Axel Springer’s CEO Was Just Given $1.2 Billion In Stock. Here’s How He Might Sidestep A…

Succession at a global media empire is a tricky business–the inspiration for popular HBO melodramas, no less. But if you’re willing to hand over a billion dollars worth of company stock, a smooth succession can, it would seem, be easily achieved.

Last week, in Germany billionaire Friede Springer sliced her 43%, $3 billion dollar stake in German publishing giant Axel Springer in half. She gave a generous 15% stake to loyal CEO Mathias Döpfner, plus sold him an additional 4.1% of the company, to ensure a “smooth” succession of the empire founded by her late husband into the hands of her CEO. Döpfner received shares worth nearly $1.2 billion, based on the 63 Euro share price that investment giant KKR paid to take Axel Springer private in April. It is quite possibly the most valuable corporate asset transfer to a non-family member in modern history.

Friede Springer said in a statement that she is delivering on a promise to “ensure continuity” and “safeguard the future of Axel Springer”and was “very happy and grateful to have found my successor in Mathias.”

Axel Springer’s publications include prominent German newspapers Bild and Die Welt, plus New York-based digital news outlet Business Insider. The group posted revenues of over $4 billion in 2019. Springer, now 78, inherited the publishing empire from her husband Axel following his death in 1985. According to a company announcement, she has also given up the voting rights to all of her stock. They will now be exercised by Döpfner, making the CEO, with 44% voting rights, the second-most powerful shareholder after KKR, which has 47.6%.

The Tax Tightrope

The gift of 15% could present CEO Döpfner with a staggering tax bill of as much as $500 million (420 million Euros), according to a left-leaning politician and tax lawyers in Germany. Gift tax rates in Germany for transfers from non family members range from 30% to 50%, depending on the size of the gift received, according to Thomson Reuters. That puts taxation in the range of $300 million to $500 million. Although Döpfner is reported to be highly paid across a variety of roles, including a board seat at Netflix, he is not from a historically wealthy family. He climbed the ladder over 22 years at Axel Springer after first working in journalism, with spells as editor-in-chief of Wochenpost in Berlin from 1994 to 1996 and Hamburger Morgenpost from 1996 to 1998, before arriving at Axel Springer SE in 1998 as editor-in-chief of Die Welt. He was named CEO of Axel Springer in January 2002; his pay package for that position has not been disclosed.

Why Mathias Döpfner wants to navigate this enormous tax bill is clear–not every ‘gift’ arrives with a $500 million tax bill attached. He also is unlikely to sell Axel Springer shares, as that would undermine the entire point of the succession plan. To pay a 50% tax rate, Döpfner would be selling half his shares and he would also lose voting power in the process. An Axel Springer spokesperson confirmed there will be no further share sales by Döpfner or Friede Springer, but did not specify a time period.

The avenue Döpfner is most likely to explore, according to tax law specialist Helge Schubert from Hamburg-based law firm Rose & Partner, is an exemption test. In cases where paying a tax would result in a large sum of money exiting the business, a tax exemption could be granted. He explains in Germany “special rules” now prevent large amounts of money from being withdrawn from businesses. “If you do receive something more than EUR 26 million, then we look into your private worth. Do you have private assets which you could sell in order to pay the gift tax?” [This] “is clearly the case with Döpfner,” Schubert tells Forbes from his residence in the Austrian mountains. 

Döpfner would in this scenario give information to the tax authorities on his properties and valuable assets (excluding the Axel Springer stake) to be taxed at up to 50% of their value.  

With plenty of time to plan this succession and move assets into trusts, or into the name of close family member, Döpfner could, Schubert speculates, end up paying a far smaller amount than the $500 million. Simply put, Döpfner will pay 50% tax on the private wealth remaining in his name, and the assets that remain in his name are easily changed. Schubert adds, “Basically … one can assume that there shouldn’t be any gift tax applicable. Or, a ridiculous low amount of gift tax in relation to what he has got now,” he says.

Stefan Bach from DIW Berlin, an economic research institute in Germany agrees, citing the 2016 reform of Germany’s corporate privileges and adding that Döpfner will likely “expend” 50% of his private wealth excluding business assets to pay the tax bill.“The exceeding amount is waived, so the effective tax burden might be rather low,” he says by email.

To qualify for the tax exemption, for the next seven years, payroll expenses at Axel Springer cannot decline, business assets and equity shares cannot be sold, and no withdrawals can be made that exceed profits and capital contributions, says tax lawyer Schubert. If a single one of these criteria is not met, Döpfner’s tax exemption is revoked, he adds.

Axel Springer acknowledged questions over taxation but did not comment on the details of Döpfner’s personal tax plans, though a spokesperson emphasized that the gift will “of course” be taxed properly according to the applicable tax rules.

Majority shareholder KKR has not responded to a request for comment.

A Modern Media Empire 

Founded in 1946, Axel Springer is one of the largest publishing houses in Europe, with over 16,000 employees. The group played a prominent role advocating for the reunification of Germany and championing free-market principles throughout West Germany’s tumultuous post World War II years. 

As with many billionaire families (such as the Albrecht dynasty, of Aldi fame, and, most recently, the U.K.’s Barclay brothers), the Springers have encountered struggles in passing on businesses and wealth from those who built the fortune to the younger generation. In 2012, the founder’s grandson Axel Sven Springer chose the 100th birthday of his grandfather to publish a book on why he had, in his own words, “spent seven years fighting for my inheritance through the courts.” Forbes was unable to reach these heirs directly.

The succession might yet make two billionaires from one fortune. When KKR bought 47.6% of the firm for $3.8 billion in April, taking Axel Springer off the Frankfurt stock exchange, Friede Springer’s 42.6% stake was worth $3.4 billion (€2.9 billion).

In gifting and selling stock to Döpfner, Friede Springer cut her stake to 22%, reducing her net worth by an estimated $1.4 billion—yet she’ll still make the World’s Billionaires list. Forbes now estimates Springer to be worth $3.1. billion. Depending on how aggressively he can sidestep the tax bill from his new windfall, Döpfner could eventually join the billionaire ranks as well.