Bertelsmann Chief Opens Door to Share Sale After 177 Years

Bertelsmann AG Chief Executive Officer Thomas Rabe
Bertelsmann AG Chief Executive Officer Thomas Rabe said, “We’re facing a strategic reshaping, and of course we have to see how we finance such a transformation.” Photographer: Michele Tantussi/Bloomberg

Bertelsmann AG plans legal changes that may pave the way for an initial public offering, indicating the 177-year-old company’s owner is relaxing its opposition to a share sale under new Chief Executive Officer Thomas Rabe.

Europe’s largest media company plans to convert into Bertelsmann SE & Co. KGaA by June 30, a legal form that facilitates additional private investment, including a possible share sale, Rabe said in Berlin today.

The Mohn family, which resisted taking Bertelsmann public in the past decade, initiated the change, according to Rabe. The former chief financial officer, who took over as CEO at the start of the year, aims to rekindle growth by expanding the BMG music-rights unit, establish Bertelsmann in the education-services market and boosting its presence in China and India.

“The strategic priority for us is now to improve the growth profile of Bertelsmann,” Rabe said. The company makes about 80 percent of its sales in Europe and lackluster growth there means it needs to enter faster-growing markets, he said.

The legal change will give the Guetersloh, Germany-based company more flexibility to raise funds for the planned expansion, said Rabe, speaking to journalists before he presented the company’s full-year earnings.

“We’re facing a strategic reshaping, and of course we have to see how we finance such a transformation,” he said. “This also includes the option to potentially take the company to the stock exchange, if that turns out to be the best path for us and for our shareholders.”

Seeking ‘Inspiration’

The Mohn family, which owns 19.1 percent of Bertelsmann according to the company’s website, engineered the ouster of former CEO Thomas Middelhoff in 2002 because he sought to sell shares to fund faster growth, investors said at the time.

The company, which controls Europe’s largest television broadcaster RTL Group SA, reported a 1.2 percent increase in revenue last year. The publishing business, whose brands include Random House, reported declining sales for the period.

The KGaA legal form is used by members of Germany’s benchmark DAX Index including Henkel AG, the maker of Loctite superglue, drugmaker Merck KGaA and kidney dialysis company Fresenius Medical Care AG.

These companies “aren’t setting an example, but of course they give us inspiration,” Rabe said, adding that Bertelsmann will remain an “independent family company.”

The rest of Bertelsmann is held by foundations, including the Bertelsmann Foundation and the Reinhard Mohn Foundation, whose boards count some Mohn family members.

Strategy Focus

Rabe, in his previous role as CFO, orchestrated the 4.5 billion-euros ($6 billion) purchase of a 25.1 percent Bertelsmann stake from Groupe Bruxelles Lambert SA in 2006 to reduce pressure for an initial public offering and return control to the Mohns.

Since Rabe was promoted, Bertelsmann has set up a wider management committee to advise the board on strategy, hired an executive to supervise expansion in new areas, and presented two new candidates, Guillaume de Posch and Anke Schaeferkordt, to succeed RTL CEO Gerhard Zeiler next month.

The company expects a “moderate” increase in revenue and operating earnings before interest and taxes in 2012 and 2013, and profit this year will be higher than last year’s 612 million euros as restructuring costs decline, the company said in its annual report today.

“It’s not yet decided if and when and how we will take on capital, what matters is that it meets the requirements of our strategy,” Rabe said.

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