German company bosses sacked as boards clamp down

We would hesitate to herald a new dawn of shareholder activism in Germany on the strength of recent board turbulence, but it might be true to suggest that institutional investors will have taken note of the manner of the sacking of the chief executives of two leading German listed property companies in the past couple of weeks. It’s a departure from the normally indulgent approach institutional shareholders have taken to senior board members of public real estate companies – a few more examples, and it might be considered a trend.

At Berlin residential property owner and developer GSW Immobilien AG, the brewing shareholder distrust over the appointment of its new CEO led to both he and the supervisory board chairman being deposed in a highly-publicised boardroom wrangle. Just last week the supervisory board at Prime Office REIT-AG decided to dispense with the services of CEO Claus Hermuth, at a time when the company is involved in merger talks with a larger rival, with key decisions to be taken before the upcoming August AGM.

But first, to GSW. The CEO Bernd Kottmann and long-time supervisory board chairman Eckart John von Freyend both resigned in the face of sustained pressure from shareholders which made their positions untenable. The opposition was led by 3% shareholder, the giant Dutch pension fund PGGM, who claimed that Kottmann had been appointed with undue haste to the top job by von Freyend, with whom he had served on the ill-fated IVG Immobilien AG board some years ago. PGGM, in essence, was laying charges of crony capitalism at the board and accusing them of hiring a candidate without the prerequisite experience of the residential housing markets.

At the mid-June annual general meeting, the dissident shareholder groups just narrowly failed to reach the required majorities to depose both men, but the writing was on the wall. The continued free-fall into penny-stock territory for IVG Immobilien, where both men served in the mid-nineties (with von Freyend as chairman and Kottmann as CFO), and at whose door the foundation of many of the company’s current problems are being laid, won’t have helped.

A specially-convened meeting after the agm, however, put the final nails into both mens’ involvement with the company, and both are parting with immediate effect. The company’s stock price, previously a strong performer since GSW’s successful market flotation in 2011, rebounded after falling by more than 10% since the onset of the dispute nearly two months ago. GSW owns and manages 60,000 apartments in Berlin, and until the new CEO is hired, will be led in the interim by COO Jörg Schwagenscheidt and CFO Andreas Segal.

Meanwhile, over at Munich-based Prime Office REIT-AG, a decision taken last week by the supervisory board will see the immediate departure of CEO Claus Hermuth. A company spokesman said Hermuth was being held responsible for not achieving operative goals and slow progress in letting or selling key office assets. The company will be managed by CFO Alexander von Cramm while a successor is found.

Prime Office REIT-AG is a very focused owner and manager of prestigious and often unusual office properties in Germany’s larger cities, but has struggled with its exposure to re-letting or selling some of its larger assets. Big office properties in Stuttgart and Frankfurt, for example, have had high vacancy rates and crushing cost overheads, leading to Prime Office reporting funds from operations of a mere €1.3m in the first quarter, down from €6.5m year-on-year.

With nearly €1bn of office property under management, the company has been in talks since early spring with the German subsidiary of US private equity group Oak Tree Capital to merge and create a group with €2.3bn of assets under management.

According to a company statement, these talks are still on track. “The current talks on a merger with OCM German Real Estate Holding AG, Cologne, will be continued. At the moment, the companies are in the process of calculating the corporate values required to determine the exchange ratio. However, the necessary draft merger agreement and the extensive supporting documentation cannot be finalised until the regular annual general meeting on 21 August 2013.”

Also on the agenda for that day is the probable striking out of the proposed dividend of €0.18 per share for 2012 to bolster the company’s capital structure. Another reason for institutionals to give voice to their disgruntlement.