2001/120/EC: Commission Decision of 13 June 2000 on a measure taken by Germany in respect of Kali und Salz GmbH (Text with EEA relevance) (notified under document number C(2000) 1662)
Date: 2000-06-13
Institutions: European Commission
Subjects: Germany, State aid, chemical industry, control of State aid, shareholding

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Official Journal of the European Communities

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II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 13 June 2000

on a measure taken by Germany in respect of Kali und Salz GmbH

(notified under document number C(2000) 1662)

(Only the German text is authentic)

(Text with EEA relevance)

(2001/120/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community, and in particular the first subparagraph of Article
88(2) thereof,

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

Having given notice to interested parties to submit
comments
sions (1), and having regard to those comments,

their
in accordance with the aforementioned provi-

Whereas:

I. PROCEDURE

(1)

(2)

(3)

On 20 July 1998, Germany informed the Commission
of the sale of its remaining 49 % stake in Kali und Salz
GmbH to Kali und Salz Beteiligungs AG, which already
owned 51 % of the shares. The Commission registered
the sale of the shareholding as non-notified aid measure
NN 27/99.

On 18 March 1999, the Commission decided to initiate
the formal investigation procedure laid down in Article
88(2) of the EC Treaty in respect of the terms of the sale.

The Commission decision to initiate the procedure was
published in the Official Journal of the European Communi-
ties (2). The Commission gave notice to interested parties
to submit their comments. The Commission received
comments from three interested parties.
It forwarded
them to Germany by letters dated 26 October 1999 and

(1) OJ C 272, 25.9.1999, p. 7.
(2) See footnote 1.

8 November 1999. Germany's reply was submitted by
letter dated 2 December 1999, received on 3 December
1999.

(4)

By letter dated 11 April 2000, at the Commission's
request, Germany submitted the contract for the sale of
its remaining 49 % stake in Kali und Salz GmbH.

II. BACKGROUND

A. The undertaking

(5)

(6)

Kali und Salz GmbH was set up by contract of 13 May
1993 as a joint venture between the west German
company Kali und Salz Beteiligungs AG and the east
(MdK).
German Mitteldeutsche Kali Aktiengesellschaft
Kali und Salz Beteiligungs AG, a subsidiary of
the
German chemical group BASF, took 51 % of the shares
in the joint venture, and the Treuhandanstalt (the THA),
the sole shareholder in MdK, took the remaining 49 %.
The 49 % stake was taken over first by Beteiligungs-
Management Gesellschaft Berlin mbH on 1 January
1995 and then by the Bundesanstalt für vereinigungsbe-
dingte Sonderaufgaben (BvS), as legal successor to the
THA, on 29 October 1997.

Kali und Salz GmbH is active in potash mining, the
manufacture of industrial products of potash and rock
salt, such as potassium fertilisers, and the production of
by-products such as magnesium sulphate and kieserite.
Kali und Salz GmbH currently employs some 8 000
people. Its annual production capacity amounts to 3,4

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million tonnes of potash and 2,2 million tonnes of rock
salt. It has production sites on both sides of the former
east-west border. After
the joint
venture its headquarters were moved to Kassel in Hesse.
Its plants are located in Thuringia, Saxony-Anhalt, Hesse
and Lower Saxony.

the setting-up of

(13)

B. Aid to Kali und Salz GmbH approved in 1993

By Decision 94/449/EC of 14 December 1993,
the
Commission approved aid of DEM 1 536,6 million in
connection with the setting up of a joint venture
between Kali und Salz Beteiligungs AG and MdK (1).
Among
the Commission approved
compensation to be given by the THA for losses of up
to DEM 135 million, a figure calculated on the basis of
the expected negative cash flow during the period 1993
to 1997.

things

other

Salz Beteiligungs AG. Accordingly, the shares were first
offered to Kali und Salz Beteiligungs AG.

In a second step, in order to inform all potential inter-
ested investors, the German authorities published notices
in newspapers and specialised publications announcing
their intention of selling the remaining 49 %. The invest-
ment bank Goldman Sachs was asked to identify other
potential purchasers. Several companies operating in the
industry were contacted. According to Germany, three
potential investors showed an interest, but two withdrew
immediately when they were informed they would be
able to buy only a minority stake. The third was discour-
aged by the price asked by the BvS. According to
Germany, none made an offer. As a result, the BvS
entered into negotiation with Kali und Salz Beteiligungs
AG.

The negative cash flow considerably exceeded the orig-
inal projections, and on 24 October 1996 Germany
notified an increase in the loss compensation to be paid
by the BvS, which was to rise from the approved
DEM 135 million to some DEM 264,9 million, thus
raising the total by about DEM 129,9 million. The
Commission registered this measure as notified aid
measure N 793/96.

By letter dated 16 December 1997, the Commission
informed Germany of its decision to initiate the formal
investigation procedure laid down in Article 88(2) of the
EC Treaty with regard to the notified aid of DEM 129,9
million which Germany proposed to grant to Kali und
Salz GmbH (2).

By letter received on 20 July 1998, Germany informed
the Commission that the BvS had succeeded in selling its
49 % holding in the joint venture, thus completing the
privatisation. Kali und Salz Beteiligungs AG, which was
the other partner and the major shareholder in the joint
venture, had agreed to take the 49 % stake for a price of
DEM 250 million.

In the same letter, Germany also informed the Commis-
sion that the additional DEM 129,9 million would not
now be disbursed, and consequently withdrew the noti-
fication of that aid. The Commission accordingly closed
the procedure.

(14) At

the outset

the German authorities, advised by
Goldman Sachs, requested a price of DEM 400 million,
whereas Kali und Salz Beteiligungs AG bid [...] (*). Kali
und Salz Beteiligungs AG's valuation was based on the
price offered in 1997 by a Canadian company for Kali
und Salz Beteiligungs AG's own original 51 % stake in
Kali und Salz GmbH (3). Both positions proceeded on
the assumption that the State would compensate the
accumulated negative cash flow of DEM 135 million
recorded by Kali und Salz GmbH during the period
1993 to 1997, in line with what had been approved by
the Commission in 1993.

(15)

Kali und Salz Beteiligungs AG's valuation explicitly
referred to the uncertain prospects for
the potash
market, foreign exchange risks, and specific mining risks;
Goldman Sachs's valuation clearly did not give these
factors the same weight.

shares. Germany states, however,

(16) One day after the negotiations were formally concluded,
a German competitor of Kali und Salz GmbH's indicated
that there was a US group that would be interested in
taking the
that
according to information provided by a research
company the US group lacked the financial resources for
the transaction. Research had established that the group
was a financial holding company with a staff of two. It
was classed in the higher risk group and given a
payment score of 59 and no credit rating. On the basis
of objective information, therefore, the BvS concluded
that the group was not a suitable candidate.

(7)

(8)

(9)

(10)

(11)

C. The sale of the remaining 49 % of the shares

(12) Under the contract setting-up the joint venture, if either
party proposed disposing of its shareholding, the shares
had first to be offered to the other party. Thus Kali und
Salz Beteiligungs AG had first refusal on the remaining
49 % of the shares. The shares could not be offered to
third parties for a price lower than that bid by Kali und

(1) OJ L 186, 21.7.1994, p. 38.
(2) OJ C 197, 23.6.1998, p. 7.

(17)

The BvS and Kali und Salz Beteiligungs AG finally
agreed on a price of DEM 250 million. However, Kali
und Salz Beteiligungs AG also agreed that the BvS would
reduce its compensation of losses to DEM 70 million
instead of the DEM 135 million originally approved by
the Commission in 1993.

(*) Business secret.
(3) In 1997 a Canadian firm sought to buy Kali und Salz Beteiligungs
AG from BASF. The German merger authorities prohibited the
takeover.

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(18)

investigation
The Commission initiated the formal
procedure in respect of the disposal of the remaining
49 % of the shares in order to ensure that the price
actually corresponded to a fair value for the shares, and
did not contain an additional aid component.

(19) As the sale of the holding was not to be the outcome of
an open bidding procedure, the Commission doubted
whether DEM 250 million was a fair price, and whether
interested parties had had a fair chance to make
all
better offers so as to secure the shares.

(20)

(21)

III. COMMENTS FROM INTERESTED PARTIES

The Commission received comments from the United
Kingdom, through its Permanent Representation to the
European Union in Brussels, from the European Fertiliser
Import Association, and from an international fertiliser
producer. None of them made any reference to the
exclusion of potential purchasers or to any alternative
bid for the shares. They did not provide any evidence of
an aid element in the sale.

IV. COMMENTS FROM GERMANY

In its response to the initiation of the formal
invest-
igation procedure and the comments from interested
parties received by the Commission, Germany stated
that the sale had received enough publicity, not only
through Goldman Sachs, but also through national and
local newspapers and specialised publications. According
to Germany,
firms operating on the
relevant market was relatively small, and the efforts to
sell the holding were well known in the industry.

the number of

(22) As regards the price paid, Germany pointed out first of
all that in 1996 an offer of DEM 250 million had been
made for 51 % of the shares held by Kali und Salz
Beteiligungs AG. It thus considered that it had a market
value indication of the price of the latter's minority
shareholding.

(23)

Second, in addition to the purchase price, Kali und Salz
Beteiligungs AG was forgoing DEM 65 million of the
DEM 135 million approved by the Commission in
1993. This reduced the compensation to be paid by the
BvS to only DEM 70 million including interest.

States wishing to dispose of public shareholdings are
under no obligation to follow such a procedure.

In the absence of such a procedure the price may
comprise elements of State aid, and where appropriate
the Commission may verify whether the price represents
fair value. In the present case, the price finally obtained
was the outcome of a procedure in which the German
authorities, in cooperation with their advisers, contacted
all potential
interested purchasers, and subsequently
entered into intense negotiations with Kali und Salz
Beteiligungs AG, which already owned 51 % of
the
shares. Under the final agreement Kali und Salz Beteili-
gungs AG was to pay DEM 250 million, but agreed that
the BvS would reduce the compensation it was to pay
for losses by DEM 65 million. These terms also saved
the State
to DEM 8 million
amounting
generated by the loss compensation of DEM 135
million outstanding up to that point, which had become
legally enforceable at the beginning of 1998. This meant
that the BvS had secured an additional financial advan-
tage totalling DEM 73 million over and above the
selling price.

interest

The BvS ultimately obtained a net price of DEM 323
million for its remaining 49 % stake. Moreover,
the
German authorities' advisers concluded that the bid put
forward by Kali und Salz Beteiligungs AG was the most
advantageous offer that could be obtained at that time.

It should be stressed, finally, that according to the infor-
mation available no potential
investor was arbitrarily
excluded from the sale, and none ever made an offer for
the shareholding. The negotiations between the inter-
ested parties, all acting in their own economic interests,
took place according to market principles.

In the formal
Commission has made a detailed assessment of
negotiations and the final
concludes that there is no evidence of aid,

investigation proceedings, therefore, the
the
the sale, and

terms of

(25)

(26)

(27)

(28)

HAS ADOPTED THIS DECISION:

V. ASSESSMENT

Article 1

(24)

In line with the established case-law and Commission
policy, the Commission considers that the price paid for
a public shareholding does not contain a State aid
component when the holding is sold by open, uncondi-
tional and non-discriminatory bidding. But Member

The sale by Germany to Kali und Salz Beteiligungs AG of a
residual holding of 49 % in Kali und Salz GmbH does not
constitute aid within the meaning of Article 87(1) of
the
Treaty.

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This Decision is addressed to the Federal Republic of Germany.

Article 2

Done at Brussels, 13 June 2000.

For the Commission

Mario MONTI

Member of the Commission