Troubled Bilfinger still to decide on fate of real estate division

REFIRE met with construction and engineering group Bilfinger at the MIPIM, where the company has managed to snare - and hold on to - one of the best stands in the Palais des Festivals. Its extensive sunny outdoor terrace is ideal for up-close conversation, and the company's hospitality team looked as if they were run off their feet dealing with the steady stream of visitors to the stand.

We have to admit that we didn't come away with a clearer idea of the fate of the Group's real estate division, which is potentially on the chopping block. At the post-MIPIM annual general meeting in Mannheim, the company said that a decision had been postponed for a further few weeks on the sale of its real estate unit and building and facility management divisions.

Several offers have been received, with private equity group KKR thought to be leading the pack with an offer of around €1bn. Also said to be in the running are CBRE, JLL, EQT Partners, Cofely and Austrian construction group Strabag. Deutsche Bank and Bank of America have been mandated to review the bids.

Despite problems at the group, the asset managers at the real estate division of Bilfinger managed €1.1bn of commercial transactions in 2015. There were 12 major property sales in Hamburg, Düsseldorf, Munich and the Rhine-Main area around Frankfurt, including some of the largest deals of the year. These included selling Frankfurt high-rise office building Trianon to NorthStar Reality Finance, and the Berliner Tor Center in Hamburg St. Georg to the Zurich Group Germany.

According to Ralf Klann, managing director and head of asset management Germany at Bilfinger Real Estate, "The German investment market in 2015 was characterised by significant pressure to invest from foreign investors, which drove purchase prices for commercial real estate to record highs, particularly in the core segment. Willingness to invest in properties with vacancies and requiring repositioning outside of the top locations in Germany also increased."

After last year's merger with UK consultant GVA Worldwide, Bilfinger looked to be gearing up to be a big player in the real estate industry, but this is now seriously in doubt. Since the MIPIM, the parent company has scrapped the dividend, which surprised the market and led to a share sell-off.

The share price has halved over the past two years since a series of profit warnings issued by the now-departed CEO Roland Koch, who joined to head up the company after a long career as CDU prime minister of the state of Hesse, where he had often been touted as a potential rival to party colleague Angela Merkel.

Announcing a huge loss of €489m for the group for 2015, new chairman Per Utnegaard commented ominously, “In the current phase of the repositioning, the focus is on making targeted investments in the future of Bilfinger. For this reason, a dividend will not be distributed so that the funds can be kept in the company – in the interest of all stakeholders.”

Bilfinger's biggest shareholder is activist investor Cevian Capital AB, which has a history of encouraging its companies to speedily divest non-profitable or troublesome divisions.