For years, Martin Ebner was Europe's ultimate shareholder activist, buying stakes in Continental companies, then hounding management to improve returns. When the Zurich-based Ebner took a stake in a European blue chip, he often pressured it into a merger or other moves that led to big profits for himself and other investors. Even a rumor of the canny Ebner's involvement in a stock could juice the price.
Now the tables are turned. The man who once forced companies to clean up their act has a royal mess to deal with at his own company, a mess so big it may effectively end Ebner's career as an activist. Ebner's closely held company, BZ Group Holding, seems in severe financial difficulties after borrowing heavily to invest in such stocks as Credit Suisse Group, ABB, and Sweden's Investor. Shares in these and other companies in BZ's portfolio are sliding. In late July, BZ said it had a position of under 5% in Credit Suisse, 9.7% in ABB, and 9% in Investor. The value of BZ's total portfolio may have dropped by as much as $1 billion since that announcement and is now estimated at $3.4 billion (table).
This implosion of his holdings is not just a problem for the secretive Ebner: It's an important ingredient in the severe jitters now running through European stock markets. And it's having an especially big impact on Credit Suisse, a company that has had extensive dealings with the Swiss financier. Since the shock announcement on July 31 that the 56-year-old Ebner was selling control of BZ's four Visions funds, which held about $2 billion in stocks, to a regional Swiss bank, the shares of companies in which he is known to be invested have been punished. "All of Ebner's positions are now considered for sale," says a senior official at one of his portfolio companies.
The July fund sale followed a deal between Ebner and creditor banks aimed at giving the investor breathing room and calming the markets. But the plan hasn't worked. Fears of an Ebner fire sale rose on Oct. 4, when he announced his resignation as chairman of Basle-based chemical firm Lonza Group in preparation for selling his 19.8% stake, which is valued at $520 million.
The deal with the banks gave Ebner a year's grace period on an estimated $4.4 billion in debt. But a banking source says that if Ebner's holdings, used as collateral, fall sharply, he might be forced under the agreement to make more sales. Recent weakness in the shares of CSG, whose share price has fallen about 40% since late August; ABB, which has dropped by more than half; and other stocks have raised fears that such triggers are within reach.
None of the creditor banks would comment on the record, but an official at one said that a paucity of information from Ebner contributes to the volatility of the markets. Ebner's private BZ Group is required only to make limited disclosures of operations. Asked about the group's plans, Kurt Schiltknecht, an Ebner associate, says: "I can't make any prediction." Beyond that, he refused to comment on the group's financial condition except to say that press reports of its problems were exaggerated.
One heavily exposed lender is Credit Suisse, which provided Ebner with a hefty chunk of the financing to build his positions and is a key party in the July agreement to keep him afloat. That Ebner was borrowing from Credit Suisse at the same time he held a roughly 10% stake in the bank--now reduced to 5%--is raising more than a few eyebrows. Ebner acquired his CSG position in 1997 when he pressed the big bank into buying Swiss insurer Winterthur, in which Ebner was a major investor. Credit Suisse says most banks routinely lend to shareholders and that doing so doesn't infringe any legal or regulatory requirements.
Observers say that Ebner has been his own worst enemy. He overreached, they say, when he joined the boards of the companies he invested in, such as ABB, in the late 1990s. Rules against exploiting inside information gleaned from such positions surely hampered his ability to trade freely, an insider says. Perhaps because he was on the board, Ebner stuck with his large stake in ABB despite the emergence in early 2001 of major doubts about its performance. At current prices, Ebner's losses at ABB may approach $2 billion.
Now traders are closely watching Ebner's situation. Hedge funds have been shorting baskets of Ebner-held stocks, anticipating further bad news. The Ebner companies are now "very much a focus of hedge fund ideas," says an industry source in London.
One thing that seems sure is that Ebner's poisonous influence on the markets will persist unless he clears the air, convinces other traders he has finished selling, or is saved by a huge rally. In other words, don't put away your crash helmet.
By Stanley Reed in London