2001/695/EC: Commission Decision of 8 May 2001 on State aid granted by the Federal Republic of Germany to Philipp Holzmann AG (Text with EEA relevance) (notified under document number C(2001) 1419)
Date: 2001-05-08
Institutions: European Commission
Subjects: Germany, State aid, application of EU law, building industry, control of State aid, industrial restructuring

L 248/46

EN

Official Journal of the European Communities

18.9.2001

II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 8 May 2001

on State aid granted by the Federal Republic of Germany to Philipp Holzmann AG

(notified under document number C(2001) 1419)

(Only the German text is authentic)

(Text with EEA relevance)

(2001/695/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

plan; the notification was followed up by a letter dated
20 December 1999.

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 regard to Council Regulation (EC) No 659/1999 of 22
March 1999 laying down detailed rules for the application of
Article 93 of the EC Treaty (1), and in particular Article 7(3)
thereof,

Having called on the Member State concerned and other inter-
ested parties to give their views pursuant to the abovemen-
tioned provisions (2) and having regard to their comments,

Whereas:

I. PROCEDURE

(1)

In November 1999 the Commission learnt from the
media that there were plans to grant State aid to Philipp
Holzmann AG (‘PH AG’). By letter of 25 November
1999, it called on Germany to provide further details. By
letter of 10 December 1999, Germany notified the
Commission of
subordinated loan (nachrangiges
Darlehen) from the State-owned Kreditanstalt fur Wieder-
aufbau (‘KfW’) and a federal guarantee (Bundesbürgschaft),
both of which formed part of a broader restructuring

a

(2)

(3)

(4)

(5)

By letter of 16 February 2000,
the Commission
informed Germany that it had decided to initiate the
procedure laid down in Article 88(2) of the EC Treaty.

and further

By letter of 15 March 2000, Germany submitted its
comments
including the
detailed restructuring plan. Additional information was
sent to the Commission by letter of 28 March 2000
following a meeting with representatives of the German
authorities on 20 March 2000.

information,

The Commission decision to initiate the procedure was
published in the Official Journal of the European Communi-
ties (3). The Commission called on interested parties to
give their opinion. On 15 May 2000 it received a
number of observations from a competitor, which were
passed on to Germany for an opinion. Germany's
comments were received by letter of 1 August 2000.

On request, Germany provided further details of the
notified aid by letters of 25 April 2000, 21 June 2000, 8
August 2000, 17 August 2000, 23 August 2000, 14
and 15 September 2000, 18 October 2000, 1, 13 and
24 November 2000, 14 and 20 December 2000, 10 and
24 January 2001, 2 and 16 February 2001, 14 March
2001 and 4 April 2001.

(1) OJ L 83, 27.3.1999, p. 1.
(2) OJ C 110, 15.4.2000, p. 2.

(3) See footnote 2.

(6)

(7)

(8)

(9)

18.9.2001

EN

Official Journal of the European Communities

L 248/47

On 31 August 2000 the Commission learnt that KfW
planned to grant PH AG a loan and sent a request for
information to Germany on the same day.

(10)

PH AG and its subsidiaries are active in the core busi-
ness. The main subsidiaries are active in the following
areas:

Germany provided further information about this loan
by letters of 11 September 2000, 9 October 2000 and 1
November 2000. Commission representatives and repre-
the German authorities discussed the
sentatives of
matter on 19 October 2000. Germany submitted a copy
of the loan contract of 8 December 2000 between KfW
and Philipp Holzmann AG by letter of 8 January 2001;
further details were provided on 10 January 2001.

II. DETAILED DESCRIPTION OF THE AID

(11)

The Philipp Holzmann Group

(12)

The Philipp Holzmann Group (PH AG) is one of the
largest German construction companies. According to
its own estimates, PH AG, together with its subsidiaries,
was Germany's second-largest supplier of construction
services until 1998 and is now the third largest.
Its
activities encompass the design and planning, develop-
ment and execution of construction projects of all kinds.
Its core business comprises structural and civil engin-
eering,
including industrial engineering, housing and
public buildings. Other activities include road building
and steel construction and managing and maintaining
buildings. Through its subsidiaries, Holzmann carries out
its business on a global scale, mainly in Europe and the
United States of America, but also in Asia.

In 1999 the group had a total output of DEM 12.08
billion (EUR 6,2 billion), of which DEM 5,6 billion
(EUR 2,9 billion) was earned in Germany. It had an
output of DEM 2,3 billion (EUR 1,2 billion) in 1999. In
the same year the group's turnover totalled DEM 8,9
billion (EUR 4,55 billion); PH AG's turnover amounted
to DEM 2.2 billion (EUR 1,1 billion). By the end of
1999 the group had over 28 000 employees worldwide
and roughly 16 000 in Germany, some 5000 of whom
were employed by PH AG. In other countries such as the
United States, France, Austria, the Netherlands, Spain
and Thailand, the group had over 12 000 employees.

— road building and other

related field: Deutsche

Asphalt Gruppe,

— prefabricated concrete compound units (4):

Imbau

Gruppe,

— facility management (Holzmann Technischer Service

GmbH (HSG),

— civil engineering: (Franki-Gruppe, Möbius Baugesell-

schaft (50 %),

— building services (heating, ventilation and air-condi-

tioning: Scheu und Wirth AG,

— project development: Ph. Holzmann Bau Projekt AG,

— steel construction: Lavis.

The group's international business is managed by Philipp
Holzmann International, Frankfurt, and a number of
subsidiaries. J. A. Jones Inc. is directly responsible for
business activities in the United States of America, while
Philipp Holzmann Österreich GmbH and Ast-Holzmann
Baugesellschaft mbH are responsible for business in
Austria. In global terms, the group claims that it was
in
Europe's
1998 (5).

construction company

seventh-largest

Before the November 1999 crisis and the subsequent
restructuring, the main shareholders were the Belgian
Gevaert Group (with approximately 30 % of the shares)
and Deutsche Bank AG (with around 15 %);
the
remaining shares were dispersed. Following the capital
increase in 2000, the main shareholders are now Deut-
sche Bank AG (around 20 %), Gevaert (around 13 %)
and the other consortium banks participating in the
capital

increase.

(13) Having suffered adverse business trends, the company
embarked on a comprehensive restructuring programme
in 1997 and 1998. However,
in November 1999 it
discovered considerable losses amounting to some
EUR 1,2 billion for 1999, which had not been taken
into account hitherto. Once the auditing of the accounts
had been completed in 2000, it emerged that the group
had lost EUR 1,39 billion and PH AG EUR 1,4 billion
in 1999. The group had lost over EUR 3 billion
between 1993 and 1999.

(14) On 23 November 1999, PH AG filed for bankruptcy at
the Frankfurt-am-Main district court.
It had become
necessary to file for insolvency after the creditor banks
had been unable to agree on contributions to a restruc-
turing plan put forward by PH AG's executive board and
a consultancy firm.

(4) Part of core business according to Holzmann's definition.
(5) There were no European or Community-wide figures available on
competitors' construction activities or turnover; however, Holzmann
claims
if European or
Community-wide construction activities or turnover are taken.

in the rankings

is much lower

that

it

L 248/48

EN

Official Journal of the European Communities

18.9.2001

Restructuring aid

ficates (Wandelgenussrechte)
million and a credit
EUR 500 million.

to the value of EUR 396
line (Konsortialkredit) of over

(15)

The bankruptcy petition was withdrawn on 24
November 1999, when the creditors finally agreed to the
restructuring plan after the Federal Government had
announced the following aid measures:

(19) According to the notification, the aid was the pivotal
element enabling the restructuring plan which the banks
had been discussing for some time to be put into prac-
tice.

(a) a DEM 150 million (EUR 76,7 million) subordi-
nated loan from the Kreditanstalt fur Wiederaufbau
(KfW), a State-owned bank, with an interest rate of
3,5 % above Euribor. Initially, the loan runs until 30
June 2001; the term can be extended by a maximum
loan commitment fee
of 12 months. The annual
(Bereitstellungsprovision) is 0,5 %;

(20)

(b) a federal guarantee of DEM 100 million (EUR 51,1
million) in respect of a loan of DEM 125 million
(EUR 63,9 million), to be granted for a maximum of
two years. The commission is 1,0 % per year.

The two measures were notified in December 1999 as
restructuring aid and as part of an overall restructuring
plan comprising operational and financial measures. At
that time Germany submitted a general restructuring
plan (Grobkonzept) which specified only a few opera-
tional measures. The main features of this plan were to
be worked out in detail in December 1999 and January
2000.

The main operational measures included (a) laying off
some 5 000 employees,
(b) reducing the number of
regional sites in Germany, (c) strict profit orientation in
all sections of the company, (d) cost-cutting and cost-
saving,
improvements in monitoring systems and
process management, (f) streamlining the domestic port-
folio and (g) reorganising subsidiaries and shareholdings.

(e)

(21)

The main financial measures described in the noti-
fication were liquidity assistance and new equity of over
DEM 1.5 billion to be provided by German banks
(‘consortium banks’) which would share the burden in
proportion to their ‘value at risk’. They also included an
increase in liquid capital preceded by a capital reduction
which would endow PH AG with EUR 647 million of
new capital, the purchase of convertible profit certi-

Grounds for initiating the procedure

In its decision to initiate the formal investigation proce-
dure enshrined in Article 88(2) of the EC Treaty, the
Commission took the view that the measures under
investigation constitute State aid within the meaning of
Articles 87(1) of the EC Treaty and 61(1) of the EEA
Agreement, as they distort or may distort competition
and adversely affect trade between Member States. The
subordinated loan was to be granted by the State-owned
KfW ‘in the interests’ of
the Federal Republic of
Germany, whilst the guarantee was to be granted by the
Government. Both measures were therefore to be viewed
as ‘aid granted by a Member State or through State
resources’ within the meaning of Article 87(1) of the EC
Treaty. PH AG and its subsidiaries are active throughout
Europe. Since the notified measures
improved the
company's financial position, they were liable to affect
from other
the economic situation of competitors
Member States (6)
trade
between Member States. Owing to unclear wording in
the notification, the Commission could not rule out the
possibility that part of the aid, namely the subordinated
loan from KfW, had already been granted, and it there-
fore asked Germany for clarification.

adversely affect

and thus

The Commission, after its preliminary assessment, took
the view that the notified aid was to be assessed on the
basis of
the Community guidelines on State aid for
rescuing and restructuring firms in difficulty (7) (herein-
after referred to as the ‘guidelines’) and that no other
Community guidelines were applicable. Moreover,
it
considered that the form of the aid was incompatible
with the guidelines' provisions on rescue aid and based
its preliminary assessment on the conditions for the
authorisation of restructuring aid set out in point 3.2.2
of
the guidelines. The Commission concurred with
Germany's statement in the notification describing PH
AG as a company in difficulties within the meaning of
point 2.1 of
it expressed
the guidelines. However,
serious doubts as to the compatibility of the aid meas-
ures with the common market.

(6) Judgment

in Joined Cases C-278 to 280/92 Spain v Commission

[1994] ECR I-4103.

(7) OJ C 288, 9.10.1999, p. 2.

(16)

(17)

(18)

18.9.2001

EN

Official Journal of the European Communities

L 248/49

(a) Restoration of the company's viability

(c) Aid limited to the minimum

(22) Germany had so far provided only a general restruc-
turing plan (Grobkonzept) in which only a few opera-
tional measures were clearly defined. It was therefore
impossible to assess the planned measures and the
extent to which they were likely to overcome the struc-
tural deficiencies causing the problems. Moreover, the
Commission could not establish a clear link between the
operational part of the restructuring plan and the finan-
cial measures because the notification contained no
details of the costs of the planned restructuring meas-
ures.

(23)

The Commission noted further that without detailed
financial planning documents, such as projections of
profit-and-loss accounts for the next five years, or a
scenario and risk analysis it could not assess whether the
submitted plan was appropriate.

(24)

in the light of earlier mismanagement,

Finally,
the
Commission questioned whether the planned measures
were sufficient to uncover all dubious liabilities within
the company and its subsidiaries.

(b) Avoidance of undue distortions of competition

(25)

The only measure in return for aid mentioned in the
notification is the reduction of the workforce (in the
central and regional offices, in subsidiaries and through
divestments). There was not enough detailed informa-
tion concerning the likely impact on the market
segments deemed relevant in the notification.

(26) Moreover, in view of the overcapacity in the construc-
tion sector mentioned in the notification, the Commis-
sion had serious doubts as to whether divestments and
workforce cuts could be considered an irreversible
reduction in production capacity, and wondered whether
there were no plans for other compensatory measures
which might mitigate negative effects on competitors.

(28) Germany had not provided evidence that aid was
restricted to the minimum necessary for restoring the
firm's viability, so that the beneficiary could not expand
its production capacity during the implementation of the
restructuring plan.

(29)

(30)

rescue discussions between banks had
Since earlier
failed, the Commission called on Germany to provide
such information as was required to demonstrate the
need for State aid and to give more explanations as to
why the planned aid was of decisive importance, as
described in the notification.

the funding of

the Commission noted that public banks
Finally,
the
accounted for around 30 % of
restructuring plan. Although the notification explained
that the size of the creditor banks' contributions was
determined according to their ‘value at risk’, no further
clarification was given. The Commission assesses contri-
butions from public banks in the light of the market-
economy investor principle. Since it lacked a precise
interpretation of ‘value at risk’, it could not rule out the
possibility that the participation of public banks clashed
with this principle and hence could constitute additional
State aid that had to be examined.

(31)

For these reasons, the Commission took the view that
the notified measures constituted State aid and had
serious doubts as
to their compatibility with the
common market.

III. COMMENTS FROM GERMANY

(32) Germany confirmed that neither the guarantee nor the
subordinated loan from KfW had been granted. The
Federal Government's decision of 9 December 1999 on
the guarantee lays down a condition as regards the
obligation to provide notification: consequently, no
guarantees have been issued, nor has a loan contract
been concluded. Moreover, under the contract payments
from the subordinate loan are subject to the Commis-
sion's approving the aid.

Restoration of the company's viability

(27)

Finally,
the Commission noted that Germany had
presented no comparative assessment of the economic
and social consequences of the disappearance of the firm
in difficulty and that no quantitative data had been
provided. In view of the company's market position, the
Commission had serious doubts as to whether Germa-
ny's assessment gave a balanced picture of the likely
impact of rescuing and restructuring it.

(33) Germany submitted the detailed restructuring plan as
drawn up by the consultancy firm and presented to the
consortium banks in February 2000. The plan included
an assessment of competition in the German construc-
tion markets and an analysis of the reasons for the
company's problems. An analysis of the potential risks
linked with the unfinished construction sites was also
submitted.

L 248/50

EN

Official Journal of the European Communities

18.9.2001

(34) Germany also gave more details of

the deficiencies
which had led to the company's problems. According to
its information, the following developments, mainly in
Germany, were responsible for the losses:

ment of the subsidiaries in Germany, i.e. most of the
subsidiaries except Imbau, Deutsche Asphalt, HSG and
Scheu und Wirth (to be taken together with HSG), was
not provided.

(a) the general aim of achieving growth ‘above market

trends’: turnover was ‘bought’;

(b) the risky development on the company's own initia-
in some
large-scale projects, after which,
tive of
cases, it assumed operating risks after completing the
construction stage (e.g. the Kölnarena);

(37)

(c) economic problems in the German construction
sector due mainly to a continuing oversupply of
construction services in the new Länder;

(d) inefficient cost management and inefficient organisa-

tional structures;

(e) the inefficient structure of shareholdings and subsi-

diaries (including outside Germany).

(35)

The operational restructuring measures include reduc-
tions in regional divisions/offices and the workforce,
improved management and cost control,
cost-cutting,
and the streamlining of the portfolio. The approximately
600 affiliated companies in existence at the end of 1999
are to be reduced through mergers, sale or the closure of
subsidiaries to between 300 and 350. There are plans to
evaluate further possibilities to divest or merge. It is also
planned to expedite the winding-up of
two foreign
subsidiaries, Philipp Holzmann Iberica (Spain) and Nord-
France SA. In future, the focus should be on two prin-
i.e. Germany and the United States of
cipal regions,
America.

(36)

The major restructuring measures set out in the plan
presented concern Germany. The German workforce is
to be cut by almost 5 000: some 3 400 jobs will be lost
through the closure of regional divisions and offices and
other rationalisation measures, whilst over 1 500 jobs
will disappear as a result of the divestment of subsidia-
ries. The plan was to complete most of the rationalisa-
tion measures in 2000. An exact schedule for divest-

Information submitted in early 2001 (8) shows adjust-
ments to the original plan. The detailed plan of February
2000 set out a new structure for PH AG, with seven
main offices and 10 regional offices: this implied that 23
regional offices were to be closed. The modified plan
provides for the closure of more head offices, so that the
modified structure will comprise only five main offices
and nine regional offices. The planned rationalisation
measures and closures resulted in the dismissal of some
3 000 employees; a further 1 800 employees had left the
company for other reasons (and had been replaced by
about 700 new employees). A further 300 to 350
employees are due to leave owing to the additional
closure of regional offices. Some 300 employees had
been affected by the divestments already carried out in
Germany and approximately 700 by job cuts in four
subsidiaries. The closure of one subsidiary will result in
the loss of another 300 jobs. Detailed decisions on
further planned divestments of subsidiaries have now
been taken (and include, for instance, Deutsche Asphalt);
these divestments will result in the loss of a further
3 000 jobs within the group (9). The restructuring meas-
ures will affect, or have already affected, over 7 000
employees, which is significantly more than was origi-
nally planned. The divestments planned or already
carried out in Germany account for a turnover volume
of approximately EUR 360 million. As to other coun-
tries,
already planned
concerning subsidiaries in France and Spain, subsidiaries
in Austria and the Netherlands have now been divested
as well. These closures and divestments correspond to a
total
turnover of around EUR 270 million and will
affect some 1 300 employees.

from the measures

apart

(38)

In general terms, the group's activities in Germany are to
focus on core business and facility management. Future
core business will concentrate mainly on larger-scale
construction projects. German subsidiaries active in
other areas are to be divested or downsized. Moreover,
Holzmann is withdrawing from the risky business of
developing projects such as the Kölnarena. On request,
the Commission was provided with the following data/
estimates on turnover trends in three segments, categor-
ised by size, of core business (10):

(8) Letters from Germany of 2 February 2001 and 14 March 2001.
(9) Letter from Germany of 4 April 2001.
(10) Letter from Germany of 4 April 2001.

18.9.2001

EN

Official Journal of the European Communities

L 248/51

Project size in million DEM

< 5 (2,56)

5 to 40 (2,56 to 20,5)

> 40 (20,5)

Total as percentage and in
million EUR

Holzmann's turnover share in three segments of core business (1)

1999

21 %

54 %

25 %

2000

18 %

41 %

41 %

2001

10 %

40 %

50 %

100 % (1 943)

100 % (1 636)

100 % (1 278)

(1) Included in the core business for the purpose of this table PH AG with its branches as well as Imbau and Franki.

(39)

Furthermore, the foreseen divestments were clarified in March 2001. The plans now provide for the
sale of Deutsche Asphalt and the divestment of the 50 % share in Möbius. Lavis is to be closed. There
are also plans for cuts at Scheu und Wirth and Franki (see recital 51).

(40) Other measures set out in the restructuring plan include the following: the employees' contribution
through increased working hours (estimated at EUR 64 million), the contribution of the pension
insurance association (Pensionssicherungsverein) (some EUR 7 million annually), increased efficiency
combined with cost-saving measures (material, subcontractors, etc., estimated at over EUR 225
million) and operational liquidity increase through divestments and debt reduction amounting to
approximately EUR 300 million.

(41)

By letter of 2 February 2001, Germany submitted an overview of restructuring costs and corre-
sponding financial needs.

(42) According to this overview, the restructuring costs, including the balance-sheet measure to avoid

insolvency, are estimated as follows.

1. Avoiding insolvency

EUR 665 million

2. Liquidity/necessary increase in equity capital

EUR 1 043 million

3 Processing costs relating to the Kölnarena, Magdeburg City Square and

EUR 199 million

the Sun Flower Tower projects

4. Staff

EUR 103 million

5. Divestments, restructuring and closure of subsidiaries, value adjust-

EUR 162 million

ments

6. Additional risks arising from the bankruptcy procedure

EUR 141 million

Total of 2 to 6

EUR 1 648 million

The financial resources provided to cover these costs were as follows.

1. Ranking waiver (balance-sheet measure)

2. Capital increase

EUR 665 million

EUR 647 million

3 Conversion of loans from item 1 into capital (convertible profit partici-

EUR 391 million

pation rights or Wandelgenussrechte)

4. Cash deposit from item 3

5. Consortium credit

6. Subordinated loan from KfW plus guaranteed bank loan

EUR 5 million

EUR 511 million

EUR 141 million

Total of 2 to 6

EUR 1 695 million

L 248/52

EN

Official Journal of the European Communities

18.9.2001

(43)

(44)

(SPV)

The ‘asset deal’, with a total book value of EUR 621
million and an estimated market value of EUR 675
million, provided for the sale of 33 projects to the banks
which had originally financed the project. The ‘special
purpose vehicle’
related to 83 projects not
financed by the banks with a total estimated market
value of EUR 281 million and provided for the sale of
the assets to the SPV companies not consolidated with
the group. It was also planned to divest the Taunusan-
lage building. The main aims of these sales were to
reimburse the consortium credit line (leading to a reduc-
tion of the balance sheet, i.e. the assets on one side and
the debts on the other) and,
if possible, to generate
additional cash for the liquidity reserve. The consortia
credit line of EUR 511 million was to be reimbursed in
the course of 2000 and by 30 November 2000 at the
latest. Disagreements on the valuation of the immovable
property assets and some organisational problems made
it impossible to meet the schedule (see recitals 59 et
seq.).

The business plan for the years 2000 to 2004, including
an output
and liquidity plan and profit-and-loss
accounts on the basis of the three required scenarios —
best case, intermediate or ‘real’ case and worst case —
were submitted, along with a risk analysis focussing on
liquidity reserves under different assumptions. It should
be borne in mind that the original restructuring plan
was based on the best-case scenario and that plans were
subsequently adjusted in line with actual trends. The
main differences between best-case and worst-case
scenarios had to do with deviations in the operating and
overall annual results and with differences in the neces-
sary liquidity reserves. It was calculated that EUR 480
million to EUR 490 million more liquidity was needed
in the worst-case scenario, owing to delays in important
measures such as the divestment of real estate property
and the debt reduction or as a result of necessary
restructuring measures within subsidiaries which are to
be divested later.

to be found there. That is why nearly all the restruc-
turing measures relate to Germany, as does the informa-
tion provided on the market. According to this informa-
tion,
strong evidence that, geographically
speaking, construction markets do not extend beyond
national borders (11).

there is

(47) According to the information provided, demand has
been declining in the German construction sector since
1995. The main reason for this development has been
the enormous increase in output in the new Länder to
satisfy growing demand after unification. Since 1995 the
market has been characterised by declining demand,
owing to the oversupply of construction services. The
forecast for the German construction sector for the year
2000, according to Germany, was 1 % growth. The
detailed restructuring plan of February 2000 also
includes a market study/analysis forecasting long-term
stagnation of the sector. The data submitted for the
years 1999 to 2005 show estimated average growth in
investment of 1,3 %: for 2000, however, growth is esti-
mated at 2 % in real terms.

(48)

a

sector

The above data indicate that the German construction
industry is
suffering from overcapacity.
However, Germany notes that, in contrast to manufac-
turing, capacity in the construction sector does not
consist of production lines and factory halls but almost
exclusively of employees and,
to a lesser extent, of
mobile equipment and machines which are mostly
leased. Consequently, capacity utilisation can only be
in output per employee. The esti-
measured,
mates submitted show that the output per employee in
the old Länder is roughly 8 to 10 % below the peak year
of 1994/95, whilst it is roughly 20 % below that year in
the new Länder.

if at all,

(49) Germany has identified three relevant segments within
the core business as being significant in the light of
projects,
large-scale
strategy:
Holzmann's
medium-sized projects and small projects
(see also
recital 38).

future

(45)

The auditors' reports for 1999 were also submitted
to terminate
along with information on measures
contracts and commitments involving future risks and to
uncover hidden liabilities.

(50)

Avoidance of undue distortions of competition

It appeared to be very difficult for Germany to submit
data on or even estimates of market volume, Holz-
mann's position in these three segments and the effects
of restructuring on the company's market presence.
Germany reckons that Holzmann has dropped from
second to third place in the construction sector over the
last few years, behind Hochtief and the Walther group.
The same is said to be true of the core business although
Holzmann may be only the fourth-largest supplier in
this sector. Germany was able to submit only rough
estimates of market shares. The share in both the overall
construction sector and the core business is estimated at
roughly 2 to 3 %. Market shares in the three segments
small
were assessed as

than 1 % for

follows:

less

(46)

By letter of 15 March 2000, Germany supplied informa-
tion on developments in the construction sector. As
around 85 % of Holzmann's European construction
sector output of approximately EUR 4 billion (1998)
was earned in Germany, the fundamental problems are

(11) These indications are based on analyses in the field of merger
control. Germany referred to the decision (1995) of
the Federal
Cartel Office concerning the merger once planned between Holz-
mann and Hochtief, see Wirtschaft und Wettbewerb 1995, p. 515;
see
(OJ C 160,
27.5.1997, p. 4, points 84, 85 and 86).

also merger Case Bank Austria/Creditanstalt

18.9.2001

EN

Official Journal of the European Communities

L 248/53

projects, 3 to 4 % for medium-sized projects and 4 to
5 % for large-scale projects. There are plans to reduce
turnover in the core business by 16 % in 2000 and a
further 22 % in 2001. For small projects,
turnover
should be reduced by 25 % in 2000 and by 50 % in
2001: turnover for medium-sized projects should be cut
by 35 % and 23 % respectively over the same period.
Turnover for large-scale projects is estimated to have
grown by 30 % in 2000 and to have remained more or
less the same or fallen slightly in 2001.

(54)

(51) Germany has also explained in detail the impact of
divestments on other construction areas. Holzmann is to
withdraw from road construction and asphalt produc-
tion on the recently planned divestment of Deutsche
Asphalt, which is one of the sector's leading companies,
with a workforce of over 2 500 and a turnover of
approximately EUR 300 million. Moreover, Lavis' steel
construction business (which had a turnover of EUR 7
million in 2000) is to be closed and the 50 % share in
Möbius, a civil engineering firm (with a turnover of
EUR 62 million), is to be divested. Scheu und Wirth's
activities in the field of heating, ventilation and air-
conditioning (current turnover: EUR 91 million) are to
be significantly reduced (they are to be cut back by
about one third and integrated into HSG,
facility
management), and the south German branch of Franki,
which is active in the field of special structural engin-
eering, is to be closed. In addition, many small niche
markets have been or are to be dropped,
including
geophysics and specialised engineering services.

tractors (according to the information provided, around
two thirds of Holzmann's turnover is earned via subcon-
tractors). According to data provided by Germany, bank-
ruptcy proceedings affecting subcontractors would have
hit some 37 500 jobs (12). It was also explained that
insolvency proceedings had probably enabled an unspe-
cified number of jobs with Holzmann to be maintained
at least temporarily through the establishment of inde-
pendent companies. In the event of termination of the
company, all jobs with Holzmann would have been lost
and, moreover, all partner companies and subcontrac-
tors would have suffered very considerable economic
losses because all construction projects would have been
halted.

Aid limited to the minimum

Information concerning the need for aid and explana-
tions as to why negotiations between the creditor banks
had initially failed was provided in the course of the
proceedings, and further details were given at meetings
with the representatives of the German authorities and
three major creditor banks in February and March 2001.
According to this information,
the 20 core creditor
banks agreed in principle on the restructuring plan, but
not on the individual contributions to finance the
restructuring. As a result of the deadlock, PH AG filed
for insolvency on 23 November 1999. The main reason
for this disagreement was that Deutsche Bank, as the
largest shareholder, had different interests from the other
banks, which were only creditors. Consequently, some
banks did not agree,
they should
participate in the capital increase. Deutsche Bank finally
increased its contribution quite significantly, but some
financial gaps could still not be closed, so it was inevit-
able that PH AG would file for insolvency.

in particular,

that

(52) As regards other Member States, Holzmann has with-
drawn completely from France (Nord-France's turnover
for 1999 was only EUR 5 million) and Spain (PH-
Iberica had a turnover of EUR 80 million in 1999). One
of the two Austrian subsidiaries (Held & Francke, with a
turnover of EUR 83 million) has been divested, as has
one of the two Dutch companies (Hillen & Roosen, with
a turnover of EUR 102 million).

(53) Moreover, a quantitative analysis provided by Germany
of the social and economic consequences of the disap-
pearance of the firm by comparison with those stem-
ming from the implementation of the restructuring plan
reveals that restructuring has already led to some 6 000
redundancies within the group itself and around 2 050
with subcontractors. By comparison, an insolvency
procedure would have been far more risky for subcon-

(55) According to Germany, the main reason for these gaps
were the additional risks of over EUR 141 million
(including downtime costs) arising from the danger of
insolvency, which grew by the day. The gaps were
closed by the Federal Government's promise to grant the
aid in question, making it possible to withdraw the
insolvency petition on 24 November 1999.

(56) More detailed information was later provided in the light
of the participation of public banks in the consortium of
the main creditor banks and the concept of ‘value at
risk’. According to this information, nine public banks
were represented in the consortium of creditors: their
total contribution represented approximately 26 % of
the capital increase or 33 % of the consortium credit.
The individual shares for all the banks — public and
private — were calculated on the basis of their shares of
outstanding claims. Deutsche Bank, as the largest share-
holder, provided a larger share. Germany also submitted
documents listing the outstanding debt claims and the
calculations of the contributions made on this basis.

(12) The estimate included certain risk probabilities for different catego-
ries of subcontractor, depending on their turnover with Holzmann
(in absolute figures and as a proportion).

L 248/54

EN

Official Journal of the European Communities

18.9.2001

IV. COMMENTS FROM OTHER INTERESTED PARTIES

(60)

In addition to the difficulty of selling the assets as
planned, the notified aid could not be paid out because
the Commission's investigation was still

in progress.

(57) After publication of the Commission decision to initiate
proceedings, a competitor submitted its opinion, namely
that the aid gave Holzmann, which was itself to blame
for its difficulties because it charged dumping prices, a
competitive advantage, whereas other companies were
not benefiting from State aid. The aid enabled Holzmann
to maintain its dumping price policy. Holzmann's work-
force had been reduced in return for the aid by divesting
some subsidiaries, whilst
the working hours in the
remaining subsidiaries were increased, thereby cancelling
out the impact of the job cuts. Finally, the participation
of public banks in the consortium of creditors could be
regarded as additional (covert) aid.

(61)

(62)

V. GERMANY'S REACTION TO THE COMMENTS FROM

OTHER INTERESTED PARTIES

(58) Germany responded to these observations as follows:
State aid, like the employees' contribution, is temporary
and cannot therefore give the company any competitive
advantages or affect its price policy. Moreover, Holz-
mann had given assurances that the aid would not be
used for competition purposes. Furthermore, it planned
to withdraw from mass-market business, cut its output
by 39 % between 1998 and 2001, and reduce the work-
force by as much as 49 %. Both public and private banks
were Holzmann's creditors and were therefore among
the core banks supporting the restructuring measures in
proportion to their ‘value at risk’ share. This could not
be regarded as State aid.

Consequently, reimbursement of the consortium credit
line of EUR 511 billion (DEM 1 billion,
‘consortium
credit I’) had to be held over. Furthermore, provision
was made for an additional credit line of EUR 63,9
million (DEM 125 million), to be granted by KfW.

these plans on 31
The Commission learned about
August 2000 and sent a request for information the
same day. In its reply of 11 September 2000, Germany
provided information about
the interest rate for the
planned loan (2,95 percentage points above Euribor),
the commission (0,5 % per year) and the main condi-
tions, i.e. the seniority principle: the loan could be used
only once other credit lines were exhausted and prior
reimbursement. The prolongation of consortium credit I
least a basic amount of EUR 95 million
by at
(DEM 185 million) was mentioned as a precondition for
granting this loan.

for

further

requests

(63) As it was unclear when these measures would enter into
effect and what
the exact relationship between the
consortium credit line and the KfW credit line would be
as regards take-up and reimbursement, the Commission
information on 20
sent out
September and 22 November 2000. Germany replied to
these requests (see recital 7). In addition, talks were held
on 19 October 2000 between the Commission and
the German authorities, KfW and
representatives of
Holzmann's
contracts were
submitted on 8 January 2001, and the final replies
arrived on 10 January 2001. According to the informa-
tion submitted,
restructuring
measures became effective on 1 December 2000:

the following financial

advisers. The

credit

VI. NEW CREDIT LINES PROVIDED BY THE CONSOR-

TIUM BANKS AND KfW

(59)

The consortium credit was to be reimbursed by 30
November 2000. However, during the summer of 2000
it became clear that it would be impossible to comply
with this aspect of the plan, the main reason being that
the planned divestments of immovable property were
not carried out as planned and within the scheduled
time. Owing to the lack of agreement between Holz-
mann and the banks about the value of the assets, the
asset deal package was very significantly downscaled,
and Holzmann can now sell many projects directly. This
is why it is taking longer than was planned to divest the
assets in question. In addition, the structures of the SPV
were altered, some projects withdrawn, others added and
implementation delayed. The sale of the Taunus equip-
ment (Taunusanlage) was also delayed.

(a) the term for reimbursement of consortium credit I
was extended,
the money
taken up (EUR 171 million) was now scheduled for
31 January 2001 (13);

i.e. reimbursement of

(b) the consortium banks granted a new consortium
credit line (‘consortium credit II’) to the value of
EUR 256 million (DEM 500 million) until 29
November 2001. The interest rate is 2,95 percentage
points above Euribor and the commission is 0,5 %
p.a.;

line of EUR 63,9 million
(c) KfW granted a credit
(DEM 125 million)
(KfW II) until 29 November
2001, with the same interest rate and commission as
consortium credit II.

(13) According to recent information submitted on 15 March 2001, the
I was finally to be reimbursed on 16 March

consortium credit
2001 owing to further delays in the sale of the assets.

18.9.2001

EN

Official Journal of the European Communities

L 248/55

lines were further
In addition, other existing credit
extended until 29 November 2001, provided that they
had not been included in the convertible profit participa-
tion rights (Wandelgenussrechte).

has been submitted to the banks. Both credit lines serve
to cover liquidity needs and are linked with the sched-
uled implementation of the restructuring measures.

(64)

The two credits, consortium credit II and KfW II, are
directly linked to each other: KfW II can be drawn only
when the other credit lines are exhausted (seniority prin-
ciple). Reimbursement will be carried out through the
ongoing divestment of assets
(asset deal and own
marketing) and in proportion to consortium credit II. As
soon as the take-up of consortium credit II is EUR 95
million (DEM 185 million) or less, the KfW loan will be
reimbursed as a priority. The loan amount of consor-
tium credit II will be reduced with every repayment, up
to the sum of EUR 95 million.
It must, whatever
happens, be reduced by EUR 51 million by 31 March
2001 and by a further EUR 128 million by 30 June
2001; these reductions enter into force automatically if
they are not achieved at an earlier stage through reim-
bursement from the results of sales. KfW II will be
reduced proportionally under these exceptional circum-
stances. Under normal circumstances, the full KfW II line
can be drawn until 30 October 2001 and has to be
finally reimbursed by 29 November 2001.

(65) According to the interpretation of Germany, KfW II does
not constitute aid. The Federal Government stated that
the credit
framework conditions were in conformity
with the market because the interest rate is the same as
for consortium credit II provided by the creditor banks
and because the risk is smaller for KfW owing to the
seniority principle. Germany also submitted a letter from
ABN AMRO Bank to Holzmann in which ABN AMRO
states that it regards an interest rate of between 2,95 and
3,5 percentage points above Euribor for a non-rated
company in respect of a non-secured credit as being in
conformity with the market. It also stated that KfW II,
unlike the subordinated loan, was not granted in the
interests of the Federal Republic of Germany (Zuwei-
sungsgeschäft) but provided by the ‘commercial arm’ of
KfW. Furthermore, a letter from Germany of 10 January
2001 stated that the purpose of KfW II was to finance
‘normal business activity’, whereas the notified aid (the
guaranteed loan, for instance) was intended to finance a
company in difficulties during its restructuring phase.

(66) However, the preambles to the contracts of KfW II and
II submitted on 8 January 2001
consortium credit
clearly refer to the restructuring of Holzmann. They
state that restructuring plan I, for which consortium
credit line I was made available and which was largely
put into practice, has been updated in the light of recent
developments and that the updated restructuring plan

VII. ASSESSMENT OF THE AID MEASURES

(67)

The aid measures are designed to improve PH AG's
financial position. The company, together with its subsi-
diaries, is one of the largest suppliers of construction
services in Germany, where it achieved 85 % of
its
roughly EUR 4 billion
Community-wide output of
(1998 figures for the group as a whole). The Philipp
Holzmann Group also has significant activities in other
Member States such as the Netherlands and Austria, as it
once did in Spain and France. After restructuring, the
group's EU business outside Germany will be mainly in
Austria. The measures in question will probably affect
competitors in Germany and other Member States,
thereby distorting or threatening to distort competition,
and are likely to have an adverse impact on trade
between Member States.

The subordinated loan from KfW and the guarantee
provided by the Federal Government

(68)

The KfW is a State-owned bank which is to grant the
subordinated loan ‘in the interests of
the Federal
Republic of Germany’. As the federal guarantee is also
provided by the Government, both measures must be
considered ‘aid granted by a Member State or through
State resources’ within the meaning of Article 87(1) of
the EC Treaty.

(69) Germany does not dispute this assessment in its opinion
on the initiation of proceedings in accordance with
Article 88(2) of
the EC Treaty. The Commission
confirms the view it expressed on initiating the Article
88(2) procedure.

The credit line granted by KfW

(70)

(71)

In the Commission's view, and contrary to Germany's
opinion, the credit line granted by KfW with effect from
1 December 2000 (‘KfW II’) in connection with the new
credit line made available by the banks (‘consortium
credit II’) also constitutes State aid.

Firstly, Germany's explanation that KfW II was not,
unlike the subordinated loan, granted in the interests of
the Federal Republic of Germany (Zuweisungsgeschäft) but
provided by KfW's ‘commercial arm’, is not convincing.
Germany has presented no evidence that KfW II was
provided by the or a commercial arm of KfW or that
KfW is made up of two clearly separable parts.

L 248/56

EN

Official Journal of the European Communities

18.9.2001

(72) Moreover, Germany's argument

the conditions
for the market
is not
governing KfW II are usual
convincing in view of
the circumstances and Holz-
mann's financial situation in the autumn of 2000, when
the new credit lines were negotiated and finally granted.

that

(73)

I could not,

It is true that KfW II has the same interest rate and
commission as the consortium credit II granted by the
creditor banks and is similar with respect to the condi-
tions governing their reimbursement (i.e. proportional
reimbursement of both lines if an amount of more than
EUR 95 million of consortium credit II is used, and
even priority reimbursement for KfW if this is not the
case, but no reduction of the KfW credit line with each
reimbursement). However, the similarity of conditions
does not in itself prove that KfW, which is State-owned,
conducts its business like a private investor acting in
accordance with market principles. The decisive factor is
the economic context in which KfW granted the credit
line. When it emerged in the autumn of 2000 that the
immovable property could not be sold in the way and
within the time frame envisaged and that consortium
credit
therefore, by reimbursed by 30
November 2000, the creditor banks granted the neces-
sary extension of the deadline for reimbursement of
consortium credit I and the new line of consortium
credit II in their own interests. In the event of renewed
insolvency, the risk for their outstanding claims was
high and further financial support for Holzmann was
clearly the better alternative in terms of
rational
economic behaviour. KfW, on the other hand, was not
among the company's creditors at the time and was
therefore not at any risk of losing a claim. To provide a
non-secured (i.e. non-secured by tangible or intangible
assets or by a guarantee) credit line under these circum-
stances does not correspond with the behaviour of a
market investor. As far as the Commission is aware, no
other independent bank, that is, a bank not belonging to
the consortium of creditor banks, has offered Holzmann
a loan, and that includes ABN AMRO.

‘normal business’

(74) Germany's explanation that the purpose of KfW II is to
than Holzmann's
finance
restructuring is not convincing either. The contracts
governing KfW II and consortium credit II contain clear
references to Holzmann's continued restructuring and
adjustments thereto in their preambles and conditions,
and both credits are directly linked to each other as

rather

(75)

regards use, reimbursement and duration (see recital 63).
Furthermore, Holzmann needs cash not only to finance
the restructuring costs directly but also to survive on the
market during the restructuring phase. The particular
characteristics of the construction industry are such that
construction projects have to be pre-financed to a
considerable extent. According to the Commission's
information, a liquidity reserve of about 15 % of output
is needed. Consortium credit II and KfW II serve this
purpose because the liquidity originally planned was not
available at the end of 2000, the main reason being the
delayed sale of assets and the non-availability of the aid
measures initially planned.

Consequently, KfW II must be considered as aid granted
by a Member State or through State resources within the
meaning of Article 87(1) of the EC Treaty. KfW is a
State-owned financial
institution; no proof has been
provided that a commercial arm exists or that it is
independent of State interests. Moreover, KfW made the
credit line available to Holzmann when it was in a
difficult financial position, without any risk of the loss of
a claim and without requiring security in the form of
material or non-material assets. In such cases the loan is
effectively a grant (14). The provisions laid down in the
preamble to the credit contract and the conditions
governing the use and availability of KfW II are linked to
the implementation of the restructuring plan. KfW II
therefore constitutes a further aid measure that modifies
the notified restructuring plan.
Its compatibility can,
taking into account the rights of other interested parties
and given that the change in question is not substantial
in relation to the restructuring plan as a whole, be
assessed together with the notified aid, which is the
subject of the procedure under Article 88(2) of the EC
Treaty. The Commission notes
that Germany has
provided all the information necessary to evaluate this
additional aid measure.

(76)

The risk of making available State loans and grants to a
company in difficulty is that the sum in question may be
lost if the firm goes bankrupt (15). PH AG's economic
situation leads the Commission to conclude that the
total of all loans and guarantees should be considered
aid, i.e. EUR 127,8 million for the notified measures in
respect of which no payments have yet been made and
EUR 63,9 million for KfW II, to be reimbursed by 29
November 2001.

Compatibility of aid measures with the common
market

(77) As the aid measures in question were not granted under
an authorised aid scheme, the Commission has to assess
their compatibility with the common market directly in
accordance with Article 87 of the EC Treaty.

(14) Commission communication to the Member States (OJ C 307,

13.11.1993, p. 3, point 41).

(15) Commission notice on the application of Articles 87 and 88 of the
EC Treaty to State aid in the form of guarantees (OJ C 71,
11.3.2000, p. 14).

18.9.2001

EN

Official Journal of the European Communities

L 248/57

(78) Article 87(1) stipulates that, save as otherwise provided
in the EC Treaty, any aid granted by a Member State or
through State resources which distorts or threatens to
distort competition by favouring certain undertakings or
the production of certain goods is,
in so far as it
adversely affects trade between Member States, incom-
patible with the common market.

(83)

Eligibility of the company

In the Commission's view, there is sufficient proof that
PH AG qualifies as a company in difficulty under point
2.1 of the guidelines. As indicated in recital 14, the
company filed for insolvency on 23 November 1999
because of excessive losses. The insolvency petition
could only be withdrawn when, on 24 November 1999,
the Federal Government declared its intention to grant
the subordinated loan and the State-backed guarantee.
The company was still in difficulties, as defined under
point 2.1 of the guidelines, when the State-owned KfW
provided another credit line on 1 December 2000. At
that time the company was still implementing the sched-
uled restructuring plan. Owing to delays affecting certain
measures such as the asset deal and other divestments
and to the unavailability of the notified aid, Holzmann
was unable to reimburse consortium credit I in good
time and needed additional

liquidity.

(84) Holzmann's restructuring is funded mainly from its own
resources (such as divestments of assets and subsidiaries,
and significant reductions in the workforce and regional
offices) and by shareholders and creditors. It has been
sufficiently demonstrated that the remaining amounts
covered by the aid in question would not also have been
covered by the shareholders and creditors (see recitals
54 and 115).

Restoration of the company's viability

(85) Under point 3.2.2(b) of the guidelines, the granting of
aid is made conditional on the implementation of the
restructuring plan, which, in all cases of individual aid,
has to be approved by the Commission and assessed to
determine whether
is an appropriate means of
it
restoring the company's long-term viability.

(86)

(87)

The Commission based its assessment on the informa-
tion submitted by Germany,
in particular the detailed
planning of the individual restructuring measures, the
projected profit-and-loss accounts for five years,
the
scenario and risk analyses, the analysis of the structural
deficiencies causing the problems and the costs of the
planned restructuring measures (see recital 33 et seq.).
The conclusions which the Commission drew from its
analysis were confirmed by an expert opinion drawn up
by an independent consultancy firm.

The Commission also based its assessment on the infor-
mation which Germany provided about the ongoing
implementation of
the restructuring plan and about
adjustments to certain measures, including the timing of
certain divestments requiring the granting of two addi-
tional credit lines (consortium credit II and KfW II) in
December.

(79) However, Article 87 of

the EC Treaty provides for
exemptions to the principle that State aid is incompat-
ible with the common market. The exemptions under
Article 87(2) of the EC Treaty could provide a basis for
arguing that
the aid is compatible with the single
market. However, the aid measures under examination
neither (a) do not have a social character and are granted
to individual consumers, nor (b) do they make good the
damage caused by natural disasters or exceptional occur-
rences, nor (c) are they granted to the economy of
certain areas of
the Federal Republic of Germany
affected by the division of Germany. These exemptions
do not, therefore, appear to be applicable in the present
case.

(80) As

regards

in Article
the exceptions provided for
87(3)(b) and (d) of the EC Treaty, the aid in question is
not intended to promote the execution of an important
project of common European interest or to remedy a
serious disturbance in the economy of a Member State,
nor is it intended to promote culture or heritage conser-
vation: it does not display any of the features of such
projects.

(81)

Consequently, the Commission assesses the aid measures
on the basis of the exemptions laid down in Article
87(3)(c) of the EC Treaty. The Commission's assessment
of aid to facilitate the development of certain economic
activities, where such aid does not adversely affect
trading conditions to an extent contrary to the common
interest, is governed by specific Community guidelines.
The Commission considers that
the only guidelines
applicable in the present case are the Community guide-
lines on State aid for rescuing and restructuring firms in
difficulty (16). Furthermore, it takes the view that the aid
measures described help fund the restructuring of the
company and should therefore be regarded as restruc-
turing aid.

(82)

The guidelines state that restructuring aid can be granted
it does not run counter to the Community
only if
interest. The guidelines for restructuring set out certain
conditions for the authorisation of aid by the Commis-
sion, which are examined below.

(16) Cf. point 21 and footnote 7.

L 248/58

EN

Official Journal of the European Communities

18.9.2001

(88)

(89)

(90)

(91)

(92)

In the Commission's view, the detailed restructuring plan
as agreed with the creditor banks in February 2000
proposed the measures described below, which, taken
overall, were and still are appropriate as a means of
restoring long-term viability. Nearly all the significant
measures relate to Germany alone (apart from divest-
ments of subsidiaries in other Member States, see recital
110), with the result that the assessment of the restruc-
turing plan also focuses on Germany.

Taking into account the main reasons for Holzmann's
failure in the past (see recital 34), key measures such as
the radical reduction of the workforce coupled with a
reduction in output, withdrawal from the risky fields of
project development and management, withdrawal from
or scaling-down of areas not belonging to the core
business, better internal monitoring mechanisms and
leaner structures as regards internal organisation and
shareholdings are a sound way of trying to restore prof-
itability and avoid past mistakes. These operational
improvements are the result of internal measures and
include the abandonment of
loss-making activities.
Moreover, all the measures are feasible and most of
them have already been implemented.

The financial measures were necessary and appropriate,
firstly to avoid excessive debt (ground for insolvency) at
the end of 1999 and secondly to fund Holzmann's
restructuring.

Some of
the assumptions in the original planning,
however, were too optimistic from the outset. Other
developments in 2000 could not have been foreseen.
Firstly, the schedule for the sale of immovable property
(asset deal and SPV) was unrealistic from the outset
given the structure of the agreements; it was inevitable
that there would be disputes about prices between the
banks as intermediate buyers and creditors.

Secondly, the operating profit margins calculated in the
business plan appeared to be too optimistic, given the
rather poor overall prospects for the development of the
German construction sector. The original restructuring
plan predicted that investment in the German construc-
tion sector would grow by roughly 2 % in 2000.
Though the actual decline (17) could not have been fore-
seen when the plan was drawn up, an assumption of
0 % to 1 % growth as forecast by external studies would
have been a more cautious approach (18). Predictions of
operating profitability were therefore too optimistic in
the original plan. Given actual economic trends in the
sector,
it was impossible to achieve such a level of
profitability. This in turn had a negative impact on those

(17) Statistical results for 2000 were not yet available, but no one
doubts that
in 2000
(according to an estimate in weekly report 01/2001 of the German
Business Institute (DIW), Table 7,

there was a serious decline in investment

investment fell by 3 %).

(18) See, for example, estimates of 0,2 % in the DIW weekly report 43/

1999 (Table 2.2).

subsidiaries which were already in a bad state. Four
subsidiaries (HIG, Kemmer, Franki and Lavis) could not
be divested as originally planned. Three of them now
have to be restructured and one is to be closed (Lavis),
causing more costs than anticipated.

(93)

Thirdly, measures such as carrying out the planned cost
cutbacks and better and faster debt reduction are also
bound to last longer than planned. Moreover, it should
be borne in mind that actual losses in 1999 were more
than EUR 153 million, higher than calculated when the
original restructuring plan was drawn up.

(94)

the notified aid was not available as

the
Finally,
Commission had not completed its investigation in
2000.

(95)

In view of these developments, in particular the failure
to sell the planned assets, it was impossible to reimburse
consortium credit I in November 2000 and the envis-
aged generation of cash did not materialise as foreseen.
It was for these reasons and because the aid was not
available that the following substantial changes were
made to the plan: extension of consortium credit I (reim-
bursement) and provision of new credit lines, including
KfW II (see recital 63), direct marketing of a significant
proportion of the projects originally included in the
asset deal, and restructuring of the SPV with a view to
the divestment of the other projects. Furthermore, as a
result of economic trends in the sector, more regional
offices are now to be closed, which will lead to over 300
additional
job losses. The plans to divest, close and
downsize subsidiaries have also been couched in more
definite terms and include more significant divestments
than envisaged in the original plan (see recital 37).

(96) On the basis of the detailed information on the changes
submitted during its examination under the Article 88(2)
procedure, the Commission can take them into account
in its assessment. It concludes that the changes are based
on more realistic assumptions and take account of actual
developments to the extent necessary.

(97)

The Commission is aware that most of the planned
measures have been implemented as foreseen and that
the company is making every effort to carry out the
outstanding measures,
in particular the divestment of
further assets and subsidiaries. Holzmann's planned
reduction in turnover
in its German core business
(approximately 16 % in 2000 and a further 22 % in
2001) is essential to restore profitability and is based
mainly on a step-by-step withdrawal from unprofitable
activities such as mass-market business.

18.9.2001

EN

Official Journal of the European Communities

L 248/59

(98)

The Commission is aware that the Holzmann Group will
not achieve either the slightly positive result originally
planned or a balanced result (19). This goal would be an
ambitious one even if optimistic assumptions were
made: however, bearing in mind the negative trends in
the German construction industry in 2000, it can hardly
be achieved. The two main divisions most particularly
affected by these trends are now to be closed. Economic
trends in 2000,
together with the abovementioned
delays in introducing some measures and higher costs
for the restructuring of subsidiaries, appear to have
caused operating losses estimated at over EUR 170
million for the group in Germany alone, probably
causing cash drains (20). On the basis of the available
estimates, the Commission believes the company has a
limited liquidity reserve for 2001. However, according to
the Commission's information, the liquidity should be
sufficient provided that the economic situation of the
construction industry does not further adversely affect
operating results, that the remaining restructuring meas-
ures, in particular the sale of assets and the divestment
of subsidiaries, are implemented quickly and that the
notified aid measures are available. In this connection,
the Commission notes that developments in 2001 will
be decisive.

(99)

In its assessment and on the basis of the criteria set out
in the guidelines, the Commission concludes that the
restructuring measures already implemented or planned
constitute a sound, consistent and, in principle, appro-
priate means of enabling Holzmann to restore its long-
term viability, provided that the company deals quickly
with the
and reductions,
thereby ensuring its short-term survival.

appropriate divestments

Avoidance of undue distortions of competition

(100)

In principle, in accordance with point 3.2.1 of the guide-
lines, any distortions of competition must be offset by
the benefits flowing from the firm's survival, in partic-
ular where the net effect of redundancies resulting from
the firm's going out of business, combined with the
effect on its suppliers, would demonstrably exacerbate
local, regional or national employment problems, and,

(19) Holzmann itself announced on 14 March 2001 that the group had
an estimated deficit of roughly EUR 50 million for 2000, caused
mainly by the continuing recession in the German construction
industry, delays in the sale of assets and unexpected costs arising
from the restructuring of some German subsidiaries.

(20) The Commission had to base its assessment on the business plan
and the monthly reports drawn up for the creditor banks. The data
included in those documents seem to derive from several sources
within the group and therefore need to be treated with some
caution. The resources of the Commission even with the help of
consultants did not allow for a proper audit to be carried out. The
audited annual figures for 2000 were not yet available and even if
they had been, the real operational results depending on the level
of created reserves and on the accounting methods might not have
been known.

in some cases, by adequate compensatory measures in
favour of competitors.

(101) The comparative analysis submitted by Germany in the
course of the procedure estimates that the restructuring
measures have led to direct job losses of some 6 000
within Holzmann and its subsidiaries and of roughly
2 050 with subcontractors, whereas, if there had been
an insolvency procedure, the direct job losses at Holz-
mann would have been - at least in the short term - on a
jobs would
similar scale, but over 35 000 additional
have been lost as a result of subsequent
insolvency
procedures affecting subcontractors. The Commission
views this comparative scenario as more realistic than if
Holzmann were to ‘disappear’ completely, with potential
job losses of 55 000 to 60 000, as originally presented.

(102) The estimated high number of jobs which would be lost
by subcontractors in the event of insolvency appears,
however, to be exaggerated because, for instance, even
subcontractors transacting a relatively small proportion
of their business with Holzmann (for example 7,5 % or
less) were included in the calculation, even if the risk of
bankruptcy is low (a probability of 10 % or
less).
However, the argument that subcontractors would have
suffered more if Holzmann had undergone an insol-
vency procedure than as a result of the current restruc-
turing is convincing. Firstly, over two thirds of Holz-
mann's output is produced by subcontractors. Secondly,
construction projects have to be pre-financed to a signif-
icant extent and smaller firms in particular do not
usually have extensive liquidity reserves. If one major
company undergoes an insolvency procedure, this can
easily trigger a domino effect. The Commission therefore
the firm's
agrees with the Federal Government
survival has economic and social advantages.

that

(103) Under point 3.2.2(c) of the guidelines, measures must be
taken to mitigate as far as possible the adverse effects of
aid on competitors. This is generally done by limiting or
reducing the company's presence on the relevant
market(s): this presence must be proportionate to the
distortive effects of the aid and,
in particular, to the
relative importance of the company on its market(s).

(104) The amount of notified aid of EUR 127,8 million is low
(under 10 %) by comparison with the whole financial
package needed to restore the viability of the company,
which totals almost EUR 2 billion. This proportion does
not change significantly if the KfW II aid measure of

L 248/60

EN

Official Journal of the European Communities

18.9.2001

EUR 63,9 million granted in December for one year (see
recital 113) is taken into account. By comparison with
the overall
financial measures needed to restore the
viability of the company, the amount of aid and the
resultant distortion of competition are relatively modest.
By comparison, the measures reducing the company's
market presence are significant and, in the Commission's
judgment, sufficient to mitigate the adverse effects on
competitors.

construction business is to be closed down and the 50 %
share in Möbius, a civil engineering firm,
is to be
divested (see recital 51). The heating, ventilation and
air-conditioning business is also to be radically down-
sized, as is Franki's specialised civil engineering business
in southern Germany. In addition, many small niche
areas have been or are to be abandoned.

(105) According to the information provided, the Holzmann
Group was the second-largest player on the German
construction market in 1998; according to Germany's
estimates, the company was probably the third-largest
player in 1999, with a total turnover of approximately
EUR 2,8 billion. Holzmann's position in the core busi-
ness as defined by Germany was estimated as third or
possibly even fourth, with a turnover of EUR 1,9 billion
in 1999 and an estimated turnover of EUR 1,6 billion
in 2000. Bearing in mind total turnover of the whole
construction sector (EUR 104 billion in 1999) and of
the core construction business (estimated at EUR 92
billion), the company's share of these two sectors lies
between some 2 % and 3 %. As to the three relevant
segments of
the core business, Holzmann's market
shares were estimated as follows: less than 1 % for small
projects, 3 % to 4 % for medium-sized projects and 4 %
to 5 % for large projects (21).

(106) Following the closure of regional offices and the reduc-
tion in the workforce, it is estimated that turnover in the
core business will be reduced by 16 % in 2000 and by a
further 22 % in 2001. More regional offices are now
being closed than was proposed in the original plan.
Holzmann is to reduce very considerably its presence as
regards small projects (cutting its turnover by 25 % in
2000 and by a further 50 % in 2001) and medium-sized
projects (reduction in turnover of 35 % and 23 % respec-
tively). The planned increase in its presence as regards
large-scale projects, which Holzmann views as its core
area of expertise (30 % increase in turnover in 2000,
remaining stable in 2001), is essential when it comes to
restoring viability.

(107) Holzmann is also going to withdraw completely from
road building and asphalt production by selling off
Deutsche Asphalt, which, with over 2 500 employees
and a turnover of around EUR 300 million, is one of
the leading firms in this sector. In addition, the steel

(21) The market shares may be underestimated, in particular as regards
large-scale projects, owing to the broad definition of the core busi-
ness. However, no better data or estimates were available.
In an
earlier submission, Germany referred to the decision of the Federal
Cartel Office (see footnote 8), according to which Holzmann's
market share in the large-scale projects segment in the early 1990s
was estimated as being significantly higher
(around 20 %), but
declared that, even taking that calculation as a basis, its share had
meanwhile dropped to below 15 %,
in that
context it should be noted that the Federal Cartel Office included a
rather small number of suppliers when calculating market shares,
which was one of the reasons for the annulment of the decision
by the Court of Appeals (Kammergericht) in 1998 (Kart 3/95, Wirt-
schaft und Wettbewerb 5/1998).

if not less. However,

(108) These divestments, closures and reductions now far
exceed those originally planned. Despite Holzmann's
these
simultaneous efforts
measures will considerably reduce its market presence,
and this should dispel the concerns expressed by third
parties (see recital 57) in this regard.

to increase productivity,

(109) Supply exceeds demand in the German construction
sector, the main reason for this being the persistent
downward trend in the new Länder. However, the situa-
tion is not one of structural overcapacity as referred to
in point 3.2.2(c)(i) of the guidelines, which implicitly
than services, where
refers to manufacturing rather
capacity can, in principle, be adapted far more readily to
market conditions. The Commission agrees with Germa-
ny's view that the production capacity of construction
companies consists mainly of employees and, to a lesser
extent, of equipment such as cranes and excavators,
which are generally leased. Both 'types of capacity' are
mobile and can be redeployed without investment costs
so that an irreversible reduction of
these capacities,
rendering them permanently incapable of achieving the
is impossible. In the case in
previous rate of output,
question, however, capacity is to be reduced in accord-
ance with point 3.2.2(c)(ii) of the guidelines, through
swingeing job cuts within the company and the divest-
ment of assets and subsidiaries.

(110) The vast majority of the measures will affect Germany,
where past problems have originated. However, in line
with the general aim of streamlining the company as
regards the structure of the portfolio and its subsidiaries,
significant divestments of subsidiaries in Austria, the
Netherlands and Spain are also planned. Holzmann is
withdrawing completely from France and Spain.

(111)

In the Commission's view, these reductions and divest-
ments are sufficient to compensate for the distortions of
competition caused by the aid measures in question. In
this context, it has also taken into account the fact that
more reductions within PH AG and more divestments,
cuts and closures of subsidiaries are now planned than
was originally intended.

18.9.2001

EN

Official Journal of the European Communities

L 248/61

Aid limited to the minimum

therefore been sufficiently proven that the notified aid
measures were necessary in order to have the restruc-
turing plan adopted and adequately funded, so that it
could be implemented in the agreed form.

(112)

In the Commission's view, Germany has satisfactorily
demonstrated that the amount of aid is limited to the
strict minimum needed to enable restructuring to be
undertaken, taking into account the company's existing
resources, the group to which it belongs and its share-
holders. The company will not be supplied with any
excess liquidity of which it could make improper use to
expand capacity.

(113) The amount of notified aid (EUR 127,8 million) is small
by comparison with the contribution made by the
consortium banks
to the financial package, which
accounts for over 90 % (of which more than 65 %
comes from private banks; see recital 56). As to the new
credit lines granted in December 2000, the KfW II aid
measure (EUR 63,9 million) accounted for 20 % of the
total, including consortium credit II (EUR 256 million).
Taken together, the aid measures still amount to less
than 10 % of the overall financial package. However, it
should be borne in mind that some of the financial
measures apply for different lengths of time. Taking this
into account, at no time do aid measures account for
more than 15 % of the total available financial resources.

(114) Germany has also demonstrated that the amount of
notified aid was the minimum necessary to cover the
additional risks of EUR 141 million which emerged
during the negotiations in November 1999 and include
downtime costs caused by the increasing risk of an
insolvency petition. Furthermore, given Holzmann's
financial situation, there is no risk that the aid will
provide the company with surplus cash.
It will not
enable the beneficiary to pursue an aggressive strategy
on the market or to expand its capacity. Such a misuse
of funds would also be incompatible with the benefi-
ciary's aim of restoring profitability.

(116) The main reasons for granting the KfW II aid together
with consortium credit II were that the asset deal and
the SPV were not implemented as planned and that the
notified aid was unavailable. Taking into account the
beneficiary's liquidity situation when these modifications
took place,
limited to the
minimum necessary. The KfW II credit line can be used
until 30 October 2001, but only once the other credit
frameworks are exhausted. The latest possible date for
reimbursement is 29 November 2001. Even if all the aid
measures in question overlap for a short time there is
therefore no possibility of Holzmann's receiving excess
liquidity.

this aid measure was

(117) Finally, on initiating the procedure the Commission
could not exclude that the participation of public banks
was out of line with the market investor principle and
hence constituted additional State aid to the company
since there was no explanation of the ‘value at risk’ for
determining the individual contributions of the creditor
banks. The information submitted by Germany (see
recital 56) shows that the combined contributions of the
nine public creditor banks ranged from 26 % of the
capital increase to 33 % of consortium credit I. The total
figure was 32 % in the case of consortium credit II. On
the basis of the information submitted, including details
of outstanding credits, the Commission concludes that
the individual contributions, graduated on the basis of
the ‘value at risk’, were calculated in the same way for
private and public banks on the basis of outstanding
credits and that the contribution to the capital increase
was proportionately lower, as Deutsche Bank, the main
shareholder, took over a larger share. Accordingly, the
participation of the public banks in the consortium of
credit banks is consistent with the market-economy
investor principle and does not constitute aid.

(115) When initiating the procedure, the Commission, bearing
in mind that previous rescue and restructuring discus-
sions between banks had failed, required Germany to
provide more detailed explanations as to why the
planned State initiative had proven decisive. From the
information provided by Germany and the explanations
given by the creditor banks, the Commission concludes
that previous failures in negotiations were not caused by
the banks' doubts regarding the restructuring plan, but
by differences of opinion over contributions to the
financial package, in particular as regards the shares of
individual creditors in the capital increase. Even when
this problem was solved, the remaining financial short-
falls,
including the additional risks mentioned above,
could not be covered. In the Commission's view, it has

VIII. CONCLUSION

(118) The Commission finds that

the measures described
above constitute State aid within the meaning of Article
87(1) of the EC Treaty. It concludes that the aid meas-
ures fulfil the conditions laid down in the Community
guidelines on state aid for rescuing and restructuring
firms in difficulty and are compatible with the common
market within the meaning of Article 87(3)(c) of the EC
Treaty. They can therefore be authorised,

L 248/62

EN

Official Journal of the European Communities

18.9.2001

HAS ADOPTED THIS DECISION:

Article 1

The State aid for the restructuring of Philipp Holzmann AG,
which comprises the measures listed below, is compatible with
the common market within the meaning of Article 87(3)(c) of
the EC Treaty.

(a) a DEM 150 million (EUR 76,7 million) subordinated loan
für Wiederaufbau,
from the State-owned Kreditanstalt
whose initial term runs until 30 June 2001 and may be
extended by a further 12 months;

(b) a DEM 100 million (EUR 51,1 million) federal guarantee

with a maximum term of two years;

(c) a DEM 125 million (EUR 63,9 million) credit line granted
by the State-owned Kreditanstalt für Wiederaufbau until 29
November 2001.

This Decision is addressed to the Federal Republic of Germany.

Article 2

Done at Brussels, 8 May 2001.

For the Commission

Mario MONTI

Member of the Commission