- Decreasing financial obligations and acquiring a Porsche to bolster Varta's standing
Troubled battery producer Varta has struck a deal with creditors and investors for a restructuring strategy. Crucial elements include debt reduction and fresh financing, including from significant client Porsche. All these aspects need to be put in writing and submitted to court, a representative mentioned on Sunday. Before that, the involved parties must agree and the German Competition Authority gives its approval. This process might take several weeks or months, the representative shared.
If all goes well, this restructuring strategy aims to safeguard Varta AG's financing until the end of 2027, the company from Ellwangen, Swabia, declared. They considered it a "significant milestone". The strategy will "drastically decrease the company's debt and infuse it with fresh funds".
Total abolition of share capital
Firstly, debt reduction and loan extension attempts will slash the present liabilities of around 450 million euros to 200 million euros. Then, Varta AG's share capital will be reduced to zero euros. The outcome: existing shareholders will be excluded, and the company will lose its stock exchange listing.
As immediate new shareholders, following the capital reduction, a company managed by Varta's major shareholder Michael Tojner (MT InvestCo) and a subsidiary of sports car maker Porsche will each invest 30 million euros. A portion of Tojner's investment comprises properties that Varta currently leases.
Once all capital measures are completed, MT InvestCo and Porsche will each hold 32% of Varta, while the other financiers will collectively hold 36%. Legally, Varta AG's participations will initially be held by MT InvestCo and Porsche in equal shares of 50%, "established in such a way that neither MT InvestCo nor Porsche nor both combined have control".
Varta battery in the Porsche 911 Carrera
Earlier, Porsche had announced plans to acquire a majority stake in Varta's automotive battery subsidiary V4Drive Battery. Porsche also expressed interest in co-funding Varta AG's financial restructuring with other partners, with Porsche's investment totaling 30 million euros. Within V4Drive Battery, Varta consolidates its business for large-format lithium-ion round cells, utilized in Porsche 911 Carrera GTS's hybrid drive.
The agreement unveiled on Saturday outlines what Varta disclosed nearly a month ago. At the time, the company announced plans to file a restructuring plan under the Unternehmensstabilisierung- und -restrukturierungsgesetz (StaRUG) with the Regional Court of Stuttgart. The old shareholders were to be phased out, creditors were to waive a substantial portion of their money and claims.
At the time, majority shareholder Tojner stated: "We have to take this step to offer Varta a future, secure almost 4,000 jobs, and keep the company as an economic factor in the region and, above all, as a technology driver for Europe."
Upon request, the representative clarified that there might be a slight reduction in administrative jobs. On the other hand, hiring opportunities will be sought in the industrial sector. However, the ultimate number of employees remains uncertain. In spring 2023, Varta announced plans to cut around 800 jobs worldwide as part of a cost-reduction program - around 390 of them in Germany.
Battery heavyweight has been grappling with challenges for some time. For instance, demand for lithium-ion coin cells, used in devices like headphones, has been unpredictable. Recently, Varta complained about cut-throat competition from China and persistent supply chain issues. Furthermore, hackers attacked Varta's computer systems in February, halting production for weeks.
In mid-April, Varta acknowledged that their restructuring plan was no longer enough to achieve profitable growth by the end of 2026 as initially intended. In June, due to weak demand, Varta lowered its 2024 revenue target. The expected revenue now ranges between €820 million and €870 million this year, down from the board's initial target of at least €900 million.
In the first nine months of 2023, Varta reported around €554 million in revenue. Due to the hacker attack, no recent financial figures are available. First-quarter 2024 figures are expected on August 30, and the 2023 annual report is scheduled for late October.
The Commission's role becomes relevant as the restructuring strategy involves seeking approval for certain capital measures, with the Commission set to adopt implementing acts laying down the rules for the application of relevant regulations.
In line with the restructuring agreement, significant investor Porsche will contribute 30 million euros, aiming to secure Varta AG's financing till the end of 2027.
