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Business

New Scandal Brewing over HDW Sale to U.S.

The sale of Howaldtswerke Deutsche Werft to a U.S. investment group is part of a plan by the company, the world's leading producer of conventional submarines, to get around a ban on German arms exports to Taiwan.

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Is a German submarine maker plying muddy waters?

On Friday, the EU Commission announced that it had approved One Equity Partner’s planned takeover of a stake of 75% plus one share of HDW.

Handelsblatt has learned from government insiders in Berlin of a conversation that HDW chief Klaus Lederer held in the German Chancellery Office. During this conversation, Lederer is reported to have said that the sale to OEP would make it possible for HDW to supply eight conventional submarines to Taiwan. Owing to political tensions between China and Taiwan, the German government has banned arms exports to Taiwan.

HDW's technology has made it the world leader, and the government in Taipeh has frequently expressed interest in buying submarines from the Kiel-based shipyard.

It's this technology that has also made HDW the object of interest of a number of the big U.S. arms producers. For its U-31 submarine, HDW uses a unique form of fuel-cell drive that makes it almost impossible to locate. The coveted nature of this technology has given rise to considerable fears in Germany about the possible consequences of allowing the company to pass into U.S. hands. And even though OEP is only a financial investor, there have been reports that it has ties to U.S. arms giant General Dynamics.

In approving the deal, the EU Commission said its investigations had found no links between OEP and US producers of military equipment.

On Friday, OEP chief Richard Cashin gave new sustenance to these fears. He confirmed in an interview with news agency Bloomberg that his company had been holding talks with General Dynamics and fellow U.S. defense group Northrop Grumman on a possible partnership agreement with HDW.

Such a partnership might lead the EU Commission to rethink its position on the OEP/HDW deal. "With each new transaction in which HDW is involved, there must be a fresh referral to the antitrust authorities," said a Commission spokesman.

Angela Beer, defense policy spokeswoman of the junior partner in Germany's governing coalition, the Greens, warned of the growing influence of the U.S. government on German industry, and said that OEP's takeover of HDW could prove to be the first nail in the coffin of plans for a pan-European cooperation in arms manufacturing. She told Handelsblatt that if as part of its planned cooperation with U.S. groups, HDW ends up using U.S.-made components in its submarines, the submarines could become subject to U.S. legislation on arms control. This, according to Beer, gives Washington a say on orders for armaments exports.

Meanwhile, Dietrich Austermann, budget-policy spokesman of the conservative faction in the German parliament, spoke of a danger that the transfer of world-leading technology to the U.S. would lead to the loss of jobs at HDW's works in Kiel.

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