Takeover Fears Auto Parts Groups Locked in Boardroom Battle

German auto parts supplier Prevent last year got embroiled in a high-profile dispute with VW. Now it’s taking on the competition.
This Grammer employee's future has gone uncertain thanks to a stake owned by the competition.

Germany’s Prevent Group, which last year caused auto giant Volkswagen to halt production in six plants by refusing to supply components in a row over a cancelled order, is embroiled in another dispute, this time with fellow parts supplier Grammer.

Prevent has purchased a stake estimated to be between 20 percent to 30 percent in Grammer via various firms, making it the biggest shareholder and triggering fears that it plans to impose a restructuring to axe jobs.

Grammer’s management, its workforce and various politicians have voiced opposition to the investment. Even customers are against a Prevent takeover – including VW, which accounts for around a third of Grammer’s revenues and hasn’t forgotten last year’s spat with Prevent. Grammer supplies seats and dashboards for cars and utility vehicles,

“We’re astonished that we appear to be unwanted as an investor. No one has spoken to us about it, no auto manufacturers either,” Barbaros Arslan, Prevent’s strategy chief, told Handelsblatt.

Christian Becker, head of legal affairs and managing director of Prevent DEV, said: “We see ourselves as an investor in Grammer that is pursuing justified shareholder interests. Reports about a takeover or a relocation of sites are pure speculation. We’re not aiming for a takeover.”

However, Prevent could topple Grammer’s management at Grammer’s annual shareholders’ meeting on May 24 because it could attain a majority of the investors present. In the past, shareholders representing only 40 percent of Grammer’s capital have attended the meetings.

Reports about a takeover or a relocation of sites are pure speculation. We’re not aiming for a takeover. Christian Becker, Managing Director of Prevent DEV

And Prevent has made clear that it sees no continued future for Hartmut Müller, the Grammer chief executive.

“There is no basis any more for continued cooperation with Mr. Müller,” said Mr. Arslan. The two sides have yet to meet. Mr. Arslan said that he had tried to get in touch with Mr. Müller but that there had been no talks yet.

Mr. Müller has a different version of events. “We always wanted talks without preconditions. The message to us was: ‘Invite us to an extraordinary shareholders’ meeting, then we’re ready to talk!’ Unfortunately we never got an answer as to why we should do that.”

Prevent aims to remove five members of Grammer’s supervisory board and to put its own people in some of their seats. It said Grammer wasn’t performing well enough.

“The margins at Grammer are far below the industry average despite a number of declared improvements,” said Mr. Becker, adding that its earnings before interest and taxes were unsatisfactory. He also said Grammer had “a lot of potential — and we want to raise that.”

03 p18 Automotive Supplier Grammer-01

Prevent DEV is the nucleus of a network of firms that make up the secretive Prevent group that employs some 12,000 people and generates an estimated €2 billion, or $2.18 billion, in sales. Its TWB unit supplies VW with some 2 million rear seatbacks per year.

The group belongs to the Hastor family, which has German and Bosnian roots. The brothers Kenan and Damir Hastor took over the running of Prevent from their father Nijaz. They never give interviews, but the firm broke its silence over the Grammer dispute and contacted Handelsblatt. Mr. Becker vehemently denied that Prevent was just looking for a quick profit.

“We’re not a private equity company that invests in a company, restructures it and gets out again after a few years,” he said. “We haven’t sold a single company so far.”

Mr. Arslan, the head of strategy, said Prevent’s experience in the auto business made it a different kind of investor from a bank or an investment fund. “We demand more because we understand the business better. One could also say: we’re more critical due to our DNA.”

The Prevent  managers also criticized the sudden emergence of Chinese components supplier Ningbo Jifeng as a 9 percent shareholder in Grammer. Ningbo had bought a convertible bond and swapped it into shares after just a few months.

“The quick conversion shows that Ningbo Jifeng is only meant to be a white knight to prevent us from gaining influence,” said Mr. Arslan.

Prevent is known in the industry as a master at reducing costs. “We know how to make a company profitable,” said Mr. Arslan. “Costs are our biggest competitor.”

Automakers pay around €50 per rear seatback made by Prevent TWB. They could be made in eastern Europe or Turkey where wages are lower. But TWB is profitable thanks to a high level of automation and strict cost control.

I want to be sure that Grammer’s future will be secure under a new plan. Hartmut Müller, Grammer CEO

Mr. Müller, Grammer’s chief executive, said the firm’s clients saw Prevent’s stake purchase as a risk. “Our operating business is doing very well, but the order intake is modest. The level is about 50 percent below the usual figures.”

He said he saw no reason to step down at present “If I were to be the problem, it can be solved very quickly. I’ll resign. They might also decide that the strategies aren’t working together. But I want to be sure that Grammer’s future will be secure under a new plan. So far this plan hasn’t been communicated to anyone. If that were only to happen at the annual shareholders’ meeting, it would only reach a part of the shareholders.”

Grammer was in intensive discussions with its “strategic partner” Ningbo Jifeng, a Chinese auto parts supplier that acquired a stake in Grammer earlier this year. “So I see no reason to go at the moment,” Mr. Müller said. As for a merger, the Grammer boss said that it wouldn't benefit his company as Prevent focuses on operations “with a relatively low technical level” like seats and seat covers.

He also rejected Prevent’s accusation that Grammer wasn’t profitable enough and pointed out that revenues had almost doubled to €1.7 billion since the financial crisis. Its profit margin is 4.3 percent and it’s aiming for 5 percent this year. “That’s comparatively normal, although it’s not a peak performance yet.”

He added Morgan Stanley had compared Grammer with its direct rivals and came up with an average of 4.7 percent.

 

Grischa Brower-Rabinowitsch leads Handelsblatt's coverage of companies and markets. Stefan Menzel writes about the auto industry focusing on Volkswagen. To contact the authors: [email protected][email protected].