Europe's corporate raiders are crushed

Like a nuclear warhead, a bear market is a dumb, indiscriminate weapon: it destroys the good along with the bad. Some poorer companies will be squeezed out as the market slumps and so will some foolish chief executives. But good companies and clever businessmen will suffer too ' including Europe's two leading corporate raiders.

Martin Ebner, the reclusive Swiss billionaire, and Germany's Karl Ehlerding loved to trade stocks. They took big positions in companies, made big bets on their own judgments and often walked away with big profits. In Europe's savage bear market, both men look to be fading influences on corporate life.

In early August, Ebner gave up control of the BZ Group Holding AG funds he controlled after their value collapsed by more than half this year. Ehlerding also said he was in talks with bankers to cede control of his WCM Beteiligungs und Grundbesitz AG company. Both men, no doubt, were burnt by the collapse in the markets.

These are individual stories of loss and pain for which you may or may not feel sympathy. Both men, no doubt, still have a few million safely tucked away somewhere. There will still be presents at the foot of the Ebner and Ehlerding family trees this Christmas. We can save our tears for more deserving cases.

The big point is what these men represented. Ebner and Ehlerding were the praetorian guard of Europe's corporate raiders. They were among the few investors able to force change on often bloated and arrogant European companies that decades ago lost contact with shareholders and customers. Their demise signals that, in Europe, the bear market is a reactionary force, reinforcing the power of the old industrial elite and halting change. For Europe's economy, that can only spell very bad news.

Both men used methods new in Europe but familiar to anyone who followed the US corporate raiders of the 1980s. They took big stakes in companies they thought were performing badly, lobbied and harassed for change and then sold out at a fat profit. To the self-perpetuating oligarchies that traditionally ran Europe's corporations, they were a threatening force.

Ebner's Impact

Of the two, Ebner was the bigger force. He is credited with engineering the merger that created UBS AG, Switzerland's number one bank. He took a 20% stake in Roche Holding AG and fought for a seat on the board before selling out to its Basel rival Novartis AG. And he had big stakes in Crédit Suisse Group and ABB Ltd. In a conservative and increasingly moribund Swiss economy, he was one of the few voices arguing for change.

Likewise, Ehlerding, one of Germany's richest men, contrived the sale of the retailer Spar Handels-AG to France's Intermarche in the 1990s. Last year, he bought packaging maker Kloeckner-Werke AG for about $1bn and has gradually sold off its assets. In February, WCM bought 5.5% of Commerzbank AG.

Both men relied on using other people's money to buy shares and you don't need an MBA in corporate finance to know that in a bear market that can be a very dangerous way of life.

WCM has not been much of an investment in the past few years. Its shares rose from just over E2 at the start of 1997 to a peak of E33 in 1999. It has since slid back to E3.40. Ebner's BZ Group funds have lost a combined $1.8bn in value this year. In an interview with Swiss television, he blamed the market collapse for his problems.

Other European raiders have also been in trouble. Earlier this year, Hansgeorg Hofmann stepped down as head of the German investment group Cobra. He had taken a 10% stake in Commerzbank and had been pushing it to break itself up. In France, François Pinault is not the force he once was. Vincent Bollore is still in the game: he took a stake in Vivendi Universal just before Jean-Marie Messier was ousted and is reported to own 10% of Italian bank Mediobanca SpA. But shares in his main company Bollore Investissement SA are down.

In Italy, Roberto Colaninno, who masterminded the hostile takeover of Telecom Italia SpA, has gone. It is a paradox of Europe's bear market that even as their share prices sink lower and lower, Europe's big companies are safer from takeover than at any point in the last decade.

No Takeover Mood

True, individual chief executives may be under threat ' just ask Vivendi Universal's Messier or Deutsche Telekom AG's Ron Sommer. But the companies themselves are not going to get taken over. Nobody has the money ' and the capital markets are not in the mood to give it to them. Men such as Ebner and Ehlerding had the potential to play a big role in reforming Europe's economy. Shareholders can cajole and threaten but without takeovers the capital markets are owners in name only. They have no way of handing control of the company to someone else and without that they have little real power.

There are few mechanisms for stopping big companies wasting money foolishly. Without raiders, who will stop Sir Chris Gent squandering yet more of Vodafone Group Plc's money on 3G networks that nobody wants? Who will make DaimlerChysler AG's Juergen Schrempp sell Chrysler?

Right now, nobody, Ebner or Ehlerding, could have done that. With their demise, Europe's industrial elite looks more secure than ever ' and the reform of Europe's economy has faded into the distance.

Matthew Lynn in the London Bloomberg offices