RAG bag

16 December 2005 By Nina Koeppen

The unlisted German coal miner s core business is in decline. It needs to take over the chemicals group to achieve its objective of an IPO. But the purchase makes no sense industrially. It would create an unappealing and undercapitalised conglomerate.

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The supervisory board of German coal mining group RAG will meet on Monday to decide whether to bid for a 43% stake in Degussa, the speciality chemicals group, according to Handelsblatt.

The stake, worth E3.4bn at current market prices, is being sold by E.on. The German utility promised US antitrust regulators that it would sell all its noncore businesses when it acquired the UK's Powergen three years ago.

RAG already owns 50.1% of Degussa, which it mostly acquired from E.on in exchange for its interests in Ruhrgas, the giant German gas importer.

RAG chief executive Werner Mueller told Die Welt this week that RAG would either acquire E.on's entire interest in Degussa or would, if there were no deal, dispose of its own stake in the chemicals firm.

Mueller, a former economy minister, plans to split RAG in two parts and list the group's nonmining interests on the Frankfurt stock exchange in the first half of 2007.

RAG's main shareholders are E.on, RWE and ThyssenKrupp. The conglomerate, which in 2004 received close to E3bn in subsidies for its coal mining unit, is heavily indebted. At the end of last year it had net debt plus pension liabilities of about E12bn.

This together with hefty future charges with regard to the closure of coal mines has led ThyssenKrupp to write down its stake in the group to zero. The other shareholders are expected to do follow suit.

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