Ron Shemesh, the owner of Lux Group, talks exclusively to kbbreview about his failed bid to buy Poggenpohl. The deal collapsed at the last second after Chinese bathroom giant Jomoo swooped in and bought the bankrupt German kitchen brand as his pen hovered above the dotted line.
Q: What exactly happened with Lux’s Poggenpohl acquisition? How close were you to sealing the deal?
A: We believe that we are the ‘contract vendee’ and we were induced into spending millions of Euros on due diligence and legal fees to develop final contract documents. We were ready to close the deal as per the binding offer that was, without doubt, accepted. In point of fact as of June 26, Lux Group was managing the cash flow of Poggenpohl GMBH as we had agreed to take on the losses as of July 1. We had previously been made aware that Jomoo was rejected as a bidder early on in the process despite having submitted the highest offer.
Q: Where do you see the future of Poggenpohl ?
A: Unless the German authorities step in and overturn the Jomoo deal, it would seem that Poggenpohl is destined for Chinese ownership and we must move on to new projects. If Jomoo is given permission to conclude the deal, I predict they will endure massive losses as they will have inherited large operational costs in an increasingly weak and complex market. Clients who have many choices will move to other German brands. The market is in turmoil due to covid-19 and most retail stores are loss making in any case – so there are headwinds for all of us in retail. The Poggenpohl brand has had a trying few years and this most recent episode of a Chinese company swooping in and taking control from Lux will further damage the brand. There is resistance from Poggenpohl dealers from all over the world who were quite keen to buy a refreshed Poggenpohl ‘German’ brand and not a ‘Chinese’ product. The association with China is especially painful for dealers in India, Hong Kong and Taiwan who refuse to deal with Chinese owners.
Q: What will you do now?
A: Lux is in a good position in that we have a massive pipeline of orders for 2020 and 2021. Our new design offerings are doing well in the market and we see intensive interest in our various brands and our luxury offerings. Covid impacted sales in April and May but, like a coiled spring that has been released, we are now seeing projects accelerate. We deal in upscale markets – and the migration of Ultra High Net Worth (UHNW) individuals from urban to suburban markets has driven demand in a major way. Our laser focus on the client experience and attention to detail will continue to serve Lux well in this challenging environment.
Q: Will you turn your attention to other acquisitions?
A: We see the market as fragmented and in need of rationalisation – the old business model in Germany and in the UK does not function well and there are opportunities for acquisitive companies. Our strategic partner, the Wolf Family office, is still engaged with Lux and we are actively looking for opportunities. We are looking at several companies as a target who have been impacted by covid and need solutions.
Q: There is a rumour that Lux has been awarded the Old War Office development in Whitehall, central London?
A: We can say we have been working on this historic project for the Hinduja family for quite some time and it is a massive endeavour with uber luxury apartments – we are not at liberty to comment any further other than to say this is a monumental project for the UK and London.
Q: In general, how do you feel about Chinese companies buying European brands?
A: There is a complex game of chess being played around the world. Modern technology has allowed the Chinese government to dominate markets as they subsidise market-based companies. It is difficult to determine who controls these entities and how they access subsidies and grants. Western countries, including Germany, have fallen prey to this sleight of hand and whole industries have been sold to Chinese companies. There is a strong inclination to sell to these Chinese ‘hybrids’ who come to the table with large amounts of cash and Chinese state support. The slow and deliberate takeover of technology and industry is changing the game and takeover controls are now in place in Germany. As a result of these practices anti-Chinese sentiment is strong all over the world and even the Germans are now waking up to the danger of the Chinese threat. The EU’s foreign policy chief, Josep Borell, was quoted in Der Spiegel this week, saying: “We are not just discovering today that China is a communist country with an authoritarian regime, what is new is that Beijing now sees itself as a world power and is acting as such…The West was naive with regard to China; we thought that with increasing trade there would be change.
Q: But surely this is just the nature of a free market? Why shouldn’t China be allowed to grow this way?
A: China is an anomaly, it has talented people and a massive work force that can execute value added work and, of course, there is the massive infrastructure in China. However, it has truncated the time to develop industries by stealing IP, buying IP and forcing technology transfers. China has 1.4m science, technology, engineering and maths graduates each year and Chinese companies receive massive support – all this is a huge advantage but, in the end, it takes time to nurture culture. Design talent cannot be stolen, only copied or bought. That is the exact reason why Jomoo will over-pay for Poggenpohl operations that have lost close to a €100m these past few years. It is no surprise that three prior owners of Poggenpohl were taken to the woodshed by the massive impediments to profitability and an increasingly stale product line. If Jomoo is not adept they will be the fourth owner to be taken to the woodshed after burning a lot more cash. The UK and the USA have already taken defensive actions and it is only a matter of time before Germany also takes steps to stop it. In the end there will be a middle ground solution as the economies are quite intertwined.