By Angela Cullen, Aaron Kirchfeld and Sheenagh Matthews
Nov. 15 (Bloomberg) -- Germany's billionaire Merckle family is seeking to prop up an investment company battered by wrong- way bets on Volkswagen AG shares and plunging stock markets, three people familiar with the situation said.
A group of more than three-dozen banks, including Deutsche Bank AG and Commerzbank AG, are trying to reach an agreement on a loan to aid the Merckle's closely-held VEM Vermoegensverwaltung GmbH, based in Dresden, said the people, who declined to be identified because the talks are private.
A failure could have repercussions for Merckle's holdings, which span as many as 30 companies in the cement, machinery and pharmaceutical industries, said the people. The group of banks signed a so-called standstill agreement that blocks them from making claims on outstanding loans as they try to hammer out a rescue, according to one of the people.
``The banks would be better off to bail out the company than let it run into the ground,'' said Stefan Mueller, managing partner at Proprietary Partners AG in Frankfurt. ``But it's difficult for banks to reach financing agreements in the current environment. A lot of people have lost money in the stock market, including on Volkswagen.''
The banks, which also include state-owned Landesbank Baden- Wuerttemberg and Royal Bank of Scotland Group Plc, may agree on a bridge loan by early next week to avoid a potential collapse, the people said.
Forbes List
Adolf Merckle, 74, whose estimated $9.2 billion fortune put him 94th on Forbes' list of the world's richest people this year, may be forced to sell his Ulm, Germany-based generic-drug company Ratiopharm GmbH and other assets, said the people. VEM also owns about 25 percent of HeidelbergCement AG, Germany's biggest cement maker.
Spokesmen for Frankfurt-based Deutsche Bank and Commerzbank, Germany's largest banks, RBS of Edinburgh and Stuttgart-based LBBW declined to comment. Merckle and Susanne Friess, VEM's managing director, didn't return calls seeking comment. No one replied to a message left on a VEM answering machine requesting comment.
VEM became caught in a so-called short squeeze after betting Wolfsburg, Germany-based Volkswagen's stock would fall, according to the people. Porsche SE's Oct. 26 announcement that it planned to increase its stake in Volkswagen to 75 percent sparked a race by short-sellers to buy from a shrinking pool of stock, causing Volkswagen shares to surge more than fourfold in two days.
``Volkswagen was a large trade gone wrong for many,'' said Lawrence Peterman, investment director at Eden Financial Ltd. in London.
Economic Slowdown
The Merckle investment company is seeking loans from banks amid a credit crunch that began with the collapse of the U.S. subprime-mortgage market last year and worsened after the bankruptcy of Lehman Brothers Holdings Inc. in September. The German economy, Europe's largest, is in the worst recession in at least 12 years, the Federal Statistics Office in Wiesbaden said on Nov. 13.
The German government, mirroring similar actions in countries such as the U.S. and U.K., rushed a 500 billion-euro ($636 billion) bank-rescue plan through parliament Oct. 17 that has been tapped by banks including Commerzbank, Hypo Real Estate Holding AG and state-owned lenders.
``The shock waves pushed out by the financial crisis have hit Germany full on, if later'' than other countries, the government's five independent economic advisers said earlier this week. They called on Chancellor Angela Merkel, 54, to expand a 50 billion-euro fiscal stimulus package to help revive growth.
Germany's HDAX Index, which tracks the 110 most highly capitalized stocks, has tumbled more than 40 percent this year, business confidence fell to a five-year low last month and manufacturing orders plunged in September.
HeidelbergCement
In addition to VEM's holding in HeidelbergCement, stakes held by other Merckle firms and associated companies mean the family controls about 86 percent of the cement maker, data compiled by Bloomberg show. The stock has dropped by more than half this year, cutting its market value to 6.4 billion euros.
HeidelbergCement bought Hanson Plc, a producer of building materials, for 7.85 billion pounds ($11.6 billion) last year, financed in part with loans.
Ratiopharm's press office didn't immediately answer a request for comment left on two answering machines. Brigitte Fickel, a spokeswoman for HeidelbergCement, didn't immediately return a call seeking comment.
The cost of protecting bonds sold by HeidelbergCement stood at record levels on yesterday, according to CMA Datavision prices at 3:30 p.m. in London. Contracts linked to the cement maker cost 24 percent in advance and 5 percent a year, meaning it cost 2.4 million euros upfront and 500,000 euros a year to protect 10 million euros of debt from default for five years, according to CMA Datavision prices.
To contact the reporters on this story: Angela Cullen in Frankfurt at acullen8@bloomberg.net; Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net; Sheenagh Matthews in Frankfurt at smatthews6@bloomberg.net
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