Aeg A.G. Business Information, Profile, and History
Federal Republic of Germany
History of Aeg A.G.
Emil Rathenau was the founder of what is now the massive AEG. He was born in Berlin in 1838, and, after the completion of his schooling, served for four years as an apprentice in his uncle's factory. This uncle then gave him enough money to attend the polytechnic in Hanover, but he had to leave because of his activities for student freedom. He completed his degree in mechanical engineering in Zurich, then returned to Berlin where he worked as a draughtsman for a construction firm. This seems to have bored him, for he quit and wandered over to England, where he worked in a number of engineering firms for two years.
Young Emil was called to home and responsibility by his father, who wanted him to be more than just somebody else's employee. Not having any money himself, Emil convinced his friend, Julius Valentin, to help him buy the engineering factory of Webers, which at that time employed some 40 to 50 workers. The factory produced engineering parts for works, including the iron for the Berlin Hoftheater. Now an owner and businessman, and no longer simply a technician, Rathenau began to focus his attention on matters of efficiency. He was one of the first industrialists to introduce assembly-line methods in Germany. His efforts were very successful, he became an important businessman, and married, in 1867, the daughter of a wealthy banker.
The war of 1870-71 brought lucrative contracts to the factory. Other companies were not willing to make the necessary improvements for the work required by the War Office, but Rathenau was, so most of the business came his way. By this time, banks were noticing the company, and encouraged it to go public, which it did, as the Berliner Union. In this, Rathenau sold out his own interest in the company, for 750,000 marks, but remained as the director. The war was followed by a brief boom which collapsed into an economic crisis throughout Germany. The Berliner Union folded and, though Rathenau himself lost little money, he was branded as a failure. His troubles were increased by the complete failure and suicide of his father-in-law.
Rathenau became disillusioned with engineering but not with industry. Still only in his mid-thirties, he quit working and travelled. He went to the World's Fair of 1876 in Philadelphia, where he was particularly impressed by the Bell Telephone Company's display. Shortly after that, Bell tried to move its business into Germany, but the public objected, calling the telephones the "American Swindle." The Post office was convinced of the usefulness and profitability of the invention and selected Rathenau to lead the effort to establish it as a business. It was not easy, but finally, in 1880, he had rounded up ten investors and the Berlin Exchange opened for business.
In 1878 Rathenau had visited another World's Fair, this one in Paris, and had seen the wonders of electric street lighting. He met Werner Siemens in Switzerland, and the two men proposed a plan for installing such lamps in Berlin, but the plan came to naught, primarily because Siemens's leading engineer did not want the extra work. The technical problems in the economic production of such lighting were many. In 1879, Thomas Edison's patent of his element finally made possible the inexpensive production of electric lighting on a large scale. Rathenau immediately recognised the value of Edison's invention, but the competition for the patent leases was intense, and Rathenau had trouble getting the backing he needed. Siemens was trying to introduce his own patents, and his many relatives in Deutsche Bank blocked financing of competitors. In 1882 Rathenau and the banker Jacob Landau formed a consortium with Sulzbach, the Nationalbank, and the French Compagnie Continentale, which had the Edison patent licences for France. The consortium, called Studiengesellschaft, was licensed to provide the streetlighting for all of Germany except the Frankfurt and Wiesbaden areas. The group was cautious, and gave Rathenau only six months to make a success of the business. His first customers were the printworks W. Büxenstein and the Bömische Brewery, both large and respected firms. In the winter of 1882-83, the first street in Berlin was lit. Snow is reputed to have fallen and sceptics to have been enchanted by the effect.
The Munich exhibition of 1882 brought a great opportunity for the Studiengesellschaft. Siemens and other companies were too conservative to participate in it, but Rathenau was a great lover of industrial fairs, and his products were well displayed. The company lit a street, had many showrooms of their smaller products, and put on a ballet on an electrically lit stage. This last was highly popular, and the directors of the Munich Hoftheater and the Royal Residence Theater contracted with the consortium to give them similar lights. The exhibition was such a success that banks were now much more willing to provide funding. Some of these banks transferred their support from Siemens, who finally realised that he was missing out on an important new market.
In 1882 Werner Siemens, having lost the chance for the Edison licences in Germany, tried to protect his business by securing them for works in Russia and England. He tried negotiating with the Compagnie Continentale, but it decided that it needed only one ally in Germany and, in 1883, helped Rathenau form Deutsche Edison-Gesellschaft, giving it the sole right to use all Edison patents in Germany. The company began with a capital base of 5 million marks; Compagnie Continentale kept two of its representatives on the board; and Siemens & Halske were forced to drop all of their suits for the Edison patents.
DEG was legally formed on 19 April 1883, with 15 founders. Fourth on the list was Emil Rathenau. He was given the responsibility for the Executive Board, and selected only Felix Deutsch as Secretary. Born in 1858 in Breslau, Deutsch had become a hard-working wunder-kind, first in the sugar industry, then in banking.
DEG moved into offices at Leipziger Strasse 96 and began plans for building power stations. Rathenau also made a deal with Julius Springer to publish all technical papers produced during the work of the company. In its first year of operation, DEG installed over 5,000 lights in 27 different locations, mostly factories, but also in steamships. Still finding it difficult to sell the product to a sceptical public, the company used only one million marks of its capital.
Rathenau felt that the company's chief concern should be, not the installation of small generators and lighting, but the construction of central power generating plants. DEG built, after long negotiations, Berlin's first central generating station. This worked well, and a separate company was formed to handle it, the Städtische Elektricitä×-Werke A.G. zu Berlin (1884). Rathenau's idea was that power should not be owned by the consumer, but a guaranteed service.
In spite of the fact that Rathenau was a fanatical worker, in the office from 8.30am to 11pm on most days, the initial growth of DEG was slow. In 1884 the dividends were only 4%. But technical successes finally led to commercial ones. A lightbulb factory was built, producing 150,000 bulbs per year. An arc lamp invented in Belgium was manufactured in DEG factories. The company began to expand beyond the borders of Germany, angering other holders of Edison licences.
The brawls among the Edison patent licencees around the world were continual and were becoming serious. The French holder had over-extended itself and was incurring losses. Siemens was still trying to encroach. The Swan Electric Light Company in England kept claiming that its own inventions did not violate the Edison patents. Nearly all of them were fighting with the American headquarters. The consequential instability and uncertainty severely inhibited co-operative growth, as nobody knew which patent lease agreements would be valid, or for how long.
DEC's business became more shaky. Dividends were low, and the banks refused to allow the company to go public. Assets had sunk and Rathenau's competence was being questioned. But when he threatened his resignation, the board refused to let him go, and he remained with increased power (Felix Deutsch joined the board). A united front was needed to see DEG through its own brawls with Siemens. The two companies had shared some work and battled over other contracts and licences for so long that the legal situation between them was extremely complicated and looked to lead to a lengthy court battle. Members of both boards met, but usually ended up at odds. Finally, a banker, Adalbert Delbrück, was called in to find a solution. In May 1887 both companies signed the treaty he had written. Under its terms, DEG dissolved its relationship with Compagnie Continentale and was now permitted to expand worldwide; the Berlin Städtischen Elektricitä×-Werke was to be headed by Rathenau's old friend Julius Valentin; DEG would build and run Berlin's two new power stations; the DEG-Siemens 1883 contract was dissolved; either firm could now build power stations but only Siemens could supply the parts; salesmen of the two firms would be friendly with one another; two Siemens representatives would sit on DEG's board; and finally, DEG would change its name to Allgemeine Elektricitä×-Gesellschaft (AEG).
AEG now expanded freely, buying another factory north of Berlin and moving into new offices. Oddly, Rathenau, Deutsch, and Paul Mamroth all chose to live communally above the new offices. Sales offices opened in Paris and Belgium, and AEG bought shares in the small electricity companies of many cities. AEG and Siemens formed a new company, in 1890, to manufacture accumulators for them both. This company also expanded rapidly, building factories in Russia, Finland, Sweden, and Norway.
From 1889 AEG began to be interested in electric trains. The company bought the Sprague Company's above-ground cable system patents for Germany at a cost of $25,000 and 21/2% interest. Their first train contract was for the town of Gera. AEG formed Deutsch Strassen un Lokalbahn A.G. with 2.5 million marks to build electric tramways, and won the contracts for systems in Kiev and Breslau. In 1894 AEG formed Gesellschaft für den Bau von Untergrundbahnen to build the underground railway for Berlin. In 1889 it formed, with another company, yet another subsidiary, to manufacture aluminum, but this was never allowed to drain resources from AEG's primary interest of electro-technology.
For the first third of the century, AEG continued to thrive. Emil Rathenau was succeeded by his son, Walter. While they learned to work closely together, AEG and Siemens remained strongly competitive, the latter always far in the lead.
The Second World War brought the extreme disasters that led to the eventual end of AEG's independence. The company lost nearly 90% of its production facilities in East Germany and in the territories taken over by Poland and the Soviet Union. As Germany began to recover, AEG tried, under the chairmanship of Hans Buhler in the 1960's, to force its own recovery with manic growth. Unable to adjust to the idea of a small AEG, it bought more than 50 firms, almost all in the household goods sector, in a period of four years. While Germany prospered and consumers had the income to buy household goods, AEG prospered. With the recession of the early 1970's, AEG's falsely bolstered fortunes began to decline in earnest. AEG had also become heavily involved in the construction of nuclear power stations, which led to additional problems when these contracts were lost. The 1970 profit of 8.4 million Deutsche marks collapsed to a massive loss in 1974 of 664 million, and 960 million in 1979.
AEG certainly did not endure all of this without a fierce struggle to recover. When dividends stopped in 1973, there was a reshuffle of management. Yet another blow came when, in 1977, Jürgen Ponto, head of the Dresdener Bank and on the AEG-Telefunken Board, was murdered by terrorists. The surly and unpopular Dr. Walter Cipa was brought in to trim the fat in 1979, with a program of ferocious rationalisation. The previous year, the company had been forced to sell its stake in Kraftwerk-Union to Siemens, which was thus taking on AEG's nuclear losses. As it became more and more obvious that only a miracle could save the company, the crisis began to affect Germany politically, as the general public began to fear that the company's failure would mean that the boom years of recovery were truly over. In December 1979 a group of West German banks put together a 1 billion Deutsche mark rescue package, and AEG's capital was written down from 930 to 310 million.
It was clear that the only way that the company would be able to survive would be in joint venture schemes, and the search for partners began. In 1981 a video deal was signed with JVC, Thorn-EMI, and Thomson-Brandt, and a telecommunications deal was signed with Bosch. By the end of the year, however, losses were still great, and AEG had to ask banks for more money, to write off some 240 million in loans, and to sell off assets for 700 million in cash. Heinz Dürr was appointed chief executive and immediately began to woo Grundig, United Technologies, and especially the British GEC. Still desperately cutting costs, the company even printed its 1981 annual report on recycled paper, all to no avail.
In August 1982 the company applied to the Frankfurt court for restructuring proceedings under German bankruptcy law, finally admitting insolvency. The proposed settlement was to reduce the workforce from 120,000 to 60,000, and to award creditors only 40% of their claims. Understandably, the many banks involved were not pleased, but neither were they surprised. Often a leader in the field, AEG was one of the first of Germany's many bankruptcies in the 1980's. In September 1984 the bankruptcy proceedings finally ended, and AEG made its final payment of 350 million Deutsche marks to its some 900 creditors. The company had sold off Telefunken Fernseh & Rundfunk to France's Thomson S.A. The number of employees was down to about 75,000. Other sales included 49% of Ant Nachrichtentechnik to Robert Bosch, and all of Mannesmann and Allianz Versicherungs.
AEG survived, in a year when over 7,000 other German companies filed for bankruptcy, with Dürr still at the helm. The following year, Daimler-Benz moved in and bought 56% of AEG, paying 1.77 billion Deutsche marks. All of its debts were wiped out in a trice and the exhausted AEG would never be cash poor again.
Principal Subsidiaries: Olympia Aktiengellschaft,(99%) AEG Kabel Aktiengesellschaft, (98.3%); AEG KanisGmbH; Dufrost Kuhl-und Gefriergerate GmbH; Eltro GmbH Gesellschaft fur Strahlungstechnik (73.8%); Sachsenwerk Licht-und Kraft-AG; Elekluft Elektronik-und Luftahrtgerate GmbH (74%); Lloyd dynaowerke GmbH; Debeg GmbH; Elektro-Mechanik GmbH; Elektron Versorgunsverwaltung GmbH; AEG Electronica Construction GmbH; ATM Computer GmbH; Hydra Vermogensverwaltung GmbH; AEG Software-Technik GmbH & co. KG; IFM Interntionale Fluggerate und Motoren GmbH (80%); AEG Analgenexportgellschaft mbH; PGS Planungsgellschaft mbH Architekten Ingenieure; Fabeg GmbH; EAS Assekuranz Vermittlungs-GmbH (54.8%); Werbeagentur Dr. Kuhl GmbH; Elektrochemie GmbH; AEG Software Technik Verwaltungs GmbH; Telefunken Patentverwertungsgellschaft mbH; AEG International AG, (Switzerland); AEG Corporation, Somerville (U.S.A.); Officine Galileo Sicilla S.p.A (Italy).
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