Holzmann Files for Bankruptcy

The 150-year-old Philipp Holzmann, which became Germany’s largest construction company during the post-World War II building boom, filed for bankruptcy Tuesday despite a government effort to orchestrate a bailout.

The Holzmann crisis, which could lead to more layoffs in a nation plagued by 10% unemployment, challenges the leftist leadership of Chancellor Gerhard Schroeder to make good on a promise to reform Germany’s “consensus capitalism.”

Schroeder has summoned the 20 creditor banks owed $1.6 billion to discussions today in hopes of fashioning a reorganization of the company, which has 28,000 employees worldwide and another 40,000 subcontracting and supplier jobs dependent on its projects.

“The company still has substance--it shouldn’t be allowed to be broken up,” Schroeder said of Holzmann, which has many profitable endeavors despite sizable debts accumulated through unsuccessful real estate deals earlier this decade.

Germany’s unusual ties among labor, management, banks and governments were apparent in angry demonstrations staged before the Brandenburg Gate here by workers demanding a government bailout. Others demonstrated around the Frankfurt headquarters of Commerzbank, Germany’s fourth-largest financial institution and the reported stumbling block to a last-minute rescue package.

The banks agreed in negotiations late Monday and early Tuesday to put up $400 million in emergency credit to keep the company operating while an outside administrator and a “preliminary liquidator” review Holzmann’s finances. But the creditors were unable to agree on a bailout because “trust in the company just wasn’t there,” said Schroeder’s envoy to the talks, Hans-Martin Bury.

Schroeder and his government--composed of traditionally labor-friendly Social Democrats and environmentalist Greens--face a Hobson’s choice in tackling the Holzmann crisis. Schroeder has made creating new jobs and loosening shackles on German employers the cornerstones of his “new middle” philosophy.

Putting up state funds to prolong the life of an insolvent company would be condemned by center-right rivals in the Christian Democratic Union as irresponsibly squandering public money. But sending hordes more blue-collar workers to the unemployment lines a few weeks before Christmas would cast the government as helpless in the struggle to create, or at least save, jobs.

Work was expected to continue at most of Holzmann’s 1,200 construction sites nationwide while an outside administrator takes charge of operations. Schroeder and others have suggested a holding company be established to protect as many jobs as possible while the company is reorganized.

Stock in Holzmann plummeted more than 90% in Frankfurt trading Tuesday after a six-day suspension.

Hope for avoiding liquidation sprang from the hint by one official from Schroeder’s camp, financial advisor Joachim Poss, that the government might be willing to provide a security worth $158 million to tide over the company, which is unable to make its next payroll. But Schroeder’s spokesman Uwe-Karsten Heye denied any such decision had been made.

Holzmann’s application to the Frankfurt bankruptcy court seeks an insolvency status allowing self-administration with the guidance of an outside trustee until the options for restructuring can be fully examined.

Much of Holzmann’s debt has been linked with its expansion into real estate purchase, development and marketing--a departure from its core competency of construction. The extent of the damage has yet to be calculated.

Berlin, where Holzmann has numerous showcase projects underway, has been glutted with office and housing space in an overheated buildup ahead of the move of Germany’s capital here earlier this year.

Holzmann’s insolvency is the result of unfulfilled rent guarantees used to secure loans for other construction projects, the Berliner Zeitung daily newspaper reported Tuesday.