consists in particular in
the payment of the purchase price of DEM 0,25 million,
the assumption of an irrevocable, joint and several guar-
antee, without time limit, of DEM 3 million and of called

(9) See Panorama of EU Industry, 1997, vol. 2.

HAS ADOPTED THIS DECISION:

Article 1

The State restructuring aid granted to Drahtziehmaschi-
nenwerk Gr(cid:129)na GmbH, now Herborn & Breitenbach
GmbH, Chemnitz,
is compatible with the common
market in accordance with Article 92(3)(c) of the EC
Treaty and Article 61(3)(c) of the EEA Agreement. The aid
concerned comprises:

(a) the special-purpose allocations

for

financing the

redundancy programme (DEM 1,4 million);

(b) the waived claims relating to equalisation payments
from 1993, (DEM 4,6 million, plus DEM 0,9 million
in interest);

(c) the shareholder

loans granted in 1996 and sub-
sequently converted into non-repayable grants (DEM
7,8 million);

L 83/68

EN

Official Journal of the European Communities

27. 3. 1999

(d) the loan converted into a grant and the non-repayable

grants (totalling DEM 7 million);

(1994), Germany shall submit a detailed report every year
on the implementation of the restructuring plan.

(e) the assumption of possible tax liabilities (DEM 0,3

million);

(f) the provision of guarantees (DEM 15 million), of
which DEM 3,3 million has actually been called prior
to their assumption by the investor.

Article 3

This Decision is addressed to the Federal Republic of
Germany.

Done at Brussels, 13 May 1998.

Article 2

In accordance with the Community Guidelines on State
aid for rescuing and restructuring firms in difficulty

For the Commission

Karel VAN MIERT

Member of the Commission