Marklin in Serious Financial Trouble/Offer to Buy (Source MR Express (Kalmbach))

Sorry, I only heard about this today and didn't see any posts (it's
from April 17, 2006); No matter what the outcome, it does not bode
well for Marklin if they can't get to profitability and erase or
restructure their 55 Million Euro debt with their banks...or else
their credit lines will be frozen, essentially stopping their ability
to function...

The 3 Marklin family groups, consisting of 22 family members (each
group owns 1/3 of Marklin), cannot agree to a British finance company
Kingsbridge Capital Advisors Limited...

From:
<http://www.trains.com/Content/Dynamic/Articles/000/000/006/607kezdd.asp>

Negotiations between Kingsbridge Capital Advisors Limited and the
families that own German model train manufacturer Märklin for
financial control of the company appear to be foundering because a few
shareholders are unwilling to accept Kingsbridge's offer.

According to published reports, Märklin's equity shares are held by 22
members of three different extended families. Each family is reported
to hold one-third of the firm's equity. Insiders report a unanimous
decision is required before a sale could occur. News reports say 19
shareholders have agreed to accept the London-based investment firm's
offer, but three members of the Maerklin extended family are holding out.

Kingsbridge has written the shareholders, noting the dire consequences
for the train manufacturer and the region if a sale does not occur,
giving the shareholders two days to reach consensus. If Kingsbridge's
deal isn't accepted, the next question will be whether the banks
holding that part of Märklin's 55 million Euro credit line not already
acquired by Kingsbridge have any more patience. While the banks have
yet to comment publicly, they could potentially deny additional credit
or even take over the firm in a manner similar to the recent bank
takeover of Austrian model railroad manufacturer Roco.

Kingsbridge has been seeking to acquire long-time model railroad and
toy manufacturer Märklin for several weeks. According to Dr. Ion
Florescu, Kingsbridge's chief financial officer, it's a name what
still has a lot of clout and profitability, despite slumping revenues
the last few years.

"Märklin has about 95 percent brand awareness in Germany," he said.
"That's higher than Coca-Cola." He added the name is known over much
of the rest of Europe too, and believes there are a lot of other
markets ripe for growth, including North America and Asia. Märklin is
represented in the U.S. by its subsidiary, Märklin Inc., of New
Berlin, Wis.

One point Florescu stresses, however: "We're not thinking of
liquidating. We are not a raider of brands or assets." He says the
investment group thinks there's profit to be made in a three- to
five-year ownership window, a typical term for companies like Kingsbridge.

Florescu characterizes the Göppingen-Germany based Märklin as
undermanaged and undermarketed. "Some problems Märklin is facing, we
think we can solve," he says.

The family-owned train and toy manufacturer has undergone a several
restructuring efforts over the past decade, cut its workforce and
moved much of its production to plants in Sonneberg in the former East
Germany, and Hungary, both of which have lower labor costs than in
Göppingen. While many of Marklin's competitors have outsourced
production and assembly to Asia, Märklin's products are still largely
still hand-assembled in Germany, accounting for their premium price.
However, their high level of quality and collectibility has engendered
a fan base unlike any other in the model railroad world.

While some of Märklin's parts and some products are sourced from Asia,
Florescu says Kingsbridge has no intent to move all production
offshore. Further, he intimated workforce reductions aren't in the
plans, either. "There's a certain limit to cost-cutting," he says.

The keys to making Märklin more profitable are optimization of
sourcing, "streamlining some cost elements," and doing more to realize
the value of the brand. These moves will help stabilize the company's
revenue decline and get it back into a pattern of growth, he says.

He adds Märklin is "clearly in a position to expand." He cites
challenges faced by its competitors like the United Kingdom's Hornby
and Austria-based Roco, which have seen increases in material costs
and bankruptcy, respectively, in 2005. He also says there are
indicators showing the toy market is relatively healthy, despite
serious economic problems in Europe and the state of the worldwide
economy.

According to the newspaper Stuttgarter Zeitung, Kingsbridge has
acquired about 10 million of Märklin's 55-million Euro debt, and would
be open to acquiring the remainder. The firm is also in discussions
with the banks that own much of Märklin's debt. The financial
institutions, in Florescu's words, are "looking for a more aggressive
solution" to the company's management over the last three years. He
was also quick to note that Kingsbridge is not proposing a debt-equity
swap.

While Kingsbridge believes it can increase the company's revenue,
making money for its investors is its primary goal. "It doesn't make
sense making revenue if its not profitable," Florescu says. - Hal
Miller, Editor, Model Retailer, and Terry Thompson, Editor, Model
Railroader