Siemens Wants to Buy Czech CKD

February 29th, 2000

Siemens wants to buy Czech train maker CKD Dopravní Systémy from the Czech government which renationalized the company in May 1999. CKD has Kc2,2bn worth of orders for 2000, from Vietnam (10 trains), Russia (trams), Prague (metros), and Manila (metro parts). Siemens wants to turn it into a "competence centre" to oversee construction and development across the Middle East and Western Europe.

However, Siemens refuses to take over CKD's Kc7bn ($200m) debt or peripheral businesses, the non-Dopravní Systémy part. The peripheral businesses are owned by CKD Holdings and make hydraulic brakes, electrical transformers and other equipment.

CKD's main plant in Prague has 1600 workers now, after the government renationalized and restructured the company. A year ago, the same plant employed 2300 workers. The renationalization and restructuring are part of the Czech government's "revitaisation plan" under which eight companies recieved debt relief in return for being taken over by the government. The companies are now being restructured and privatised by the Czech Revitalisation Agency.

A deal between Siemens and the Czech finance ministry is expected in March.

Source: Business Central Europe, February 2000 issue. BCE is a sister publication to The Economist.

Troubles for Czech CKD

Czech train maker CKD had seven times as much debt (Kc7,5 billion) as assets in 1997, but investors had faith in the company's plan to reduce this, writes the magazine Business Central Europe. The plan involved layoffs, selling five subsidiaries, and a refinancing of its huge debt. But two things came in the way, and CKDs fate is in the balance: the political upheaval in Russia and the screwing up of an order for 10 HSTs for the Berlin-Prague-Vienna route.

BCE describes CKD as attractive to investors because of its openness when it comes to disclosing company information. It is also good at making things customers want: it has orders for Kc3,6 billion worth of trams for the Philippines, Kc2,1 billion worth of freights cars for Switzerland, a Kc1,3 billion order for subway cars for Prague, and a Kc1 billion order for trams for the Ukraine. Orders for 1998 total 13 billion Czech crowns.

However, CKD screwed up an order for 10 HSTs for Kc4 billion for the Berlin-Prague-Vienna line. The trains are being built together with Siemens and Fiat. Unfortunately, it seems the consortium is only able to produce seven trains by 2002, costing 4.4 billion.

This could not have come at a worse time. Due to the Russian financial and political turmoil, people with money are no longer as keen to invest it in east European companies. This will make it hard to sell those five subsidiaries or get favorable terms on refinancing the debt.

Due to this misfortune, but also because of the jittery financial climate, stocks in CKD have tumbled 60% this year.

As is common with many business magazines, the BCE article does describe any of the cool trains CKD is making. But there is one important conclusion for train buffs to draw: if you want to own part of a train maker in an exotic country: Buy CKD! It will never be cheaper.