BERLIN, December 5 /PRNewswire/ -- Hedge funds are abusing the global financial crisis they helped to create in order to lever out companies of the real economy. Example: Attack by Concordia Funds manager Jason Cheung (London) and investment banker Alexander von Ungern-Sternberg (London) on the industrial company Schumag AG (Aachen, Germany).

- What this is about

Schumag AG is a German industrial company with a history stretching back 178 years. The company manufactures precision instruments and machinery and is listed on the stock exchange.

On 28 November 2008, the Anglo-American hedge fund Concordia published advertisements in German newspapers announcing it would sell Schumag AG shares by public auction in Frankfurt/Main, Germany on 12 January 2009. Schumag AG's majority shareholder, Schumag Holding GmbH (Essen), has completely rejected this plan and declared it to be against the law. Schumag AG workforce are equally determined to offer resistance.

- Planned auction is illegal

Such an auction would be farcical. Even if a 'virtual auction' were to take place, no one could purchase these Schumag shares, as the Concordia Funds do not hold the lien over these shares. The contracts allegedly giving Concordia Funds a lien were found to be unethical and nill and void after extensive legal examination. Hedge funds that do not have a banking licence have issued loans in violation of Section 138 para. 2 of the German BGB (usury clause of the German Civil Code). The interest rates charged exceeded market rates by much more than 100 percent. Usurious practice is also a crime in Germany under Section 291, StGB (German Criminal Code).

- The dubious role played by Alexander von Ungern-Sternberg

At the time, investment banker Alexander von Ungern-Sternberg (Euro-IB Ltd., London) described the above mentioned contracts as a short-term temporary solution to be replaced later by regular financing arrangements subject to usual market conditions. The company's majority shareholder had no reason to doubt that Mr. von Ungern-Sternberg, a former Deutsche Bank manager, would provide responsible advice and he was granted an exclusive mandate. Alexander von Ungern-Sternberg gave assurances, which appeared to be trustworthy, that the hedge funds recommended would not use any unscrupulous practices.

In September 2007, Mr. von Ungern-Sternberg was appointed as a member of the Supervisory Board of Directors of Schumag AG and was Chairman of the Board until mid-April 2008. It soon became clear that Alexander von Ungern-Sternberg did not act in the best interests of the majority shareholder and Schumag AG, but rather on instructions from the hedge funds. Alexander von Ungern-Sternberg's plans to withdraw capital from the company, as well as his leadership style, resulted in the resignation of three highly respected board members.

Alexander von Ungern-Sternberg (Euro-IB Ltd., London) never managed to arrange any regular financing to replace the temporary financing. Instead he switched sides and violated the rules of the British Financial Services Authority (FSA), by joining forces with the hedge funds. Alexander von Ungern-Sternberg abused the insider knowledge he had gained as Chairman of the Supervisory Board in order to prepare a hostile takeover, on instructions from the hedge funds and by way of a public auction of Schumag shares. Or at the very least he wanted to force an early repayment of excessive claims exceeding the terms of the agreement.

- Public auction to put pressure on the company and as a hostile takeover instrument

In May 2008 the company's majority shareholder was first confronted with the sudden announcement of a public auction of its Schumag shares. As there would not have been enough time to have the matter decided in court, the Metage loan was repaid in order to stop the auction.

The current public announcement is intended to damage Schumag's image and relationships with its suppliers, clients and operative banks, in order to force the majority shareholder to give in to the illegal demands made by the funds. If the majority shareholder refuses to comply with these demands, the auction will serve as a hostile takeover. That this is a poorly concealed hostile takeover attempt is evident from the nominal value of the Schumag shares being set for the auction.

Schumag Holding is determined to show the hedge funds their limits in the current situation, and to fight off any hostile takeover attempt and stop a breakup of Schumag AG. Unlike in May 2008, this time the company's majority shareholder will not give in to the unreasonable demands put forward by the hedge funds.

- The international financial crisis

The plans pursued by the hedge funds, together with their accessory Alexander von Ungern-Sternberg, has a two-fold connection with the international financial crisis:

1) While hedge funds have always been infamous for their unscrupulousness , they have now become synonymous with losses and bankruptcies. Three out of four hedge funds have made losses for their investors in 2008. According to George Soros, every second fund is on the brink of failure. According to insiders, the Concordia Funds are also affected by this trend.

The more desperate the situation becomes for funds, the more ruthless and irrational their attempts to convert positions into cash become. These attempts extreme price fluctuations on international stock markets and destabilise the global economy. They trample on what is right and decent and jeopardise jobs and workers' existences. But funds managers and investment bankers such as Alexander von Ungern-Sternberg don't care about such issues.

2) The crash in the financial markets has made refinancing more difficult. Banks, which under normal circumstances would have made the necessary funds readily available to the majority shareholder, in view of the exemplary positive business development and considerable equity strength of the companies in the Babcock Schumag Group, are now hesitating. Funds such as Concordia and investment bankers like Alexander von Ungern-Sternberg are therefore intent on profiting from the difficult financial environment which the hedge funds themselves have helped to create.

- The Funds' refusal to find an acceptable settlement

Schumag AG's majority shareholder has made every effort to bring about a mutually acceptable and agreeable settlement with the funds. But funds manager Jason Cheung and Alexander von Ungern-Sternberg have put up quite unreasonable obstacles. Their demands were unacceptable and contrary to German securities laws. By insisting on withdrawing all cash equivalents from Schumag AG they have also endangered the future existence of this company and its long tradition.

It is notable that Concordia Funds manager Jason Cheung has also persistently refused to come to Germany to see Schumag AG for himself. Mr. Cheung has declined any invitation by the majority shareholder, he is hiding behind his desk and consciously closing his eyes to the fact that he is dealing with a company with hundreds of jobs at stake and an issue which affects hundreds of families.

- Workers and equity holders stand united

Ten days ago, Schumag AG signed an agreement with the SMS Group (Düsseldorf, Germany) regarding the sale of its machine engineering division. The proceeds from this sale, amounting to an eight figure sum, will be used for initiatives such as the making of highly promising investments to increase productivity and enhance Schumag's international position. Jobs and the German production site in Aachen will also be secured by such actions. This was mutually agreed by Schumag's employees and equity holders.

Ralf Marbaise, Joint Works Council and Staff Representative in the Supervisory Board of Schumag AG, noted: "Schumag AG employees regard the illegal plan to auction off Schumag shares as an obvious attempt made by unscrupulous financiers to break up our company. We agree with the equity holders that we will not sacrifice Schumag AG, an exemplary company in the real economy, to the dubious plans of hedge funds. Schumag AG employees will not accept that. They are proven fighters and stand fully behind their company. The actions of Alexander von Ungern-Sternberg during his less than constructive time as Chairman of the Board of Schumag AG are currently subject to legal investigations initiated by the staff representatives on the Supervisory Board some time ago. These investigations will be completed very shortly. Legal remedies are only one dimension. A coalition between our staff and the unions, members of the regional and national parliaments, and other office holders from Aachen, the state of North Rhine Westphalia and from the Federal level, will put up a dedicated fight against a hostile takeover bid. We will also be collaborating with our union colleagues in Great Britain during this process."

- Legal sanctions

Both Schumag AG itself and its majority shareholder will emerge stronger from this challenge. Schumag Holding and Schumag AG are not the ones who will have to worry, but the Anglo-Saxon hedge funds managers and Alexander von Ungern-Sternberg may face considerable damages claims and legal issues, possibly even criminal proceedings.

Media contact: Schumag Holding GmbH (Essen); Contact: E. Uzun - Head of Corporate Communications - Babcock-Schumag, Group - Phone: +49(0)30-20-60-68-650 - Mobile: +49(0)172-32-62-600, E-mail: kommunikation@babcock-schumag.de

SOURCE Schumag Holding GmbH