Battery Manufacturer
Varta stock plummets 80 percent – is Porsche saving the battery company?
The ailing battery manufacturer Varta is aiming to avoid insolvency
© Karl-Josef Hildenbrand/dpa / Picture Alliance
The crisis at Varta is deepening; a pre-insolvency restructuring procedure is now expected to bring a rescue. Porsche is also looking to help. Shareholders are facing massive losses.
Investors are reacting to the planned restructuring procedure at the battery manufacturer Varta with a sell-off of shares. Upon opening, the stock plummeted nearly 80 percent to a record low of 2.10 euros. The troubled company from Ellwangen announced on Sunday solutions for a restructuring plan aimed at reducing its heavy debt burden, but shareholders will be left empty-handed.
Varta has filed for a pre-insolvency restructuring procedure at the Stuttgart District Court. An insolvency can only be avoided if experts issue a positive going concern prognosis for the company. Fresh capital of around 100 million euros is needed for this, said CEO Michael Ostermann, who has been brought on board as a restructuring expert. One of two competing proposals involves a joint capital injection from the existing major shareholder Michael Tojner and the sports car manufacturer and Varta customer Porsche. The other comes from the creditors.
Which of the two solutions will be implemented remains uncertain, Ostermann said, who joined Varta in May. “In the end, what matters to me is that we have a good solution for Varta.” In both cases, existing shareholders would be left empty-handed. Their shares were still worth 440 million euros on Friday.
“I am committed to rescuing Varta. This is a matter close to my heart.” Without a reduction in debt, Varta cannot invest appropriately, Ostermann explained. “The goal is debt restructuring.” However, the banks and hedge funds that have invested in a consortium loan of 235 million euros must also be on board. Varta has borrowed 250 million euros through promissory notes.
A significant double-digit million capital injection is necessary for the company to receive a positive going concern prognosis from experts, Ostermann said. This, in turn, is the basis for avoiding insolvency. Austrian investor Michael Tojner, who holds just over 50 percent of Varta shares, would contribute about half of that and thus retain the majority; the remainder could come from Porsche. This would finance Varta until 2027.
Porsche: “Key technologies retained”
“We can confirm that Porsche is in negotiations (with Varta),” said a spokesperson for the sports car manufacturer. The Volkswagen subsidiary is primarily interested in the large lithium-ion battery cells intended for use in the next Porsche 911 GTS. “The goal of our involvement would be to retain this key technology in Germany.” Porsche has indicated plans to take a majority stake in the Varta subsidiary V4Drive, which manufactures automotive batteries. However, that alone apparently is not enough. “Under certain circumstances, we could therefore also envision participating in a financial restructuring of Varta AG as a whole,” the automaker explained. However, talks are still ongoing.
According to Ostermann, the reason for the company’s difficulties lies in investments made in 2021 and 2022 that have yet to yield results – in large lithium-ion batteries, as well as in mini batteries for headphones. V4Drive was a major hope for Varta but has turned out to be a burden. Due to lack of orders, the company has put the construction of a factory for large lithium-ion batteries on hold.
The company has not yet submitted an annual report for 2023 – due to a cyber attack in the spring, but also due to the uncertain future. It will take at least until the second half of August to implement the restructuring concept, Varta explained.
The Company Stabilization and Restructuring Act (StaRUG) has been in place in Germany for three years. This process aims to prevent an operationally viable company from going bankrupt. The resistance of individual creditors, as well as shareholders, can be overridden. Last year, the Nuremberg automotive supplier Leoni underwent restructuring via this route. Here, too, shareholders lost everything, which drew severe criticism from shareholder protection advocates.