(2 of 2)
In 1973, the company stopped paying stock dividends. In 1979, it received $764 million in unsecured loans and new capital, mostly from a consortium of 24 banks. The bankers also hand-picked a new chairman: Heinz Durr, then 46, a soft-spoken manager of a family-owned manufacturer of painting equipment. Last year he sold operations worth $177 million and negotiated with banks to write off millions of dollars in loans.
As late as last month the Bonn government agreed to give the company another injection of funds, in the form of export credit guarantees, bank loan write-offs and new bank credits amounting to $470 million. Events, though, were rapidly running against the troubled colossus. In June, President Ronald Reagan suddenly broadened the U.S. embargo on sales of American products for the planned Euro-Soviet gas pipeline, endangering a $260 million AEG-Telefunken contract to deliver to the Soviets 47 gas turbines that are being built under a U.S. license. Durr's ambitious program to restructure the company, called AEG '83, was stillborn when trade unions blocked the elimination of some 20,000 jobs. A British electronics firm early in August backed out of a plan to buy 40% of AEG-Telefunken's operations, and United Technologies, based in Hartford, Conn., also rejected a last-minute overture for help.
In the end the cash simply ran out. Money became so tight, by one account, that the firm stopped paying suppliers directly. Instead it sent checks by mail so that it could keep the funds in its bank account a little longer. Finally, the company had no alternative but to seek legal protection so that it could remain in business while settling its debts. That is just one small step short of formal bankruptcy.
Now that AEG-Telefunken is in receivership, a court-appointed appraiser will determine whether it can pay the legal minimum of 40% of its debts within 18 months and still remain in business. The Bonn government, which in the past has helped arrange mergers between troubled companies in the steel and automobile industries, has promised additional aid. Even if part of the firm survives, however, at least 20,000 jobs will be lost and dozens of factories either sold or shut down.
Many West German bankers and businessmen hope that the collapse of AEG-Telefunken will act as a spur for their country. They have long complained that high wages, low investment and excessive government regulation have sapped their country's economic strength. West Germany will need to return to bold innovation and good management if it hopes to succeed in high-technology growth industries of the 1980s. Those were the very areas where AEG-Telefunken failed.
— By Alexander L. Taylor III.
Reported by D.L. Coutu/ Bonn