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Brussels, 15 July 1998

Commission approves aid to Fortschritt Landmachinen GmbH

The European Commission has decided to approve state aid to Fortschritt Landmachinen GmbH (Neustadt, Saxony) in the form of additional financial measures without initiating proceedings. The DEM12.6million in aid from the Bundesanstalt für vereinigungsbedingte Sonderaufgaben (BvS) and the Land of Saxony involves an assumption of the losses incurred when the firm was privatised. This measure is compatible with the Vertragsmanagement regime, i.e. the follow-up on obligations imposed in the purchaser of a privatised company, which the Commission approved. The Commission has also decided that DM 400,000 of debt could be waived because it dated back to the days of the GDR.

Fortschritt Landmachinen GmbH (Fortschritt) manufactures agricultural machinery, in particular tractors, rotor harvesters and baling presses. It is the successor to the former VEB/Kombinat Fortschritt, which manufactured a large range of agricultural machinery of all types. It currently employs 396 people and must therefore be considered a large firm in accordance with the Community definition.1

Fortschritt was privatised in June 1994 after an investor had been selected by international call for tenders. 52% of the firm was sold to Carl Mengele MaschinenfabrikGmbH and 48% to Messrs Albert and Helmut Bidell (Bidell/Mengele) at a price of DEM1million on the basis of the best bid.

Fortschritt has accumulated losses of some DEM90million since privatisation. The BvS (the successor to the Treuhandanstalt) has therefore had to intervene a second time, in conjunction with the Land of Saxony, to prevent the firm's bankruptcy. The resultant measures were the subject of the notification in this case.

BvS has decided that a change of investor is necessary since Bidell/Mengele have been unable to guarantee Fortschritt's survival. It has now chosen CASE Cooperation (United States) as the new investor.

As part of this changeover, CASE has taken over Fortschritt's shares and is involved in covering the firm's 1998 losses to the tune of DEM12.4million. It is also paying DEM27.7million for the production requirements for the self-propelling straw cutter (i.e. the rights and finished/semi-finished products, etc.) belonging to Bidell/Mengele. In the takeover contract, CASE has also undertaken to invest DEM44million in Fortschritt up to 2002. This amount is subject to a 50% penalty for three years. CASE also guarantees that it will maintain 400 jobs up to 2001, 300 of which are subject to a penalty of DEM30000/job/year if it fails to do so. It will also ensure the continuation of the firm's activities for at least three years and keep it in Neustadt.

In return, the BvS and the Land of Saxony will contribute to covering the firm's 1997 losses, each putting up DEM6.3million, which therefore constitutes aid. The BvS will also waive the DEM30450million (including interest) it is owed by Fortschritt in aid granted to the firm when it was privatised in 1994 to enable it to settle its pre-unification debts ("Altschulden"). This waiver is not qualified as state aid under Article 92(1) of the EC Treaty.

CASE has also asked that the BvS extend the deadline for payment of the DEM20million penalty incurred as a result of the three-month delay in the transfer of straw-cutter production from Bidell/Mengele. This extension does not constitute aid because it would have been disproportionate to burden the firm with this amount given that it would almost certainly have led to its immediate bankruptcy. It can therefore be qualified as reasonable commercial action on the part of the BvS for the purposes of Vertragsmanagement.2

CASE has also obtained the extension of a clause concerning the BvS contribution to the cost of eliminating environmental damage from before 1July1990, which will cost up to DEM400000.3 According to the general rules applicable to the transition of the former GDR to a market economy, the removal of this damage is not regarded as aid.

In all the firm will therefore receive DEM12.6million in state aid from the BvS and the Land of Saxony in the form of an assumption of its losses.

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