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Test case

Kuka kicks out CEO as Chinese shareholder seeks more investment in China

Till Reuter steps down and board appoints CFO interim leader to boost sales, profit at robot maker. Axel Höpner, Sha Hua

Handelsblatt Global vom 27.11.2018 um 10:42:25 Uhr

Sales are disappointing, the profit margin is shrinking, and management and the board have important differences on investment and strategic direction. No surprise, then, if the board invites the chief executive to step down.

Still, the move seems exceptional since the executive in question is Till Reuter, the poster child for German prowess in technology and innovation. And the investor showing him out is a Chinese maker of appliances.

The takeover of Kuka two years ago by China’s Midea was a cause cC©lCšbre because it showed how few tools the German government had to block an acquisition that it felt could lead to a dangerous transfer of technology. The acquisition went through and both Berlin and Brussels got to work on toughening takeover restrictions.

It didn’t seem to matter for Kuka, which bustled along in Augsburg, with Till Reuter in place and job guarantees for the German workforce through 2023.

Downturn in auto sector burned Kuka

But Reuter remained focused on the auto industry in Germany and Kuka got burned by the sector’s downturn. The majority shareholder wanted more investment in China, especially in research and development, and felt the German robot-maker should make better use of its expertise in washing machines, refrigerators, and the Chinese market.

So were the critics right? Was the Midea takeover simply a means to funnel German technology to China, eventually at the cost of German jobs and German research?

Perhaps. But Midea was at pains to emphasize it will respect the investor agreement it concluded with Reuter regarding jobs. The board appointed the current chief financial officer, Peter Mohnen, as interim CEO, making it clear he would have a genuine shot at making the job his own permanently.

Most tellingly, the board decision to dismiss Reuter was unanimous, including all the German members, who make up the majority. Among the representatives for the capital side is the former chief executive of SAP, Hennig Kagermann, who no one suspects of bowing to the will of the Chinese.

Kuka issued a profit warning at the end of October, forecasting that sales for the year will be EURO 3.3 billion with an operating profit of 4.5 percent instead of the originally forecast EURO 3.5 billion and 5.5 percent.

Aside from the issues in the German auto industry, Kuka registered sluggish sales in China, where it supposedly had the advantage of a Chinese owner to win customers through networking.

More China policy

The Chinese representatives on the board felt more research and development should be done in China to better understand potential customers there. The reps include board chairman Andy Gu, a Midea vice president, as well as Midea chairman Paul Fang.

Sources close to Midea pointed to Kuka’s Swiss rival ABB, which transferred its robotics division to Shanghai in 2005. It now has 90 percent localized content and employs 2,000 in RAMPERSANDD there.

Gu said once in a Handelsblatt interview that it would be strategically useful for Kuka’s long-term success in China if it paid attention to the middle and lower industrial segments.

Kuka board chair Gu said after the vote to dismiss Reuter that the company is “well-positioned to get on the path of sustainable growth in that it profits from growing demand for intelligent robots and strengthens its position in the Chinese market.”

Axel Höpner is a Munich correspondent for Handelsblatt and Sha Hua is a correspondent in Beijing. Darrell Delamaide adapted this article into English for Handelsblatt Global. To contact the authors: hoepner@handelsblatt.com and hua@handelsblatt.com.

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