Selling Off Germany Inc.

Time was when investors considered Allianz (AZ ) shares to be a proxy for the entire German economy. In the postwar years, the Munich financial-services giant built up hefty stakes in so many blue-chip companies -- including carmaker BMW, retailer KarstadtQuelle, and chemical company Linde (LNAGF ) -- that buying Allianz stock ensured exposure to most of the companies in the DAX 30 index.

No longer. Since Jan. 1, 2001, when the German government abolished capital-gains taxes on the sale of industrial holdings, Allianz has sold off shares worth $31 billion in a range of companies, including utilities RWE (RWEOY ) and E.ON (EON ) and chemical maker BASF (BF ). It raised $5.4 billion alone by lowering its stake in Hamburg cosmetics maker Beiersdorf from from 47% to 3.6%. (It later raised that back up to 7%.) "In general, we want to limit the holdings in our equity portfolio to [stakes] of around 5%," says Chief Financial Officer Paul Achleitner.

Allianz' biggest uncoupling by far has been with fellow insurance giant Munich Re Group. Three years ago it owned 33% of the reinsurer, which in turn owned 25% of Allianz. The companies also jointly owned a range of smaller insurance underwriters. Since then, Allianz has reduced its stake in Munich Re to just 9%, while the reinsurer now owns just 12% of Allianz.

Unraveling Germany Inc. has allowed Allianz to reinvest the money in its core businesses and to shore up its standing with rating agencies by reducing its exposure to volatile equities. Achleitner says equities make up just 16% of Allianz' overall investment portfolio, compared with 36% in 2000. In turn, the companies whose stock has been sold benefit by becoming more liquid.

Of course, there are risks in all this share trading. Just ask Beiersdorf Chief Executive Rolf Kunisch. When news broke that Allianz was considering selling most of its stake in the company, rumors swirled that Beiersdorf might fall victim to a takeover attempt by the U.S.'s Procter & Gamble Co. (PG ) or France's L'Oréal (LORLY ). That unsettled the Hamburg city government, which feared the cosmetic maker -- best known for its Nivea brand -- would be broken up, with a loss of jobs and local tax revenues. In the end, Allianz sold its stake to a consortium led by Hamburg-based coffee company Tchibo. "We found a solution that is advantageous to everyone concerned," says Tchibo CEO Dieter Ammer. And those Hamburg jobs are secure.

By David Fairlamb in Munich

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