Next please! Leoni AG, which employs 100,000 people and is classified as a systemically important supplier by the automotive industry, needs a new CEO for the fourth time in eight years. The CFO changed just as often. In total, more than a dozen board members have come and gone since 2015, the year in which the misery began that brought the cable and wire group, one of the largest manufacturers of wiring harnesses for cars, debts of one and a half billion euros. Leoni AG is lurching along in acute danger of insolvency, fighting for survival. She doesn’t have much time left.
The gallows of the banks ends in the middle of the year. Until then, the company based in Nuremberg, where quite a lot has gone wrong in recent years, needs a plan such as a restructuring and refinancing concept. It was an involuntarily meaningful sentence with which CEO Aldo Kamper, who was still in office until the end of March, announced his return to Osram. “I’m proud that Leoni still exists,” he said. A sentence that is tantamount to an oath of disclosure. Kamper’s departure, sold to the public as a personal decision for his old love Osram (“I couldn’t say no to that”), seems like an escape. Now, of all times, when Leoni needs nothing more than stability in management to regain trust in the industry, but above all on the capital market. It should be noted that it wasn’t Kamper’s fault. The Leoni crisis is deeply rooted, it has lasted for a long time, and many are responsible for it.
They recently brought back Hans-Joachim Ziems, who has a reputation as a restructuring expert, as a board member. He was there in the same capacity from April 2020 to March 2021. It was Ziems’ task then and it is now again to restore calm to the banks. Because Kamper’s last big plan fell apart just before Christmas. Leoni AG wanted to sell most of its cable business, including 3,300 jobs, to the Thai Stark Corporation for 400 million euros. But the deal fell through at the last moment, why exactly is unclear. The money was mainly intended to pay off debts. Now it is said that they are looking for a solution that will allow Leoni to continue its cable business. “Of course we’re happy if the jobs in the group are preserved,” says Franz Spieß, employee representative on the supervisory board. But how should the exorbitant debt be paid off?
The shareholders, above all the Austrian Pierer Industrie AG, which holds about a fifth of the Leoni shares, have to be prepared for a painful capital cut. The Nuremberg group announced a week ago in a mandatory notification for the stock exchange that it would probably not work without it, referring to the ongoing negotiations with the lenders. There is speculation in financial circles that the creditors could take over up to 95 percent of the shares through a so-called debt-equity swap. In such a debt participation swap, claims from creditors are converted into an equity participation for them.
Leoni products are considered innovative in the industry
The strange thing about all this is that Leoni got into this emergency at all. Because the company actually plays a lot into the cards. Vehicle electrical systems, the most important Leoni product, are more in demand than ever. The more complex vehicles become, the more important the network of cables and plugs that distributes and implements electronic commands. The Franks belong to the five largest manufacturers with the competitors Aptiv, Sumitomo, Yazaki and Dräxlmaier. As a cable and wire expert, Leoni should actually accommodate the trend towards electromobility. Leoni products are considered innovative and technologically competitive in the industry. The latter also applies to the wire division. And Leoni should also benefit from the fact that business in the automotive industry as a whole is picking up again.
“Today’s crisis can only be explained if you go back a few years in the company’s history,” says one who was responsible for Leoni for a long time and is now denouncing a “fatal gold rush mentality”. Until about 2015, Leoni was considered rock solid. But then, under the leadership of the then CEO and later chairman of the supervisory board, Klaus Probst, the big leap began. “Strategy 2025” was the name of the plan to more than double sales from 4.1 to 9 billion euros within ten years and, at the same time, to increase returns enormously. That, says the Leoni veteran, aroused false ambition and set in motion a chain of fatal mistakes. From then on, new factories and locations were opened non-stop in many parts of the world and orders were acquired over and over again. It was growth for growth’s sake, which proved hard to digest.
Leoni botched several attempts with wiring systems for new vehicle types, which cost huge sums of money. In the meantime, Probst had handed over the chairmanship to CFO Dieter Bellé, who was seen internally as a clever penny pincher, but seemed overwhelmed with the chairmanship. He was gone in less than three years: the tree-change game that continues to this day had begun, not only on the board of directors but also on the supervisory board. Expensive mistakes piled up internally, as well as the upheavals in the industry as a whole, such as the corona pandemic, China’s handling of it, delivery problems and finally Russia’s attack on Ukraine. Ironically, the country where 7,000 Leoni employees in two factories put together the wiring harnesses by hand. Leoni had to look for alternative locations within a very short time.
The domino effect of our own mistakes and negative influences impacted on the financing concept. The ambitious “Strategy 2025” growth project, financed to a large extent on credit, did not bring the hoped-for profits into the company. Leoni has been making losses for years, the share price has fallen from just under 56 euros in May 2018 to currently just over three euros. Institutional investors in particular lost confidence. The 2015 house of growth cards has collapsed.
Leoni now has to offer the banks something, at least a realistic prospect of getting their money back. Hopes rest, not for the first time, on restructuring expert Ziems. Kamper, says one who has worked closely with him, has tried everything, is empathetic and an innovator. As a renovator, however, he would be overwhelmed. Franz Spieß from the IG Metall trade union says that employee representatives are “not currently worried about jobs” because Leoni products are in demand on the market. “But it is clear that the situation has been difficult for years and that something must soon develop in a good direction,” said Spieß.