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The Rupp Report
Jürg Rupp, Executive Editor

OC Oerlikon Group In Trouble

By Jürg Rupp, Executive Editor

The OC Oerlikon group of companies, with its subsidiary Oerlikon Saurer, has lost almost half of its value at the stock exchange since March. In spite of share repurchase programs, the price continues to drop, and reportedly, the major shareholders are leveraged in the meantime with options.

On August 9, the shares sank from CHF 487 to 412 (US$403 to $341), a loss of more than 15 percent. They had achieved a high of CHF 794.50 (US$657) in March. At that time, the group was worth more than CHF 11 billion (US$9 billion) on paper; today it’s valued at only half that, CHF 5.8 billion (US$4.8 billion) have dissolved into thin air within five months.

There always are winners and losers at the stock exchange. This time, investors who bought shares of OC Oerlikon for partially overrated prices could be hurt. Banking specialists say the shares will not move to previous heights again. Experts warned for a long time that the industry group was heavily overvalued. According to analysts, OC Oerlikon’s share is judged fairly today.

Rumors were denied that Russian major shareholder, Viktor Vekselberg, sold his stock. And this would not be the reason for the free fall. According to experts in Switzerland, major shareholders such as Viennese speculators Georg Stumpf and Ronny Pecik have pushed the titles with option deals to unrealistic heights. Up to CHF 200 million (US$165 million) worth of options on OC Oerlikon have been in circulation.

To secure the options selling, the selling banks where forced to buy more shares at rising prices, which boosted the value even more.

OC Oerlikon, however, could not meet the stimulated expectations, the titles started sliding down. To slow down the value disintegration, the Oerlikon administrative board issued the following press release on August 9:

On 8 August, 2007, the Board of Directors of OC Oerlikon Corporation AG approved a share buyback program of maximum 2.59 percent of the share capital. The share buyback covers 366,858 registered shares (2.59 percent of the company's share capital) which, with the existing own stock of the company, corresponds to maximum 10 percent of the issued share capital and the votes.

The share buyback program starts on 9 August, 2007, and will end at the latest on the date of the ordinary general meeting in 2009. The company reserves the right to end the buyback program at any time. No separate trading line will be opened for the share buyback program. Repurchases will be traded at market price.

The reasons for the buy-back are almost the same as in the case of the first repurchase program two years ago, when Oerlikon wanted to take up to 10 percent own shares from the market. The purchase of Saurer for about CHF 2 billion (US$1.7 billion) last year, however, was a 100-percent cash transaction. The shareholders did not let themselves be paid off with Oerlikon shares. The industry group sits now on more than 7 percent own shares, left from the first repurchase program.

With the new program, Oerlikon is going on a collision course with the Swiss stock exchange, SWX, which threatened that the shares would be excluded from the so-called Index SLI if OC Oerlikon does not increase the quota of the freely tradable shares up to 20 percent within three months. At the moment, only 12.4 percent of the shares are freely tradable.

For OC Oerlikon and the small shareholders concerned, the stock exchange fall is a catastrophe. The planned repurchase is anything but a success, as the stock quotation drop shows.

August 14, 2007