The troubled battery manufacturer Varta has reached an agreement with financial creditors and investors on a restructuring plan.
In recent months, the battery manufacturer Varta has seen a surge of bad news: a hacker attack on production, missing annual figures, a drop from the third stock exchange league, and missed revenue targets. Observers have witnessed the traditional company from Ellwangen sliding deeper into crisis, despite batteries being regarded as future products.
The struggle for survival seems to be over for now. Over the weekend, the company announced an agreement with financial creditors and investors. However, the restructuring plan includes several bitter pills. Questions arise: What will happen next for the Swabians? And how did it come to this?
Debt cut and Porsche’s entry as salvation
The plan primarily includes two steps: a debt cut and the extension of loans, which is expected to reduce liabilities from almost half a billion euros to 200 million euros. Then, the share capital of Varta AG is to be reduced to zero euros. The effect: current shareholders exit without compensation, and the company loses its stock market listing. Investor representatives have already announced resistance.
Alongside a company controlled by the previous majority owner Michael Tojner, the Stuttgart sports car manufacturer Porsche is also investing in Varta. Both will each invest 30 million euros. Additionally, the creditors are providing another 60 million as loans. If everything goes as planned, this initiative is intended to secure Varta AG’s financing until the end of 2027. The battery manufacturer initiated the pre-insolvency restructuring procedure in July.
Company with a long history
The origins of Varta—the name is derived from the first letters of “Vertrieb, Aufladung, Reparatur transportabler Akkumulatoren” (Distribution, Charging, Repair of Portable Accumulators)—date back to 1887. Researcher Fridtjof Nansen even took Varta batteries with him on a polar expedition. Today, Varta has little in common with the company that was founded as an accumulator factory in Hagen. The reason: Varta ran into crisis as early as the 1990s, was split up, and sold off in pieces.
Boom due to batteries for wireless headphones
Austrian Tojner entered in 2007. He bought the microbattery division and took it public ten years later. Tojner seemed to have a good instinct: the IPO was considered successful. This development was primarily driven by the rapidly increasing demand for rechargeable lithium-ion batteries—for example, for wireless headphones and smartwatches.
In 2019, Varta also reacquired the household battery division. Within a few years, the company almost quadrupled its revenue. Millions were invested to expand production—and debts were incurred. During this time, the Swabians also began developing battery cells for electric vehicles.
From hopeful player to restructuring case
In 2022, the first cracks appeared: Varta had evidently become too dependent on one of its major customers—Apple. The US company had used the batteries from Ellwangen in its wireless earbuds. When Apple sought another supplier, business came under pressure. The then CEO Herbert Schein had to revise the revenue and profit targets and resigned shortly thereafter.
In the aftermath, the global economic downturn and high inflation in consumer electronics struck a blow. Demand for the small batteries dwindled. Competition from the Far East and supply chain issues added to Varta’s troubles.
Electric vehicle battery in a niche
Furthermore, Varta’s electric vehicle battery remained a niche product. The battery is designed for hybrid vehicles and can store very little energy. It stores energy generated while driving, for example, during braking. This powers an electric motor that assists the combustion engine.
Varta’s management repeatedly stated that there were many interested parties. However, the only known customer is Porsche. For this reason, the Zuffenhausen-based manufacturer also plans to acquire a majority stake in Varta’s subsidiary, V4Drive Battery. Porsche urgently needs the batteries for the hybrid drive of the Porsche 911 Carrera GTS.
Tojner: “We set the bar too high”
Operational difficulties, high debts, and deep red numbers—Varta continued to slide further into crisis. Employees had to go on short-time work, and later hundreds of jobs were cut. On top of everything, a hacker attack paralyzed production at the German sites in the spring.
Employee and shareholder representatives primarily blame management errors for the misfortune. Even Tojner, who is the chairman of Varta’s supervisory board, recently admitted self-critically in the “Frankfurter Allgemeine Zeitung”: “We set the bar too high. We launched various projects, invested heavily, and expanded production.”
Too much money was carelessly invested, Tojner said. By the time the crash came—due to a lack of risk assessment and overloading of the organization. “In hindsight, the supervisory board, with me at the forefront, must also acknowledge mistakes. I should have insisted on sustainable risk assessments much earlier,” he confessed.
What happens next?
Varta intends to hold on to all locations in Germany. According to a spokesperson, there will be a moderate job cut in administration. However, workers are being sought in production. What this ultimately means for the number of employees—currently around 4,000 people work at Varta—remains to be seen.
The agreement must be documented in the coming weeks and submitted to the restructuring court. For this, the governing bodies of the involved parties must agree, and the Federal Cartel Office must give the green light. It is expected to take months before the plan is finalized. They hope to complete the process by the end of this year, it was said.
Shareholders react with dismay
A painful restructuring plan for Varta has caused the battery manufacturer’s stock to plummet on Monday. The share price dropped to as low as 0.76 euros; ultimately, the Varta shares closed at 2.13 euros via XETRA, down 45.09 percent.
Common stockholders are facing a total loss.
The plan involves initially a debt cut and the extension of loans to reduce previous liabilities from almost half a billion euros to 200 million euros to better position the company financially. However, the share capital of Varta AG is also to be reduced to zero euros. The effect: current shareholders exit with no compensation, and the company loses its stock market listing.
As new shareholders, immediately following the capital cut, a company controlled by Varta’s majority owner Michael Tojner (MT InvestCo) and an investment company from the sports car manufacturer Porsche will each invest 30 million euros.
For minority shareholders, there is likely little to gain here, writes analyst Thomas Wissler from MWB Research in a study. He maintains a price target of 0 euros and thus also a sell recommendation. He also pointed to the efforts of the German Protection Association for Securities Ownership, which calls on small shareholders to join forces.
The DSW had already criticized the anticipated restructuring plan sharply last week, stating, “Together with the restructuring consultant One Square Advisors and the law firms Nieding+Barth and K&L Gates, the DSW continues to call on affected shareholders to resist the planned expropriation.”
The fear of a total loss had already caused the stock price to crash in July. It fell from over 10 euros to less than 1.50 euros in just a few days. A vague hope that it might not be so bad was recently responsible for a small recovery. However, that is now over.
Varta went public in 2017 at 17.50 euros per share and was in high demand for a long time. In early 2021, the price—also due to the booming business with small batteries for wireless headphones—rose to 181.30 euros. Since then, it has been on a downward trend.
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ELLWANGEN / FRANKFURT (dpa-AFX)