Rewritten Article:
Is the German Government's Investment in Meyer Werft on Shaky Ground?
The Financial Gamble: Meyer Werft Hangs by a Thread as the German Government and Lower Saxony State Stake Millions on Shipbuilder's Revival. Insights from Max Johns, Professor at Hamburg Business School.
For months, the shipbuilding giant Meyer Werft has edged closer to financial ruin. A lifeline came in the form of a €400 million investment from the German government and Lower Saxony state, snagging an 80% stake in the company.
Max Johns: In essence, the government's intervention boils down to saving jobs and minimizing losses for taxpayers. Their three-year plan to find a new investor sounds sensible, but it remains a temporary measure. If a good buyer pays a visit within this timeframe, the government's initial move would prove smart. Holding onto a controlling stake indefinitely or enduring financial losses is avoidable and illogical. Meyer Werft isn't a keystone company or a "crown jewel," as the chancellor described it. To warrant such distinction, it must possess technology, economic viability, social responsibility, environmental consciousness, and rock-solid governance—qualities that likely elude it.
With the Meyer family vying for a potential buyback of shares, what's the most likely outcome?
The family hasn't made a successful handover from the older generation to the younger one yet. It's hard to be optimistic about their chances at a second attempt. An external investor is a more probable candidate. Private equity firms aren't suitable. Instead, there's a higher likelihood of other tech or shipbuilding companies, like Chantier de l’Atlantique from France or Fincantieri from Italy, showing interest. Both firms have extensive cruise portfolios and could be intrigued by Meyer Werft's portfolio and location.
Following Galeria Karstadt Kaufhof, is the state set for another multi-million-euro loss? Or does Meyer Werft have the keys to a prosperous future?
It's crucial to distinguish between a maritime company's struggles due to poor performance or subpar products versus mismanagement. In this case, the management errors are the primary culprits. The shipping contracts lack float clauses for material costs, lacking sufficient inflation protection. The financial problem is now addressed. With the existing order book in tow, a bright future awaits. However, the maritime industry is volatile, and external factors like economic downturns, wars, or pandemics can drastically impact the cruise business.
Stuck between a rock and a hard place: Meyer Werft can't renegotiate prices and must deliver ships at a loss. The COVID-19 gap also looms.
The near-total shutdown of cruise lines for nearly two years necessitated delayed ship deliveries. Meyer Werft was left with half-built ships, some that they had partially financed, and no payments. The prolonged interim financing proved unsustainable. Building a ship is incredibly expensive, with a single vessel costing about €1 billion to finance. Despite the challenges, the strong position of Meyer Werft's order book, coupled with high customer demand, makes the prospect of it turning into a "million-dollar pit," unlikely.
The interview featuring Max Johns was conducted by Katja Michel
Originally published on capital.de
The government's investment in Meyer Werft intends to halt job losses and restrict financial losses from the shipbuilder. To ensure the shipyard's long-term success, finding a suitable investor within the stipulated time is essential, thereby avoiding the need for the government to become a long-term investor.
After the government investment, the lingering performance issues in the shipping contracts persist. If they are not addressed, the financial problem may resurface. Despite the strong position due to high demand for its products, the shipyard faces challenges. To secure its prosperous future, it must attract a suitable investor, rework the shipping contracts, and maintain a focus on sustainability.
