Dialysis specialist Fresenius Medical Care becomes a common stock company. For the parent company, the company has now become a liability. Now it should no longer burden the balance sheet.
Publicly traded major company Fresenius Medical Care (FMC) becomes a common stock company. At noon today, the general meeting of shareholders in Frankfurt am Main decided almost unanimously to convert the unusual legal form of the limited partnership (KGaA) into a common stock company. Represents 85% of the share capital. FMC operates more than 4,000 dialysis centers worldwide, treating 345,000 patients. The business has annual sales of nearly 20 billion euros. With the new legal form, the big shareholder solves the problem and other shareholders have more influence in the future.
welcome when shareholders should not interfere
Germany has only 564 KGaA. This is the result of an evaluation of the official website handselsregister.de, which summarizes the local business register. How does KGaA work? It has at least one shareholder who is fully responsible for the company. In the event of bankruptcy, the “personally responsible partner” must forego every last penny. Shareholders, on the other hand, are only responsible for the value of their shares. Therefore, full liability partners take on higher risks. In return, they can run the business alone without shareholder interference.
This legal form is popular when owners are raising money from shareholders but don’t want to share the corporate power. This is the case when the company is owned by a family or foundation. KGaA is also common among football clubs that outsource professional operations. However, practice has shown that clubs managed by commercial amateurs are sometimes not up to the task of their professional shareholders. While shareholders are formally powerless, they still have an informal say. In the private sector, things are always different.
a very special company
The previous “Fresenius Medical Care KGaA” had some specialties. The personal liability partner is the joint-stock company “Fresenius Medical Care Management AG”. The Management AG is a small company with a share capital of less than EUR 5 million (as of December 31, 2021). This limits personal liability and essentially eliminates it.
FMC is a member of DAX, an index of 40 of the most important German stock exchange companies. Nearly 36 percent of voting power belongs to another company, according to the financial watchdog’s official database. The parent company is Bad Homburg Medical Group Fresenius. The parent company is also the owner of Management AG and can therefore make decisions solely at FMC. As such, Fresenius is a joint-stock company whose responsible partner is a small joint-stock company and a member of the German DAX index. The situation is complicated and difficult to understand from the outside world, which also confuses foreign investors.
bad deal
Dominant influence does not always lead to convincing results. The parent company has selected Carla Kriwet as FMC’s new boss, who will take over on January 1, 2023. For her ability to do this three months earlier, Krivet received an additional €100,000 “joint bonus”.
But while those responsible had “a comprehensive understanding of their quality, experience and suitability” beforehand, it was clear after just two months that “lasting damage could be done” was imminent. The contract terminates before the agreed period begins. 66 days in office, 1.326 million euros including signing bonus.
There’s also $1.8 million in severance pay and another $1.8 million because Kriwet is temporarily not allowed to work in the healthcare industry. The FMC is unclear whether the $1.3 million will also be used to compensate for lost wages from previous employment. In any case, the company car will last another two years.
legal form of good times
At first, management enthusiastically welcomed the parent company’s entrepreneurial crackdown. “We are creating the KGaA of the 21st century”, was the motto when Fresenius created KGaA 18 years ago out of its subsidiary FMC, which was still a public limited company. It is easy to understand and is the ideal legal form. At this Friday’s shareholder meeting, management pushed back convincingly. Klaus Nieding of the German Securities Protection Association commented: “Roll backwards.” Future shareholders of “FMC AG” will once again have more say.
The once glamorous daughter is now a burden to the parent company. Until now, the parent company had to include the entire turnover of the KGaA subsidiary on its balance sheet. However, as a minority shareholder, she only gets about one-third of FMC’s profits. Risks increased in the dialysis business and profits collapsed. In the future, the business figures of “FMC AG” will no longer be included in the balance sheet of Fresenius.