Rheinmetall Berlin AG

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Rheinmetall Berlin AG

Kennedydamm 15-17
Postfach 10 42 61
D-40033 Düsseldorf
Germany
(211) 473-04
Fax: (211) 473-2900

Public Company (65% of shares held by Rochling Industrie Verwaltung GmbH, a holding company)
Incorporated: 1889 as Rheinische Metallwaaren- und Maschinenfabrik AG
Employees: 16,000
Sales: DM 3.5 billion (US$2.12 billion)
Stock Exchanges: Berlin Dusseldorf Frankfurt Hamburg
SICs: 3592 Carburetors, Pistons, Piston Rings, and Valves; 3714 Motor Vehicle Parts and Accessories; 3554 Paper Industries Machinery; 3565 Packaging Machinery; 3480 Ordnance and Accessories; 3795 Tanks and Tank Components; 2522 Office Furniture, Except Wood

Rheinmetall Berlin AG, the parent company of a group of more than 60 industrial manufacturing firms, is a leading German producer in each one of its four primary fields: defense technology, paper and packaging machinery, high-tech automotive components, and, since 1993, office furniture. For most of its 100-year history, Rheinmetall Berlin and its predecessor corporations have been primarily involved in the weapons industry, and it was not until the 1980s that the balance of production shifted to nonmilitary industrial equipment.

The company’s founder, Heinrich Ehrhardt, was an industrial engineer from Zella in central Germany’s Thüringen region. After starting out as a sales representative and completing his higher education on the side, Ehrhardt worked for a number of years as an engineer for a cast steel works in Witten, where he improved the production of train axles. In 1878 the 38-year-old Ehrhardt founded his own small machine tool factory in Zella. He quickly attained an excellent reputation as a designer and industrialist, and the granting of licenses for his patents brought him into contact with directors of foreign enterprises.

Ehrhardt had become mutual friends with the manager of a munitions factory, Josef Massenez. When Massenez’s company, Hórder Bergwerks- und Hüttenvereins, won a contract from the War Ministry that it could not fulfill, Massenez offered it to Ehrhardt in exchange for a commission. Although Ehrhardt lacked the technical expertise, production capacity, and sufficient capital, he was willing to take the risk. Accepting the job, Ehrhardt brought together a group of venture capitalist associates and on April 13, 1889, founded Rheinische Metallwaarenund Maschinenfabrik AG (Rhine Metalware and Machine Factory Joint-Stock Company), which was registered on May 7 as a business in Dusseldorf on the Rhine.

At first Ehrhardt was completely occupied with the government contract, untiringly developing an appropriate manufacturing method. In December of 1889 production started in rented space in Dusseldorf. Only three months later the young enterprise had 1,400 employees and supplied the war ministry with 800,000 projectiles a day.

Ehrhardt’s ingenuity had paid off. On June 28, 1891, he received a patent for a “technique for simultaneous perforation and modelling of iron and steel ingots in heated condition.” Having already begun the search for resourceful engineers two years before while still in Zella, Ehrhardt took his employees’ talents further with the development of seamless tubing for gun barrels. His company next developed a drawing technique, which received a patent in April of 1892. Ehrhardt’s pressing and drawing methods for the production of metal tubing and hollow parts garnered strong sales not only in the military, but also in the shipping and railroad industries and in gas and water utilities.

With the completion of his first government contract, Ehrhardt began construction of Rheinische Metallwaaren- und Maschinenfabrik’s own factory in Dusseldorf-Derendorf, to which production gradually shifted. A metal tubing manufacturing facility and an iron foundry enabled production of nonmilitary products as well. The expansion of the production programs had led to increasing needs for steel, so in 1892 Ehrhardt and his son-in-law Paul Heye acquired a small forge in Rath that they named Rather Metallwerk Ehrhardt & Heye. In 1896 the forge was merged into Rheinische Metallwaaren- und Maschinenfabrik as the Rath division. Thus, Ehrhardt controlled a secure, integrated output of quality steel and semi-finished products that rendered him independent from suppliers.

In 1896 Ehrhardt developed a 7.5-cm field cannon into the first barrel recoil cannon suitable for field service, a significant technical development at that time. It brought Ehrhardt high accolades from Norwegian kings, Austrian emperors, and finally German Kaiser Wilhelm II. With this development, Ehrhardt’s company was guaranteed great business success.

For the field testing of weapons and ammunition, in 1899 Rheinische Metallwaaren- und Maschinenfabrik took a lease on a large track of land near the village of UnterlüB in the Lower Saxony. A small manufacturing facility was also established there for the production of ammunition and cartridge cases. In subsequent years the testing grounds were enlarged and ultimately reached an area of 15 kilometers (km) long and 5 km wide.

Rheinische Metallwaaren- und Maschinenfabrik expanded its production program and strengthened its market share with its acquisition in 1901 of Munitions- und Waffenfabrik AG in Sómmerda in Thüringen. At its factory, Dreysesche Gewehrfabrik, Munitions- und Waffenfabrik produced hand weapons, cartridges, and shell fuses. In the following years until the outbreak of World War I, Rheinische Metallwaaren- und Maschinenfabrik’s manufacturing operation, partly through further acquisitions, developed considerably.

At the beginning of 1914 the Rheinische Metallwaaren- und Maschinenfabrik factories had nearly 8,000 workers. One year later, following the outbreak of World War I, there were 11,000 employees, and by 1918 the work force had grown to approximately 48,000, including about 9,000 women. Then, with the Armistice in November of 1918, military production came to a sudden standstill. The Dusseldorf enterprise, which had virtually quadrupled its staff during the war years, had to dismiss 22,000 employees.

With the signing of the 1919 Treaty of Versailles, prohibiting Germany from manufacturing large calibre weapons, Rheinische Metallwaaren- und Maschinenfabrik was deprived for a time of a substantial part of its business. Although small and midsized weapons could still be produced—beginning in 1921 it built mid-calibre guns for the navy—the company took a major turn toward building up its nonmilitary production capacity. Steel production at Rath was considerably strengthened in order to support civilian production. Meanwhile, the company was able to stay financially liquid by issuing public bonds, and in 1924 the majority of its stock was acquired by the state.

In the first half of the 1920s agricultural machinery, such as heavy steam-powered ploughs, railroad cars, and locomotive engines, were built in the company’s Dusseldorf factories, while precision mechanical apparatus, including typewriters, calculating machines, and principal motor vehicle parts, were assembled at the Sommerda plant in Thüringen. By 1921 the motor vehicle division had developed into a large and significant business within its industry in Germany. At the beginning of the 1920s the name Rheinmetall began to be used as a trademark.

Ehrhardt continued into old age to direct his creativity towards weapons technology development. In 1922 at the age of 81 he finally retired from Rheinmetall’s board of directors and returned to his native Thüringen. He died on November 20, 1928, at age 88.

Meanwhile, Germany’s economic crisis had intensified. As a result of the lack of orders, the civilian production division in Dusseldorf began showing losses, and, with the exception of the profitable steam-plough production, production lines gradually ground to a halt. However, Rheinmetall did not suffer as greatly as some other enterprises did. In April of 1933 it acquired another major company facing liquidation, August Borsig GmbH, one of Germany’s leading manufacturers of locomotive engines. Two years later the merger led to a new name, Rhein-metall-Borsig AG, and in 1938 the headquarters of the firm moved from Dusseldorf to Berlin.

From the middle of the 1930s, Rheinmetall-Borsig, as with many other industrial enterprises at the time, developed and produced weapons and munitions in response to orders from the Reich War Ministry. Production included machine guns, tank guns, mortars and field artillery, anti-aircraft guns, and railroad guns.

With the outbreak of World War II in September of 1939, Rheinmetall-Borsig restructured itself into a Regular Works and an Affiliated Works. Regular Works comprised the facilities in Dusseldorf, Sómmerda, UnterlüB, and the Borsig plant in Berlin-Tegel, along with separate divisions in Derendorf, Rath, Grafenberg, Halver, Gruiten, and Oberkassel. Affiliated Works consisted of eight facilities that since 1936 had been used as production plants for weapons and munitions. The factories were located in Berlin, Guben and Fürstenberg (Mark Bradenburg), Breslau, and Apolda in Thüringen. By the first year of the war, all ordinance factories came under the control of institutions of the German armed forces. In March of 1940 the newly created Ministry of Armaments and Munitions began to coordinate the arms efforts.

As the war dragged on, the Nazi state demanded ever greater efforts from the industry to increase its weapons production. Demands of the commanders of the navy and air force for technical innovations compelled Rheinmetall-Borsig’s research and development department to work under intense pressure. By July of 1944 the company had introduced nearly 20 different weapons systems into the armed forces. Its chief engineer since 1938, Carl Wanninger, was a talented and creative designer who provided a strong stimulus to the development of military technology. An example of the high level of Rheinmetall’s research and development was its varied rocket projects, although there was only one rocket production line. At the beginning of the war, the factories of Rheinmetall-Borsig had about 47,000 workers, a number that climbed to 85,000 by October of 1944.

Toward the end of the war, air-raids left their mark on the Rheinmetall plants and impaired production considerably. Thus, numerous production activities of the Dusseldorf facilities were relocated to the central and eastern regions of Germany. Later, factories in Berlin and Sómmerda also prepared themselves to move. In November of 1944 British air-raids caused heavy damage to the factories in Derendorf and Rath. In March of 1945 the last smelting at the foundry in Derendorf took place, as Dusseldorf lay under severe artillery bombardment. Two months later the German Reich capitulated.

Under the occupation of Allied forces, Rheinmetall-Borsig had to give up its armaments production completely. A total production prohibition temporarily ceased all activities, and the company ended the war with a loss of 620 million Reichsmark. Many of Rheinmetall-Borsig’s factories were completely dismantled by the Allies; it would not be until the 1950s that it was possible to begin normal business activities.

In order to resume civilian production, Rheinmetall-Borsig was reorganized and reincorporated in 1951. Borsig AG in Berlin and Rheinmetall AG in Dusseldorf were established as separate subsidiary operating companies of the same group management company, Rheinmetall-Borsig AG, a newly incorporated entity. In the following economically difficult years up until 1956, the Rheinmetall group undertook significant rebuilding. A small enterprise of civilian machine manufacture was started up at the company’s two main locations, Dusseldorf and Berlin. Production in Dusseldorf centered on loading and transport equipment, while steam boilers and refrigerators were manufactured in Berlin.

On June 23, 1956, the majority share of Rheinmetall-Borsig AG, which had been controlled by the federal government since 1951, was purchased by Rochlingsche Eisen- und Stahlwerke GmbH and would eventually go to the latter’s holding company. In August of that same year, the subsidiary Borsig AG was sold off after two eventful decades with Rheinmetall. With Borsig gone, the company was renamed Rheinmetall Berlin AG at the next general shareholders’ meeting in November. The Dusseldorf subsidiary Rheinmetall AG became Rheinmetall GmbH in 1957. Soon, with the establishment of the Bundes-wehr (federal armed forces), Rheinmetall again took up military productions while also continuing its civilian industrial machine manufacturing activities.

With the acquisition of Benz & Hilgers, a leading manufacturer of bottling and packaging machinery for the food industry, Rheinmetall diversified into packaging technology. Leading the business strategy of increasing nonmilitary industrial production were Chairman of the Board Ernst Róchling, board member Otto Kranzbuhler, and veteran board member Otto Paul Caesar, who became chairman in 1968. In subsequent years more small machine manufacturing enterprises were founded or purchased, although they did not justify any change in the corporate structure.

Meanwhile, the military production sector expanded through Rheinmetall Berlin’s traditional means of acquisition. In 1970 the company took over a majority share of Nico-Pyrotechnik, which was later transferred to Rheinmetall GmbH. In 1975 Rheinmetall GmbH acquired the munitions manufacturer NWM de Kruithoorn in Hertogenbosch of the Netherlands. Moving beyond guns and ammunition, in 1979 Rheinmetall delivered its first battle tank, Leopard 2, to the Bundeswehr. It was equipped with Rheinmetall’s 120 mm smooth-bore gun, a noteworthy technological innovation in NATO (North Atlantic Treaty Organization) tanks.

By 1979 there were approximately 5,700 employees in the Rheinmetall group, bringing in sales of DM 735.5 million (US$401.3 million), 70 percent of which was in military production and 30 percent in industrial equipment manufacturing.

Rheinmetall Berlin tested the limits of its diversification with the 1979 acquisition of Wiirttembergische Metallwarenfabrik (WMF), a manufacturer of such consumer durables as cutlery, silverware, glass, and hotel furnishings. The federal anti-trust commission, however, withheld its approval of the acquisition, and in 1985 WMF was sold off. The later acquisition in 1981 of majority shares in Ganzhorn & Stirn GmbH and Jagenberg AG propelled the Rheinmetall group more decisively in the direction of packaging technology. Ganzhorn & Stirn, subsequently renamed Gasti-Verpackungsmaschinen GmbH, ranked among the leading suppliers of bottle filling and capping machinery for the food industry. Jagenberg is a leading manufacturer of paper treating and converting machinery.

The acquisition of a controlling share in Jagenberg, a move initiated by Hans U. Brauner, chief executive of Rheinmetall Berlin since 1980, also necessitated restructuring the machine manufacturing business of Rheinmetall Berlin. A new independent profit center called Machinery was created at the same administrative level of the military equipment subsidiary Rheinmetall GmbH. The management of this new profit center was to be undertaken by the Jagenberg subsidiary.

The next major acquisition of Rheinmetall Berlin was the 1986 purchase of an 80 percent share of Pierburg GmbH in Neuss, a manufacturer of carburetion systems and motor components. Pierburg’s activities were consolidated into the Rheinmetall group’s third major business center, Automotive Components. Brauner, having become chairman of Rheinmetall Berlin in 1985, continued to spearhead the company’s diversification as a means of balancing financial risk.

In the late 1980s more emphasis was put on research and development. In May of 1986 construction began on a new research and development center in UnterlüB, TZN Forschungsund Entwicklungszentrum UnterlüB. The facility, which develops applied electronic technologies, is supported by Rheinmetall GmbH, the state of Lower Saxony, and a regional manufacturers’ association. Meanwhile, the new subsidiary Pierburg GmbH was developing into an electronic-oriented enterprise in the field of carburetion technology. In 1988 Pierburg introduced the multi-point injection system Ecojet M and a lambda-controlled carburetor, Pierburg Ecotronic. In addition, Jagenberg introduced Jagmatic, a system for controlling squareness in the process of manufacturing paper. Other technological developments of Rheinmetall Berlin at this time included the introduction of compact lasers and automated control systems using five-axis robots in their production processes. By 1992 Rheinmetall Berlin was spending approximately five percent of its income on research and development.

With the 1988 acquisition of the Kampf group of companies, a leading manufacturer of foil machines, Jagenberg entered a new phase in machine construction. Machines for paper processing and rolling, foil-laying, plastic laminating, and packaging became the primary equipment types constructed. The movement toward packaging machinery was reinforced with the 1989 acquisition of Automation und Fórdertechnik ELM GmbH, a packaging equipment firm. Acquisitions and careful management contributed to Rheinmetall Berlin’s postwar record sales of DM 3.25 billion (US$1.85 billion) in 1988. Pre-tax profit was DM 171.8 million (US$97.82 million), and at the close of that year the group employed 15,465 people.

In the early 1990s the Machinery and Automotive Components sectors suffered as a result of the German and global recession. In 1992 Jagenberg’s sales fell 12.6 percent, resulting in a net loss of DM 7.5 million (US$4.8 million), and Pierburg’s sales fell 12.8 percent, causing a net loss of DM 6.6 million (US$4.2 million). Both subsidiaries reduced their work forces by 7 percent and 11.6 percent respectively. Consolidated group sales fell 9.8 percent to DM 3.1 billion (US$2.01 billion) with a net income of DM 20.2 million ($12.93 million).

With the end of the Cold War and resulting cutbacks in military spending, not only the group as a whole, but even the Defense Technology subsidiary Rheinmetall GmbH began to look for ways to expand into related nonmilitary technology. In April of 1992 Rheinmetall Berlin established Rheinmetall Machine Vision GmbH, an industrial image processing business with about 140 employees. Rheinmetall GmbH also entered the fields of nonmilitary explosives with the acquisition of Pyrotechnische Fabrik Oskar Lünig GmbH; propellent chemicals with the acquisition of WNC-Nitrochemie GmbH; and security systems, including video surveillance and metal detectors, with the purchase of Heimann Systems GmbH. Other product developments were in the fields of computerized control and signal systems. In July of 1992 Rheinmetall won a contract for disposal of former East German army ammunition. Also in 1992, Rheinmetall GmbH discontinued its historic Dusseldorf facilities and moved its headquarters to Ratingen.

In March of 1993 Rheinmetall Berlin acquired a 63 percent share in the electronics company Preh-Werke GmbH, which expanded Pierburg’s production into the field of electronic components. Preh manufactures digital input systems and control and indicator systems, which are used in automobile heating, ventilation, and air conditioning systems. Preh’s sales prior to its acquisition were about DM 220 million (US$141 million), and it employed 2,000 people.

In February of 1993 Rheinmetall Berlin moved into an entirely new field of business with its acquisition of a 75 percent share of Mauser Waldeck AG, Germany’s largest manufacturer of office furniture with sales of DM 400 million (US$256 million). This subsidiary, Office Systems, was established as Rheinmetall Berlin’s fourth independent business sector and accounted for approximately 12 percent of the group’s business. At that time Automotive Components of Pierburg GmbH contributed 28 percent, Machinery of Jagenberg AG 27 percent, Defense Technology of Rheinmetall GmbH 26 percent, and nonmilitary diversifications of Rheinmetall GmbH 7 percent of the group’s business. These ratios would undoubtedly change as Rheinmetall Berlin AG continued to be a flexible group of companies prepared to adapt to industry’s economic and technological developments.