Value Column von Hans Peter Schupp

25 NOVEMBER 2024

Salzgitter: The takeover is self-financing

Hans Peter Schupp, Vorstand der Fidecum AG und Portfoliomanager des Contrarian Value Euroland Fonds (ISIN: LU0370217092) about the logic behind the takeover bid for Salzgitter.

In order to better assess transactions on the capital market, it is often helpful to know exactly who is involved. This applies in particular after the second largest Salzgitter shareholder, GP Günter Papenburg AG, announced that it was considering a purchase offer for the steel group. This is because the Chairman of the Supervisory Board of GP Günter Papenburg AG is none other than Prof. Dr. Heinz Jörg Fuhrmann.

Heinz Jörg Fuhrmann was Chairman of the Executive Board of Salzgitter AG (ISIN: DE0006202005) from 2009 to 2022. During these years, he not only made a name for himself as an outstanding entrepreneur, but also as a portfolio manager. In the crisis year of 2008, for example, he bought the stake in Aurubis (ISIN: DE0006766504) for Salzgitter, used it to buy back an exchangeable bond in 2017 at the highest prices at the time and bought the shares back the following year at significantly more favorable prices.

In 2007, he used the high profit from the steel business to acquire a block of shares in Klöckner Werke and RSE AG for 6 percent of equity. The industrial holdings alone, which are now combined in the Technology division at Salzgitter, generated a third of the pre-tax profit in 2023.

Last but not least, Fuhrmann made far-sighted use of the extremely low prices for CO2 certificates for a long time. He purchased the Salzgitter Group’s entire requirement for CO2 certificates until the end of 2030 at an early stage. These positions now contain several hundred million euros in book profits. Salzgitter is now in the comfortable position of either being able to produce more cheaply than the competition or to realize these profits.

The logic of the takeover

There is no doubt in our minds: Fuhrmann, as a profound expert on the company, knows exactly why a takeover is worthwhile today.

We have done the math. At a stock market price of 17.5 euros, Salzgitter has a market capitalization of around 950 million euros based on the outstanding shares (ten percent of the shares belong to Salzgitter itself). This does not even correspond to the stock market value of the almost 30 percent stake in Aurubis, which amounts to around 1.04 billion euros. This alone shows that the takeover would be self-financing at the current conditions. There would even be 90 million left over. And Fuhrmann has already proven that he knows exactly how to develop the Aurubis investment lucratively.

Added to this are the combined values of KHS, the CO2 certificates and the accumulated losses carried forward. SALCOS®, a Salzgitter AG program for climate-neutral steel production, must also be taken into account. From 2026, Salzgitter intends to gradually reduce its CO2 emissions. Once production has been fully converted, it should be possible to reduce them by up to 95 percent. This project is being funded by governmental aid of around one billion euros – a kind of gift to the shareholders and a kind of hidden reserve.

All in all, according to our calculations, the value of Salzgitter AG is therefore probably closer to 2.5 billion euros. Salzgitter was also traded at this stock market value at the beginning of 2022.

If Fuhrmann could take over Salzgitter at today’s prices, he would have made a real bargain. For us, who have a similar entrepreneurial mindset to Heinz Jörg Fuhrmann, the share therefore remains an attractive investment.

Our investment approach

For 25 years we have remained model consistent with with our Contrarian Value Euroland Fund (ISIN: LU0370217092), following our investment philosophy of investing in undervalued companies with good business potential and a comprehensible business model. In doing so, we act like an entrepreneur who wants to buy the entire company and – if necessary – deliberately go against the prevailing market opinion.

About the author: Hans Peter Schupp, is a managing partner of Fidecum AG and the portfolio manager of the Contrarian Value Euroland Fund.

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