January 12, 2016 / 8:15 AM / in 2 years

Rocket Internet faces new setback with loss of senior managers

BERLIN (Reuters) - Germany’s Rocket Internet is losing two senior managers, sources told Reuters, in the latest setback for a company that a year ago was considered one of Europe’s best hopes for competing with global tech giants.

Europe’s largest internet firm, which has helped create a buzzing tech scene in Berlin, seeks to be a launch pad for stock market listings of start-ups ranging from online fashion to food delivery, but has seen its stock slide as plans to float its bigger investments have stalled.

Rocket’s strategy of rapidly expanding into scores of emerging markets raised the possibility that it could outflank the likes of Amazon and Alibaba as well as powerful venture capital firms.

But planned flotations of Rocket start-ups have been put on ice in the past year due to a cooling market for tech initial public offerings (IPO) with investors increasingly unwilling to meet high valuations.

The problems have been compounded by conflict between Rocket and major Swedish investor Kinnevik, say sources familiar with the matter, while the company is also grappling with slowing growth in the emerging markets.

Now it faces further upheaval with Franziska Leonhardt, head of its legal department, and Uwe Gleitz, senior vice president of corporate finance, both departing soon, according to sources close to the company, both for personal reasons.

The firm, founded in Berlin by brothers Oliver, Alexander and Marc Samwer, is also still looking for a new head of communications to replace Andreas Winiarski who left last year to join a consultancy.

Leonhardt and Gleitz were members of the team that steered Rocket through its own IPO in October 2014, since which its share price has fallen by almost half from the 42.50 offer price.

The stock was down another 0.2 percent on Tuesday, to 23.33 euros at 1330 GMT, valuing the company at about 3.9 billion euros ($4.2 billion).

Since it started out in 2007, Rocket has set up dozens of e-commerce firms around the world, but all of its current crop are still loss-making - meaning it needs to keep eating into its cash reserves to keep them afloat, and making corporate finance a crucial department.

NEWEST BILLIONAIRES

Food recipe and ingredients delivery start-up HelloFresh had its listing pulled at the last minute in November, while plans to float food delivery firm Delivery Hero and online furniture firm Westwing stalled in their earlier stages last year.

The plans were hit by a cooling of the market that has seen fund managers scaling back valuations for fledgling tech companies. Fidelity and Blackrock have, for example, cut the valuations of their holdings in companies like Snapchat and Dropbox in recent months.

“The devaluations by Fidelity and BlackRock have sent a signal to the industry and are also being closely followed here,” said Germany-based financing consultant Peter Barkow.

Chief Executive Oliver Samwer and his brothers are serial internet entrepreneurs who became Germany’s newest billionaires with the flotations of Rocket Internet and the European online fashion site Zalando it helped launch in 2008.

Samwer insists Rocket’s start-ups will eventually become as successful as Zalando, which is now a profitable business with a share price up more than 50 percent since its listed in 2014.

Sources close to the company said that CEO Samwer and Kinnevik - which owns 13 percent of Rocket as well as stakes in several of its major start-ups - had disagreed over the valuation of HelloFresh, before its listing was scrapped.

In a funding round in which British investor Baillie Gifford bought a stake for 75 million euros in September, HelloFresh’s valuation soared to 2.6 billion euros from 600 million euros earlier in the year.

Kinnevik would have been satisfied with an IPO that valued HelloFresh at that level, but Samwer wanted to push for as much as 3.3 billion, according to the sources.

The spat represented a rare defeat for Samwer, who still has most of Rocket’s smaller investors under control, according to a former manager of one leading Rocket start-up. “If you have Oliver on your side, then everything is OK,” the manager said.

Rocket last month denied media speculation that a dispute over the HelloFresh listing was behind the removal of Kinnevik’s chief executive as chairman of its supervisory board. The sources said the appointment of former ProSieben digital media manager Marcus Englert was part of a long-planned move to give the role to an independent figure.

Despite its stalled IPO plans, Rocket Internet has no urgent need to list businesses to generate more capital as it has cash reserves of 1.7 billion euros and plans to invest just 250-350 million euros of that by the end of 2016, company sources say.

It said in September that three of its top online start-ups should break even by the end of 2017 and it hoped to list at least one in the next 18 months. It also pledged not to raise more capital from investors or make big acquisitions for a few years.

Additional reporting by Alexander Huebner and Eric Auchard in Frankfurt; Editing by Pravin Char

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