Austria and privatisation:: Don’t sell our family silver

Date: 06/09/03

Austrians are still reluctant free-marketeers

THESE days, in most of the world's rich countries, if the government tried to sell its stake in a flourishing steel group through a public share offer, few people would bat an eyelid. Not in Austria. The proposed flotation of one-third of Voestalpine later this month for an estimated €450m-plus ($494m) has sparked a furore. Accusations are flying. It is an unpatriotic sell-out to foreigners, cry many. The market, say others, is being manipulated. Wolfgang Schussel's right-wing coalition government has been rattled.

Voestalpine is not an ordinary company. Founded by the Nazis after the ANSCHLUSS (Union) with Germany in 1938 as the Hermann-Goring-Werke in Linz, the steel mill became the flagship of Austria's state-owned industry and was long a fief of trade unions and the Socialist Party. After a brush with bankruptcy, a partial privatisation in the mid-1990s and diversification into car parts and rail systems, it became one of Europe's most profitable steel groups and the pride of Linz and the surrounding province of Upper Austria.

So the political leaders of Upper Austria were not amused when they found out that the finance minister, Karl-Heinz Grasser, had been having secret talks with Magna International, a Canadian car-parts group, about a possible takeover and break-up of Voestalpine. Mr Grasser once worked for Magna, whose flamboyant Austrian-born chairman, Frank Stronach, has made big inroads in recent years into Austrian industry, politics and even football. After a public outcry, Mr Grasser, who used to belong to the coalition's junior partner, the ultra-nationalist Freedom Party once led by Jörg Haider, had to promise that Voestalpine would not be taken over by foreigners and would definitely not be split up. He suggested a private sale to selected investors - but the European Commission in Brussels said no.

So Mr Grasser and his boss, Mr Schussel, instead proposed a public share offer - with a corporatist flavour. Instead of organising road shows to solicit the highest bids from international fund managers, the state holding group IAG gave a few weeks' notice and began to assemble a bunch of friendly investors who already own around 30% of Voestalpine. Its leader is Ludwig Scharinger, a big banker close to Mr Schussel's People's Party. Assured of his support, Mr Schussel declared that Voestalpine would stay in the control not only of Austrians but of Upper Austrians.

Other bankers then cried foul. A meeting at the stock exchange with the main people involved was cancelled. Political support for the deal began to crumble. Freedom Party people still inveigh against foreign threats and demand that further privatisation be stopped.

Mr Grasser refused. But the rumpus may have scared foreign investors away. Mr Schussel, who talks fondly of open borders and free markets, now sounds happy to accept a much lower price for Voestalpine to keep it in familiar hands. That, it seems, is what Austrian voters want.

Austrians are still reluctant free-marketeers