Linde Leadership Waiting for the Second Coming

A series of profit warnings last year tipped industrial gas giant Linde into crisis. The man who had led the group successfully for 11 years may be back to help lead them to salvation, this time as supervisory board chairman.
Deja vu at Linde?

The former chief executive at industrial gas giant Linde, Wolfgang Reitzle, is set for a comeback. He is being tipped to take over as chairman of the supervisory board, the powerful non-executive body that has the power to sign off or block top management decisions, Handelsblatt has learned.

Investors and board members, disappointed with the firm's performance during the tenure of his successor, hope that from the supervisory chair, Mr. Reitzle can help turn the company's flagging fortunes around.

Things have not being going particularly well for his successor as chief executive, Wolfgang Büchele.

On November 30, after he downgraded the Munich-based engineering and pharmaceuticals giant's profit forecasts for a second time, the share price dropped 14 percent. Investors and staff were deeply concerned.

Mr. Büchele then announced the company’s third profit warning in December. The stock dropped another 15 percent in minutes, and Linde lost €4.7 billion, or $5.15 billion, in market value.

These events and what seems like the increasingly helpless reaction of Mr. Büchele and the supervisory board chairman Manfred Schneider, who is to leave Linde in the spring 2016, after 12 years as chief overseer, fueled an intense discussion in the Linde board. Board members wished that they might be transported back to the golden age under Mr. Büchele's predecessor, Wolfgang Reitzle.

Now it seems their prayers have been answered. Mr. Reitzle really is coming back, as chairman of the supervisory board. Handelsblatt has learned that a majority of shareholder representatives are in favor of Mr. Reitzle taking over this important role.

Even I cannot walk on water. Wolfgang Rietzle, Former Linde CEO

Among those in Mr. Reitzle's supporters camp are the former Allianz boss Michael Diekman, the former Bosch chief Franz Fehrenbach who had been tipped to succeed Mr. Schneider as chief overseer, and Ann-Kristin Achleitner, a professor of economics who has been on the Linde supervisory board since 2011, and who also writes for this newspaper.

Mr. Büchele had acquired a well-established company but did not inherit an easy task.

Since taking the reins in 2014 he has struggled to develop an adequate strategy against the downturn in the global economy. The former BASF manager found the going especially tough in Linde's core industrial gases division, an area in which he could not deliver answers to growing problems.

Expectations are running high that Mr. Reitzle will be able to deliver where Mr. Büchele failed. Mr. Reitzle has been here before. In May 2014 the experienced manager stepped down after 11 years in the top job. Under his leadership, turnover doubled and profits multiplied six-fold – a golden era that explains the board's nostalgia.

Mr. Reitzle had originally planned to jump straight from the management board to the supervisory board, but the plan failed.

Under the corporate governance rule for publicly-traded companies, this is almost impossible unless an exemption is granted due to extraordinary circumstances. While people close to Mr. Reitzle kept emphasizing that many investors supported the move, the necessary 25-percent quorum was impossible to attain. So, Mr. Reitzle was forced to wait for two years.

But the regulations were not the only reason. The incumbent supervisory board chairman Manfred Schneider complained that Mr. Reitzle had too many other roles. In addition to his post as the supervisory board chairman at Continental and membership of the board at Axel Springer media, he had smaller fish to fry, including presiding over the Board of Directors at Holcim in Switzerland. There was a lot to do for him after the merger of Holcim with Lafarge.

In the coming months, Mr. Reitzle's two-year cooling off period will reach its end.

“His heart is attached to Linde,” said one confidant, who declined to be named.

Mr. Reitzle is now waiting for the call to step in and lead the supervisory board in developing a new strategy for the ailing company.

After initial resistance, Manfred Schneider was in principle willing to pave the way for Mr. Reitzle, insiders told Handelsblatt. Mr.Schneider could not be reached for comment Sunday, nor would Mr. Reitzle comment on the information.

The time for silence will soon be over. The Linde management cannot afford to continue on its current path.

Even as late as the autumn, everything seemed to be fine at Linde. Wolfgang Büchele announced steady growth in the company's gases division. Although the external environment is challenging, he said he was focusing on “continuously raising our position as a world leader in growth areas."

In the wake of such bravado, the markets were all the more surprised when, just four weeks later, Mr. Büchele slashed forecasts for 2017.

Instead of an 11 to 12-percent return on capital employed, Mr. Büchele revised that to just 9 to 10 percent. The operating result will be even lower from today's perspective.

“The main reasons for the adjustments are significantly changing conditions compared to October 2014, when those objectives were defined,” said the unexpected press release, which caused the share price to shed 14 percent.

Linde has to deal with lower growth rates worldwide. In many industries, such as the chemicals sector, gases are used in industrial production. In addition, business has suffered from the government price cuts on gases used in healthcare in the United States. The engineering division has also experienced a reluctance from customers to invest, because of the low oil price. In the first nine months of 2015, the order intake in the engineering division collapsed from €2.6 billion ($2.8 billion) to just €1.1 billion.

Within the company, the falling share price has caused unease, although everyone agrees that the challenge is mainly the economic environment. But there has been criticism from a supervisory board member that communication has not been good. Another insider doubts whether the reduction in the forecast at this time was necessary at all.

According to some board members, Mr. Büchele is still the right man to lead the company as chief executive. He knows the industry very well from a customer's perspective and is, like Mr. Reitzle, a meticulous optimizer. Besides, in view of the uncertain times, he had taken the intiative to start reducing costs relatively early, according to one board member.

“But,” they said, “in these economically difficult times he now has to show that he deals with the correct issues.”

While Mr. Reitzle has put a lot of emphasis on green megatrends, Mr. Büchele had focused strongly on bread and butter business like selling bottled gas produced, a sector he was keen to expand.

That could be helped if Wolfgang Reitzle takes over the chairmanship, say some important board members. It could leave Mr. Büchele in charge of the day-to-day business, while Mr. Reitzle supports him with his knowledge of the sector and company.

According to insiders, both men are ready. As chairman at Continental, Mr. Reitzle had shown that he can follow the work of the executive board closely, but remain at a distance if things go well.

In turn, insiders say, as a sign of Mr. Büchele's willingness to cooperate, he has brought a close confidant of Mr. Reitzle back into the fold as Linde's communications chief.

After Mr. Reitzle's departure almost two years ago there was a collective sigh of relief in the group, in spite of its undoubted successes under his management. Mr. Reitzle ruled from above. He had a reputation for haughtiness and delivered his press briefings and speeches to staff from a high podium. His successor regards communications as important and also consults subordinate employees. The first thing he did was remove the podium.

Mr. Büchele attacked structures early in his tenure and trimmed competencies, which created dissatisfaction among the officers' ranks.

“He has very quickly changed a lot, maybe too much,” said the same supervisory board member.

In 2002, when ex-BMW chief Wolfgang Reitzle joined Linde, many didn't think he'd be there for long. They didn't think the engineering and gases firm had the sort of glamor caché that suited the then 53-year-old automobile passionista.

They were surprised to see him stay on until his retirement in 2014. Since he took on the chairmanship, the group's sales almost doubled to nearly €17 billion.

“Even I cannot walk on water,” he said in his retirement speech, after falling currency trends affected results in his last quarter in power.

It seems his time will come again soon enough, and the faithful are waiting.


Axel Höpner is bureau chief in Handelsblatt's Munich office. To contact him: [email protected]