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Denmark

Denmark

Milionaires in the making

Shareholders in two of the world's largest wind turbine manufacturers, Vestas Wind Systems and NEG Micon, both of Denmark, have over the last year seen their investments turn them into millionaires. The company directors and majority owners are not the only interested parties watching their investments skyrocket however -- the shared wealth goes all the way down to the shop floor. At least on paper, that is.

This story begins in 1987. Danish wind turbine manufacturer Nordtank -- along with most of the other Danish wind companies at the time -- went bankrupt as the tax credit balloon burst over the wind market in California. Like the rest of the branch, Nordtank Energy Group (NEG) rose from the ashes. Its owner, Thorkild Rørbæk-Jensen, asked the managing director at the time, Vagn Trend-Poulsen, to continue to lead the company. Trend-Poulsen agreed on the condition that he was given the option to buy Nordtank for DKK 25 million, should he so wish to at some point. Since Nordtank was not only starting from scratch once again, but was also weighed down by bankruptcy, it did not seem an unreasonable condition.

Seven years later, Trend-Poulsen borrowed DKK 25 million and bought Nordtank from Rørbæk-Jensen. He proceeded to sell 75% of the shares to Union Bank of Switzerland for DKK 75 million, pay off his bank loan and deposit the first DKK 50 million in his own pocket. Last but far from least, he remained the happy owner of 25% of Nordtank. "Now, that story isn't wholly correct," was Trend-Poulsen's comment, given with a wry smile a while after his coup. He was not inclined, however, to correct the details.

Trend-Poulsen's first DKK 50 million was soon overshadowed by the value of his stake in Nordtank. After the company's bourse flotation and its later fusion with Micon in 1997 -- steered by Trend-Poulsen -- the value of the shares increased dramatically. Although the fusion reduced Trend-Poulsen's holding to 10% of the new company, NEG Micon, that stake had a share value of DKK 300 million. By the time the company did its nose dive in the autumn of 1999, nearly collapsing with the announcement of the loss of its entire capital (Windpower Monthly, November 1999), Trend-Poulsen had long since sold his shares.

The pension funds

Measured in millions of Danish crowns, Trend-Poulsen's wind earnings are still unchallenged in Denmark. So far. More millions have long since been rolling into the boardroom and directorship offices at NEG Micon, to shareholders in the wind industry, to thousands of wind company employees, and all the way down to wage earners who had never dreamed of speculating in stocks. Many have their retirement money in huge Danish pension funds such as Lønmodtagernes Dyrtidsfond (LD) and Arbejdsmarkedets Tillægspension (ATP), which are among the two largest shareholders in both NEG Micon and Denmark's even bigger publicly traded wind company, Vestas. LD's stock involvement in the wind industry has even earned it the accolade "the Danish pension master" in the financial press. In autumn last year, Børsen, The Bourse, wrote that "even if LD does not earn a single crown the rest of the year, it is on course to give one of the best returns for a long time in the pension branch -- if not the best ever."

Another of NEG Micon's major shareholders, Schouw & Co, has gone as far as to specify its winnings: in September, it adjusted its expectations of annual turnover from DKK 75 million to DKK 320 million. A month later, it upped the year end expectation again to DKK 650 million -- all due to gains in NEG Micon shares, which Schouw has been steadily selling.

Stock bait

The main shareholders in the two wind companies also bear the honour for making millionaires out of the leading members of the directorship of both wind companies, and for spreading a similar bounty to still more of the leadership, if all goes according to plan. With LD and ATP leading the way, a deal of work has gone into making sure that the leaders of both NEG Micon and Vestas have a clear economic interest in the share value of their companies. Typically one or two per cent of the share capital is set aside for this purpose.

So, when NEG Micon was underway with its re-establishment in late 1999 and when its shares were on the way up from a price of DKK 50, ten company leaders were given an option to buy shares in the business in 2003, 2004 and 2005 at an already fixed price. With managing director Torben Bjerre-Madsen at the helm, they have a pool of 417,000 shares to share between them at an average price of DKK 157.50 each, or more than DKK 65 million over a five year period. In late January, these shares were valued at DKK 196 million.

This same type of top management stock offer was used a few years ago on the team that brought NEG Micon to near collapse. Although this team was fired in 1999, last year its members could buy 108,000 shares at a price of DKK 74 each. For former managing director, Jens-Erik Kristensen, the deal represented one of the most attractive severance payments yet seen in Danish business: between DKK 30-40 million. It is not a sequence of events that LD and ATP are keen to see repeated. Under the deal with the new management, share options are annulled once a director leaves the company, or is fired.

thousand millionaires

At Vestas, the chairman of the board and top three directors were also offered company shares at a discount. The holdings of managing director Johannes Poulsen and financial director Svend Siggaard were each worth over DKK 200 million late last year, while board chairman Bent Erik Carlsen's shares add up to DKK 160 million. Technical boss Mogens Filtenborg, too, has a holding worth more than DKK 30 million.

Not that most of the 1500 Vestas employees are complaining about the shower of crowns on their bosses. More than 1000 of them took advantage of a share option in November 1998, capped at DKK 24,000 each. Two years later those who invested up to that cap have seen the value of their shares increase more than 35 times, to DKK 900,000. They are not allowed to sell their shares until the end of the fifth year of ownership, but since all signs are pointing up for Vestas, there is much to suggest the company will have more than a thousand crown-millionaires among its workers in the near future.

For the west coast town of Ringkøbing, the centre of population nearest to Vestas, a couple of new millionaires are turning up each week. The liquidity on offer to a Vestas' shareholder is providing plenty of latitude for further stock market investments. As a result, Vestas workers are also putting their money into NEG Micon, not because they believe the technology is better, but because they anticipate that NEG Micon's shares will one day go the same way as those of their employer.

Vestas workers who did not participate in the 1998 share option scheme, including the 1500 who have joined the company since, had another chance in November, when the board offered a further 300,000 shares at favourable terms. Each employee had the option to buy up to 125 shares at DKK 140; on that day shares were trading at DKK 465. In the United States, the rules for preferential share options are different and employees of Vestas American Wind Technology had to pay DKK 396. The shares can first be sold on January 1, 2006.

When the Vestas board agreed on October 18 to offer workers 300,000 shares at a favourable price, it also initiated a warranty program for a number of board and top management members. This gives them the right to buy 246,667 shares at the trading price on that day -- DKK 465. Only those still with the company in April 2003 can exercise the option. Of the total number, 145,161 are available to staff occupying the top posts, 77,419 to the directors, and 24,087 to the board. The shares can first be sold in 2006. Currently, the price for a DKK 1 Vestas share is around DKK 477.

A double edged sword?

Providing extra motivation to employees by making them part owners of their workplace is also a tactic adopted by NEG Micon. Its first share option scheme, back in 1997, offered workers 50 shares at a rate of DKK 150 -- for a DKK 20 share -- and DKK 200 for a share for purchases beyond that cap. Nearly 19,000 shares were sold. Employees with nerves strong enough to hang on to their certificates when prices crashed at the end of 1999 have been rewarded well. More than a year later the quoted share price -- for a DKK 10 share -- was DKK 471.

At its latest annual general meeting, NEG Micon's directors indicated they were not averse to launching another share option. "But this will happen only after we've begun to make money," says the company's Morten Keller. "The bottom-line has to follow."

That could turn out to be a wise decision. A share option scheme becomes a double-edged sword if the deal is offered before NEG Micon has successfully completed the measures underway to turn the company around. If workers were reluctant to take up their options, the market could well get nervous about whether the turnaround was on course. The company reform includes a two year retrofit of the gear boxes on 1250 of its turbines in 16 countries, as well as devoting "considerable resources" to straightening out the problems that brought the company near collapse, including completion of "problematic projects" in North America (Windpower Monthly, October 1999).

Market analysts have not forgotten that the problems that nearly collapsed NEG Micon in 1999 were known by nearly everyone in the company at the time except its leaders. Poor work routines on the shop floor, in the chain of command and in quality control were not discovered by the directors or the board at the time. Discussion and criticisms from workers who built, erected and serviced the company's turbines disappeared on the way from the shop floor to the top of the organisation -- which clearly had made it known to the emplyees that only "good" news was welcome.

NEG Micon's employees remain today the best judges of whether the new management has gained control of the considerable problems in "the old NEG Micon." If a share option scheme was heavily subscribed, the indication would be that the employees at NEG Micon once again believed in the company.

Still private

Beyond the world of the Danish stock exchange are two further Danish wind turbine companies, Bonus Energy and Nordex Borsig Energy.

Bonus is the only Danish company that has not been through reconstruction in the last 20 years. After several years of trying, the owner, Peter Stubkjær Sørensen, has given up his search for a managing director. Instead, he found a co-owner -- the company's managing director for the last 16 years, Palle Nørgaard. In budget year 1998/1999, Bonus doubled its turnover to DKK 1.5 billion, with profits of DKK 156 million.

Nordex is 25% owned by its founders, brothers Carsten and Jens Pedersen, with the remainder held by the German Babcock Borsig concern. Nordex is preparing a flotation on the New Markets section of the Frankfurt stock exchange. According to market analysts Dresdner Kleinwort Benson, Nordex has a value of DKK 6 billion.

If that valuation holds, the Pedersen brothers, with a 25% share in the company at its bourse debut, look forward to a shared holding of DKK 1.5 billion.

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