The dialysis specialist Fresenius Medical Care becomes a normal stock corporation. For the parent company, the company has now become a burden. Now it should no longer burden the balance sheet.
The listed large company Fresenius Medical Care (FMC) becomes an ordinary stock corporation. At noon today, the general meeting in Frankfurt am Main almost unanimously decided to convert the unusual legal form of a limited partnership (KGaA) into a regular stock corporation. 85 percent of the share capital was represented. FMC operates more than 4000 dialysis centers worldwide, where 345,000 diabetics are treated. A business that brings in almost 20 billion euros in annual sales. With the new legal form, the majority shareholder gets rid of a problem and the other shareholders have more influence in the future.
Popular when shareholders should not interfere
In Germany there are only 564 KGaA. This is the result of an evaluation of the official website handelsregister.de, which summarizes the local commercial register. How does a KGaA work? It has at least one shareholder who is fully liable for the company. In the event of bankruptcy, this “personally liable partner” has to give up his last cent. The shareholders, on the other hand, are only liable for the value of their shares. Fully liable partners therefore bear a higher risk. In return, they are allowed to run the business alone and do not have to be interfered with by shareholders.
The legal form is popular when owners collect capital from shareholders but do not want to share power in the company. This is the case when companies are owned by families or foundations. The KGaA is also widespread among football clubs that outsource their professional business. Practice shows, however, that clubs managed by business amateurs are sometimes not up to the task of their professional shareholders. Despite formal powerlessness, shareholders have an informal say. In the private sector it is always different.
A very special company
There are special features at the previous “Fresenius Medical Care KGaA”. The personally liable partner is in turn a stock corporation, “Fresenius Medical Care Management AG”. This Management AG is a small company with less than five million euros in equity (as of December 31, 2021). This limits personal liability and basically eliminates it.
FMC is a member of the DAX, the index of the 40 most important German stock exchange companies. According to the official database of the financial supervisory authority, almost 36 percent of the voting rights belong to another company. This parent company is the Bad Homburg healthcare group Fresenius. The parent company is also the owner of Management AG and can therefore decide alone at FMC. For its part, Fresenius is a KGaA with a small stock corporation as a liability partner and is also a member of the DAX. The situation is complicated, difficult to understand from the outside and confusing for foreign investors.
Bad deal
Dominant influence does not always lead to convincing results. The parent company had chosen Carla Kriwet as the new boss for FMC, which was to start on January 1, 2023. Since she was able to do it three months earlier, Kriwet received an additional 100,000 euros “joining bonus”.
But even though those responsible had “a comprehensive picture of their quality, their experience and their suitability” beforehand, it was clear after only two months that “possibly lasting damage” was imminent. The contract was terminated before the agreed term had started. For 66 days in office, there was 1,326,000 euros including the signing bonus.
There are also 1.8 million severance payments and another 1.8 million because Kriwet is not allowed to work in the healthcare industry for the time being. FMC leaves it unclear whether 1.3 million will also be due to compensate for lost wages from previous employment. In any case, there will be a company car for another two years.
A legal form for good days
At the beginning, management enthusiastically welcomed the entrepreneurial crackdown of the parent company. “We are creating the KGaA of the 21st century,” was the motto 18 years ago when Fresenius made a KGaA out of its subsidiary FMC, which was still a public limited company at the time. It is easy to understand and the ideal legal form. At the shareholders’ meeting this Friday, the management argued the other way around with persuasive power. “Roll backwards,” commented Klaus Nieding from the German Association for the Protection of Securities. At the future “FMC AG” the shareholders will again be able to have more say.
The formerly radiant daughter has now become a burden for the parent company. Until now, the mother had to include the entire turnover of the KGaA subsidiary in its balance sheet. As a minority shareholder, however, she only received around a third of FMC’s profits. The risks of the dialysis business have increased, profits are crumbling. In the future, the business figures of “FMC AG” will no longer be charged to Fresenius’ balance sheet. However, together with major American investors, the Fresenius Group will continue to hold the majority in FMC.