Mannesmann AG

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Mannesmann AG

Mannesmannufer 2 4
Postfach 55 0l
D 4000 Düsseldorf 1
Germany (211) 820 2249
Fax: (211) 820 2554

Public Company
Incorporated: 1890 as Deutsch Österreichische Mannesmannröhren Werke Aktiengesellschaft
Employees: 127,000
Sales: DM 30.4 billion
Stock Exchanges: Düsseldorf Frankfurt Geneva Zürich Basel Vienna Paris
SICs: 3312 Blast Furnaces& Steel Mills; 3500 Industrial
Machinery& Equipment; 3600 Electronic& Other
Electrical Equipment; 4449 Water Transportation of
Freight, Not Elsewhere Classified; 5051 Metals Service
Centers& Offices; 1541 Industrial Buildings&
Warehouses; 8711 Engineering Services

Mannesmann AG developed from a steel tube manufacturer into a highly diversified group of companies with a worldwide presence involved in machinery and plant construction, industrial drive and control systems, electrical and electronic engineering, automotive technology, and its traditional area, steel tube production.

The history of Mannesmann began five years before the company’s founding with a major technical achievement. In 1885, the brothers Reinhard and Max Mannesmann invented a rolling process for the manufacture of thick walled seamless steel tubes, the so called cross rolling process, at their father’s file factory in Remscheid. Introducing the invention, they founded tube mills between 1887 and 1889 with several different business partners, in Bous on the Saar (in the Bohemian Komotau), in Landore, Wales, and at home in Remscheid. The machine building industry was unable to supply the necessary plant for the application of the rolling process, and the iron and steel industry was not able to provide the necessary supplies of high quality semi finished products. As a result, numerous other inventions had to be made and long years of experiments passed before the initial difficulties in the industrial exploitation of the new process were overcome.

In 1890, a technical breakthrough was achieved with the brothers’ invention of the pilger rolling process. The name was taken from the analogous Luxembourg Echternach pilgrims’ procession, as during the rolling process the prepierced thick walled steel ingot was moved forward and backward and turned at the same time in order to be stretched into a thin walled tube. The combination of the pilger and the cross rolling processes became known as the Mannesmann process. On July 16, 1890, the tube and pipe mills existing on the Continent were brought into Deutsch Österreichische Mannesmannröhren Werke Aktiengesellschaft which had its headquarters in Berlin. Reinhard and Max Mannesmann formed the first board of management but left it in 1893. In that year the company headquarters was moved from Berlin to Düsseldorf, at that time the center of the tube and pipe industry.

From about this time, seamless medium sized steel tubes were successfully produced and sold worldwide at a profit, by far surpassing rival products in quality. It was thus possible to reduce the loss of more than 20 million marks, that had accumulated during the company’s first years of business, and eventually to pay the first dividend in 1906.

The success of Mannesmann’s tubes alarmed competitors grouped in associations and syndicates. Feeling their very existence threatened, they stopped supplies of large and small tube sizes, for which seamless production was not yet possible, to dealers selling Mannesmann tubes. In order to be able to supply a complete range of products, Mannesmann built a factory for the production of longitudinally welded tubes in the second half of the 1890s; the company also acquired shares in companies involved in tube and rolled steel trading and pipeline construction.

Mannesmann’s position in the export business, which was important from the beginning of the company, was consolidated and expanded by the acquisition of the British Mannesmann tube mill in Landore, Wales, which had been founded by the Mannesmann and Siemens families but had never overcome its start up problems, and by the founding of a Mannesmann tube mill with its own electrical steelworks in Dalmine, Italy. Since the turn of the century, branch offices undertaking storage and direct sales business, sometimes with tube processing workshops and pipeline construction capacities, were set up in cooperation with well established companies all over the world, especially in South America, Asia, and South Africa.

Except for the works in Dalmine and Bous, which operated their own small steelworks, Mannesmann continued to be dependent on supplies of semi finished products from third parties; even Bous had to buy scrap and pig iron. With the tendency towards horizontal integration by means of increasing numbers of cartels and vertical integration in the formation of vertically structured coal and steel groups that mined their own ore and coal, produced pig iron and crude steels, and converted them to finished products, this dependence on suppliers began to endanger Mannesmann’s existence. Accordingly the company’s foremost strategic goal became to achieve self sufficiency in semi finished products and thus to enable the company to determine price, quality, and the actual delivery period. In the process, iron ore and pit or hard coal mines, a lime works, a factory for the production of refractory materials, and finally, in 1914, a platerolling mill with an open hearth steelworks at Huckingen on the Rhine were acquired. Plans for the expansion of the steelworks and the construction of blast furnaces were thwarted by the outbreak of World War I.

In the period that followed, the company was forced to employ emergency labor, to cope with changes in its range of products, and to make up for the loss of export business, which had formerly accounted for 60 percent of sales. The British Mannes-mann Tube Company, with its works in Landore and Newport, was lost. The Italian subsidiary in Dalmine had to be sold under duress. The loss of the works on the Saar and in Bohemia could only be avoided by allowing French and Czechoslovakian companies to participate.

This was not a time to shape and realize long term corporate strategies. In the ten year period beginning in 1914, day to day problems required full attention. At the end of the war, plants had to be replaced completely or were, upon instant transfer to peacetime production, no longer usable.

Export contacts were reestablished, and machinery in the remaining works was replaced and expanded to compensate for the loss of production capacity. Although Mannesmann’s major steelworks had not yet been built, this construction plan was by no means abandoned. Measures were carried out that efficiently supplemented the existing installations. The mining division was strengthened by the acquisition of another pit coal mine and of a coal trading company with its own inland fleet. The works harbor at Huckingen was expanded to accommodate seagoing vessels, and the works area was enlarged by the purchase of further land.

In November 1925, Mannesmann turned down the offer to take part in the formation of what was at the time the largest German coal and steel group, Vereinigte Stahlwerke AG, and decided to maintain its independence even in those difficult times. This decision resulted in the creation of a company owned semi finished product manufacturing unit. In 1927, Mannesmann began to build a blast furnace, the Thomas steelworks, and auxiliary plants and shops. Despite a few strikes, a general lockout, and delays caused by harsh winter weather, expansion proceeded so quickly that as early as May 1929 two blast furnaces, each producing 800 tons a day, the sinter plant, and the Thomas steelworks with four converters holding 30 tons each, went into operation. The steelworks already had numerous facilities which, not only in terms of technology but also in terms of safety standards and regard for the environment in general, were ahead of their time. With the blast furnace and the Thomas steelworks, the company integrated the ore and pit coal mines on one side with the steel and rolling mills on the other, and completed its development into a fully vertically structured coal and steel group, typical until the 1970s of the Ruhr industry. Mannesmann thus became independent of outside suppliers of semi finished products and was able to make full use of the advantages offered by the combination of mining and steel-making.

To promote sales, the domestic marketing organization was made more efficient by the establishment of warehousing companies. Shareholdings in trading, production, and assembly businesses in many European and overseas countries were acquired. The Landore works lost during the war was recovered. Holdings in a company for the construction of power supply plants in Berlin and in a pipeline construction firm in Leipzig were acquired, to promote Mannesmann’s tube sales. The latter two participations marked the beginning of new activity for Mannesmann that has since developed into a group of companies operated by Mannesmann Anlagenbau AG. The participation in the family owned Maschinenfabrik Gebr. Meer in Mönchengladbach, founded in 1872, which had for many years successfully constructed rolling mills for the manufacture of seamless tubes and tube processing machines, did not represent an attempt to diversify, but resulted from the fact that the company could no longer design and build its own rolling mills as it had done since 1886. Since the task was now assigned to others, Mannesmann intended to make sure that new designs were not made accessible to competitors.

Technical developments in the period before the outbreak of World War II were characterized by the successful solution of problems in the manufacture of tubes of high alloy stainless steel and the successful application of the extrusion process and the introduction of a new rolling mill for the manufacture of thick walled seamless steel tubes. At the same time, the semi finished and heavy plate product lines were extended, with the contribution of newly acquired companies. The Depression and the ensuing economic boom, further invigorated by government job creating schemes, both affected the company. The production and sale of all Mannesmann products were governed by national, European, and international cartels, from the mid-1920s until the end of World War II.

The outbreak of World War II hit the company during a phase of plant replacement. The Bous works and its staff were moved to Düsseldorf. Production remained essentially unchanged, but to a far greater extent than in World War I, the works replaced their conscripted work force with unskilled workers, women, civilian foreign workers, and prisoners of war.

All works were bombed several times and suffered varying degrees of damage. With the Allies approaching, the plants were vacated and as far as possible protected against plunder by emergency crews. By order of the Allies, Mannesmann was liquidated and in 1952 divided into three independent groups of companies, one of them Mannesmann AG. By 1955, Mannesmann AG had absorbed the other two and more or less reestablished its former unity. Mannesmann was the first group in the coal and steel industry to be split up into independent smaller groups, convene a general meeting of shareholders, pay a dividend, have its shares quoted at the stock exchange, increase its share capital, issue a loan, and regain its former structure.

The Czechoslovakian works were lost, and the Bous works, reintegrated in the 1930s, were confiscated again and later brought into a French company in which Mannesmann’s stake rose from 40 to 51 percent in 1959, and finally to 100 percent in 1985. The British Mannesmann company had already been sold in the 1930s.

Even before the company’s future was definitely settled, it again began to build up extensive activities abroad. Between 1952 and 1955, Mannesmann founded its own steel and tube mills in Brazil, Canada, and Turkey, establishing its presence in several important markets. While the Canadian joint venture was divested in the early 1970s, the Turkish joint venture, small at the start, has been repeatedly enlarged. Companhia Siderúrgica Mannesmann S.A. in Belo Horizonte developed into the Brazilian group of companies that supplied Mannesmann products and services, in particular to the South American markets. Its range of products and services included rolled and drawn high grade and special steel products, steel wires and welding rods, steel tubes, steelworks and rolling mill machinery and equipment, compressors, excavators, plastics injection molding machines, hoists, hydraulic systems, and components for industrial drive and control systems. The group ran its own ore mines, and had eucalyptus plantations for charcoal production. Its marketing was carried out by an independent trading company, Man-nesmann Comercial S.A., of Sao Paolo.

Other participations for example, in companies producing irrigation systems, forage silos, agricultural tractors and engines, and plastics tubes and pipes—turned out to be less successful. As their future prospects began to look unpromising, they were eventually given up. The traditional coal and steel companies, on the other hand, were since the 1960s exposed to growing international competition. In many countries, new large, low cost plants were constructed that aimed at the world market. International competition, frequently government supported, threatened to eliminate European producers.

With investment expenses rising steeply, it was doubtful whether Mannesmann would in the future be able to compete worldwide in tubes, rolled steel, and tube processing. The existing excess production capacity for steel tubes, rolled steel products, and pit coal left very little hope for continuing with satisfactory profits. As a traditional coal and steel group, Man-nesmann’s outlook was not promising.

Nevertheless, by the end of the 1960s, Mannesmann had broken from tradition and was looking for new ways to secure its future. Domestic ore mining came to a complete halt and coal mining interests were brought together in a unified company, the Ruhrkohle AG.

The gradual acquisition of G.L. Rexroth GmbH between 1968 and 1975 reflected the new trend of development. From modest beginnings, the company was expanded and internationalized to become the world leader in hydraulics. In addition to hydraulic components and systems, the company’s range of products and services comprised pneumatics and linear motion technology, electric servo drives, gears, and couplings. Rexroth marked the beginning of the restructuring of the Mannesmann group. This first step was successful and pointed the way forward for the company.

In 1970, Mannesmann and Thyssen agreed on a division of labor; Mannesmann took over tube production and tube laying from Thyssen and transferred its own rolled steel production and sheet processing activities in Germany to Thyssen. The new Mannesmannröhren Werke became the world’s largest producer of tubes. Despite capacity reduction and concentration on the most efficient plants, further drastic restructuring became necessary as market conditions turned out to be worse than even the most pessimistic forecasts had anticipated. When losses reached almost DM 1 billion in 1986-87, the situation became temporarily very grave.

By 1988, the worst problems had been overcome. However, structural adjustment which, at the semi finished products level, led to cooperation with other long established steelworks, was not yet completed. Cross border cooperation between the European tubemakers was one way to preserve the European tube industry. Two forward looking strategies at Mannesmannröhren Werke were participation in a company for the production of hydride stores for the storage and transportation of hydrogen and development of purest gases, and in a company producing automotive components with manufacturing facilities in a converted former steelworks.

With the acquisition of Demag AG, a well established group with a rich and eventful history, Mannesmann strengthened its activities in machinery and plant construction during the first half of the 1970s. By the middle of the decade, about 30 percent of the company’s external sales was coming from these divisions.

At the beginning of the 1980s, Mannesmann gained access to the growing electronics markets by acquiring Hartmann& Braun in 1981 and Kienzle Apparate GmbH in 1981 and 1982. Hartmann& Braun was an international company in the field of measurement, control, and automation engineering, with subsidiaries in Germany, in other European countries, and overseas. The change of emphasis in Mannesmann’s range of products towards the processing industry, with its higher growth potential, proved successful. Mannesmann’s second acquisition in this field, Kienzle, operated in data processing and supplies electronic systems for motor vehicles. Mannesmann had previously entered data processing both as a user and through its successful development of printers. Kienzle enabled Mannes-mann to operate in the center of data processing. Originally Kienzle supplied only the German market; later it became international and established sales operations in other countries, some with local partners.

The acquisition of a majority holding in Fichtel& Sachs AG in 1987 and in Krauss Maffei AG in 1989 enabled Mannesmann to consolidate its leading position in the machinery and plant construction sectors. A key motive for the acquisition of Krauss Maffei was the possibility of expanding Demag’s plastics machinery activities and thus ensuring, according to the standard set by Mannesmann, lasting success in world markets. Most of Krauss Maffei’s other divisions process engineering technology, transport technology, foundry technology, automation technology, surface treatment technology, and defense technology offered good growth potential.

Following the Fichtel& Sachs investment, the group’s total activities comprised, in addition to the highly cyclical plant business, a less cyclical mass market products business with closer proximity to consumers. In the latter business, foreign sales were gaining an increasing importance. In most of their fields of activity, the Mannesmann companies were of a size that enabled them to carry out the necessary development work, produce at competitive cost, and maintain extensive sales and service organizations.

In 1990, Mannesmann again broke new ground. Believing that in a highly developed economy the service sector would grow at an above average rate and that telecommunications would be a particularly promising service, a consortium headed by Man-nesmann tendered for the license to construct and operate the private D2 cellular telephone network. The acceptance of the bid submitted by Mannesmann Mobilfunk GmbH was of major importance to Mannesmann. It provided the company with an opportunity to enter the service sector.

The change in Mannesmann’s corporate structure was clearly reflected in the sales breakdown. In 1968, coal, steel, and tubes accounted for half of external sales, and machinery and plant construction for 16 percent. Twenty years later, the situation was very different: in 1989, machinery and plant construction and electrical and electronic engineering together accounted for 53 percent of external sales, and tube mills only 22 percent. At the same time overall sales had quintupled, rising from DM 4.4 billion in 1968 to DM 22.3 billion in 1989. In 1990, the 100th year of its corporate history, Mannesmann was a broadly diversified capital goods producer occupying a leading position in most of its fields of activity.

The 1990s brought several challenges, however. Commenting on the company’s situation, Mannesmann’s chairman, Werner Dieter, paraphrased a quote from German folklore: “before he provides the remedy, God makes you sweat, and right now we are sweating quite a lot.” For the first time since it was founded, in fact, Mannesmann was about to lose money on operations. Net profits hit a high of $315 million in 1989, dropped to half of that in 1991 and fell to break-even in 1992.

The problem that was afflicting Mannesmann was also hurting much of German industry during this time: uncompetitively high wages, a distended work force, and an over dependence on recession-hit markets in Germany and throughout Europe. German industrial wage rates climbed to nearly 50 percent above those in the United States and Japan, and Mannesmann was pricing itself out of business. Unfortunately, the tubing business from which the company grew became the conglomerate’s least healthy division in the early 1990s, losing an estimated $40 million in 1992. Moreover, Mannesmann’s auto parts, construction equipment, machine tool controls, and plant construction businesses all lost money in 1992. Among the only successes during this period came from the company’s factory crane and conveyor business; Mannesmann was the largest supplier of such equipment in the world, with $1.2 billion in sales in 1992.

The company did, however, have the financial resources to help adapt to these economic problems. Under Dieter’s leadership, Mannesmann determined a financial strategy to help them recover. First, the company began shifting Mannesmann’s engineering work from high-cost Germany to the lower-cost, highly competitive United States. Toward that end, the company acquired Rapistan, a Michigan-based leading conveyor belt company. It also opened a large factory in Kentucky to produce automotive shock absorbers. Another move Mannesmann believed would help them through this time involved entering into the cellular technology market, and they established a new division to oversee such operations. Although high startup costs for the division contributed to a fall in net earnings, Dieter predicted that the system would be making money by 1995, and analysts predicted that this market could carry Mannesmann well into the next century. If as many Germans as Americans were to subscribe to cellular phone service, Mannesmann’s pretax profits might reach $1 billion a year within seven years, according to market analysts.

In 1994, the company returned to profitability with net income of DM 340 million after a loss of DM 513 million the previous year. Operating profits and sales also increased. Mannesmann credited its machinery and plant construction, automotive technology, and telecommunications divisions with the success. However, in an unusual turn of events for the leader of Mannes-mann, Dieter came under investigation in 1994 for alleged fraud. Specifically, charges surfaced that he had used his position to channel lucrative orders from Mannesmann’s Rexroth GmbH subsidiary to Hydrac GmbH, a components company owned by his family. It was also alleged that the components were sold by Hydrac at inflated prices. Dieter was replaced, and in 1995 he stepped down from the company’s supervisory board, even though a review commissioned by Mannesmann could not conclude that he had in fact defrauded the company. Dieter had overseen Mannesmann’s return to profitability, and it remained for the company’s new leader to take the company forward into the 21st century.

Principal Subsidiaries

Mannesmann Demag AG; Mannesmann Rexroth GmbH; Krauss Maffei AG; Mannesmann Anlagenbau AG; Fichtel& Sachs AG; Hartmann& Braun AG (95.5%); Mannesmann Kienzle GmbH; Mannesmann Mobilfunk GmbH (51.3%); Mannesmann Handel AG; Mannesmann SA (Brazil).