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Aldi Stock: Why You Can’t Invest

What is Aldi?

Aldi is a chain of discount supermarkets leading globally with almost 10,000 stores in more than 18 countries and with a turnover of approximately €50bn. The chain is based in Germany and was founded by Theo Albrecht and his brother Karl in 1946 after taking over their mother’s store that had been operating since 1913 in Essen; it’s one of the largest privately owned companies in the world. The brothers started building a chain of stores and by 1960 they had 300 shops in their ownership and they decided to split the operation into two separate groups, these came to be known as Aldi Süd which has headquarters in Mülheim an der Ruhr; and Aldi Nord having its headquarters in Essen.  Each operates independently of the other within specific areas. They introduced the name Aldi pronounced as [ˈaldiː] (it’s a syllabic abbreviation of Albrecht Diskont) in 1962. In Germany Aldi Süd and Aldi Nord have since 1966 been legally and financially separate, even though the names of both divisions seem to appear (as if they are a single enterprise) with some store brands or when they negotiate with contractor companies. 

The brothers originally owned and managed the individual groups. The ownership of Aldi Süd was retained by Karl Albrecht having €17.2 billion in personal wealth which made him the richest man in Germany while the Aldi Nord co-owners Theo Albrecht Jr. and Berthold, close behind with €16 billion. In third place was Dieter Schwarz who owns Kaufland and Lidl WITH A €11.5 billion fortune.

The German operations of Aldi consist of its 35 individual regional companies having 2,500 stores in the northern, western and Eastern Germany plus 32 regional companies under Aldi Süd having 1,600 stores in southern and western Germany.

Internationally, The Aldi Nord’s operational in France, Denmark, Poland, the Iberian Peninsula and the Benelux countries, while Aldi Süd is operational in the United Kingdom, Ireland, Slovenia, Austria, Australia, Switzerland and Hungary (Within Slovenia and Austria Aldi Süd is operational as Hofer). Aldi Süd and Aldi Nord are also operational in the United States; Aldi Süd is known as Aldi while Aldi Nord owns Trader Joe’s chain.

In a survey conducted in December 2002 by the German market research institute Forsa, it was found out that 88% of white collar workers, 95% of blue collar workers, 80% of self-employed Germans and 84% public servants all shop at Aldi.

Can you invest in Aldi?

No, you can’t. A majority of corporations having a particular size can’t wait to sell their shares on a stock exchange; this is due to the recognition and cash influx following the initial public offer. But there are some things which are just too good to share. Other corporations such as Aldi would rather grow internally and avoid trading of their shares publicly altogether. The advantages gained from staying private are plain – there are no reporting requirements, no undue focus on goals for the short term and no shareholders who are dissociated to please. When private companies are run sharply, they can grow to sizes that rival those of their largest counterparts who are publicly traded.

Why Aldi chooses to remain private

Control

By owning a privately held company, you have all the authority over decisions in operations and you need not worry about the expectations and interference by shareholders. Shareholders of public companies often are focused on the current earnings and may exert tremendous pressure so that earnings can be increased in the short term which increases their stock value. For an executive management team with a long term vision this can be very frustrating. Furthermore, companies which are privately held aren’t vulnerable to hostile takeovers. The privately owned companies’ owners can’t have the selling of their company underneath them.

Right of Non-Disclosure

Companies which are privately held aren’t required to disclose operation details as this has the potential of benefitting their competitors. There are stringent requirements on disclosure by the SEC for public companies, they include shareholder discussions, details of the investor conferences and research analyst meetings. It is a requirement for public companies to disclose detailed financial reports on a quarterly basis, this get subjected to shareholder scrutiny and inquiry.

Confidentiality

Information such as legal settlements, executive compensations and other information that is sensitive can’t be kept confidential by public companies. Information that you would have rather kept confidential can be exposed by complying with the disclosure regulations by SEC. 

Tax Structure

Companies that are privately held are flexible to structure their company as a limited liability company, corporation or other entity which can serve the company’s best interests. The structure can be made such that the company’s income flows through to owners, or shareholders who then get taxed at rates that are lower than corporations. This allows the privately held companies’ owners to avoid the double taxation risk.

Liability

In contrast to companies that are privately held, the public companies have a vulnerability to civil liability lawsuits. The requirements on reporting and disclosure render them susceptible to shareholder litigation with misrepresentation charges and even fraud when things don’t go as planned. Public companies usually have lawsuits that are as many as two to three times those of privately held companies. 61% of securities fraud cases got settled out of court with a mean settlement amount of $48 million according to a study by the Professional Liability Underwriting Society which was conducted between 2000 and 2003. 34% of the lawsuits were either dismissed or dropped; to defend this type of actions the costs can exceed $1 million.

Will Aldi ever go public?

At some time Aldi may be publicly traded, but as things stand they are very successful and that seems very unlikely. Some ground for investing exists in companies benefitting from these stores’ success such as the ones making their products. This though requires some careful and thorough research and again just because they are a successful company doesn’t mean that they will be listed on a stock exchange.

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