A Century-Old Bavarian Conglomerate Harvests Risks of Easy-Money Era

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Or sign-in if you have an account.sa2iy3sz8yu3qit6mno4[i[r_media_dl_2.png Bloomberg(Bloomberg) — Over the last two years, a cluster of Germany’s high-flying lawyers and bankers have been making unlikely pilgrimages to a bleak gray tower on the edge of Munich’s business district.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountTheir visits have little to do with the Bavarian capital, but instead with the city’s surrounding meadows and farmland. At hand is the painful rescue of BayWa, a century-old conglomerate whose name is a byword for the state’s agricultural economy. Owned by co-operatives from Bavaria and bordering Austria, BayWa’s fate has long been deeply interwoven with those of the farmers that are sometimes both its shareholders and customers.Founded in 1923 to supply rural regions with agricultural goods and to market farmers’ products, BayWa grew into one of the world’s top ten agricultural traders, becoming so well-known that it was satirized in a catchy song set to the music of the Bavarian state hymn. At its 100-year anniversary, the state’s economy minister dubbed BayWa “the second-most important institution in rural areas, next to the Catholic church.” Even as the company claimed the title of Germany’s largest agricultural trader, it maintained its regional presence, continuing to supply Bavarian farmers with seeds and fertilizer, market their produce, repair their machinery and advise on farming methods.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againThe company strayed from its origins in the 2010s, however, when it loaded up on cheap debt and expanded into over 50 countries. Through a spree of acquisitions, BayWa moved beyond grains, farming equipment and construction into renewable energies in Texas and fruit production in New Zealand. In the process, the group’s liabilities grew to more than €10 billion, including almost €5 billion in loans from a roster of Germany’s largest corporate lenders, such as Deutsche Bank, Commerzbank and DZ Bank.“BayWa simply took on too much debt,” said Daniela Bergdolt, a lawyer whose organization says it’s in contact with a four-digit number of the firm’s small shareholders. For farmers, she said, buying BayWa stock had made sense as they knew the business model and considered it a safe investment.“No one imagined that by taking out loans to finance its business outside Germany, the company would be taking such a huge gamble,” Bergdolt added.The collapse in summer 2024 came rapidly: an inability to borrow in the short-term debt markets that had greased the wheels of BayWa’s intricate operations left it with a giant pile of payments coming due. The bankers moved in, discovered a loosely combined string of entities with little integration between them. Managers were subsequently ejected, and the supervisory board came under scrutiny.With little public information to go on at first, business relationships were thrown into question. Rudolf Eisemann, a hops farmer who markets to beer brewers, quickly sold his 300 BayWa shares at a loss. Martin Thum, a Bavarian farmer who raises cattle and sells rapeseed and wheat, had already delivered a shipment to BayWa when its financial difficulties surfaced. For several weeks, he was unsure whether he would be paid.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.In the end, BayWa honored the contract. And while Thum still works with the company, he’s gotten more cautious. “Back in the days, BayWa was a safe partner,” Thum said. “Nowadays, you weigh your options, wondering if maybe someone else might offer the same deal.”The company undertook a wide-scale restructuring later in 2024 to salvage the business, with banks forking out around €1.3 billion in fresh debt, according to figures provided by a BayWa spokesperson, and shareholders injecting new funds. While debt restructuring advisers aren’t typically known for their acts of mercy, in BayWa’s case they were painfully conscious of people like Eisemann — customers who also held its traded stock. Rather than cut those small-scale shareholders to zero, as is often the case in restructuring deals, and risk reputational damage, these shareholders were given the opportunity to re-invest in the company. That allowed them to maintain their stakes and potentially benefit from any big turnaround. In the end, they chipped in over €50 million.But hope for a swift recovery soon waned. Just a year into its overhaul, BayWa undershot its projections, forcing stakeholders back to the table.A representative for BayWa declined to comment beyond public statements.At the end of June, stakeholders agreed to the outline of a new restructuring deal. Now they need to hammer out a full plan by autumn. The fate of the small shareholders is just one of the many unanswered questions hanging over BayWa’s second restructuring, as the company also needs to win over approximately 300 creditors. Just a handful of opponents could put the plan at risk.Even if an agreement is reached, there is still a vast amount of uncertainty around how the company will pay back its creditors. The proposal envisages as much as €700 million in loans being subordinated — meaning they have a lower chance of ever being repaid — but major shareholders will likely have to inject at least €220 million into BayWa, and the rest will need to be paid back through the sale of business divisions.One of the sticking points is BayWa r.e., a renewables unit BayWa co-owns with Swiss investor Energy Infrastructure Partners. The company has been struggling with sweeping changes to renewables regulation in the US, higher interest rates as well as a collapse in the price of solar components. BayWa has already slashed expected proceeds of the sale of its stake in BayWa r.e. from €1.7 billion to €900 million. In a worst-case scenario, in which principal owners Bayerische Raiffeisen-Beteiligungs-AG and Raiffeisen Agrar Invest AG can’t come up with the necessary funds, the company could be sold to pay back its lenders.Despite these uncertainties, the intention of the restructuring is clear: a return to BayWa’s agricultural core. It’s a veiled rebuttal to the company’s earlier expansion plans and the financiers who fueled them during the easy-money era. As he brought in his harvest near the Bavarian town of Augsburg, Thum said BayWa was working hard to repair relationships with customers through faster payments and higher offers. The 48-year old still relies on the company to quickly provide him with supplies ranging from pesticides to milk for his calves. “They have everything, that’s the advantage,” Thum said.“We’re just hoping that the other divisions will be sold off and the agricultural division will remain,” he added.—With assistance from Isolde MacDonogh.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.