COMPANY INFORMATION
MG was founded in Frankfurt, Germany, in 1881. Its early business involved metal trading at the
time when Western Europe was going through the Second Industrial Revolution. Because
Germany’s domestic production was not able to keep up with demand, MG quickly turned to
overseas markets to secure its metal supply. MG first started its U.S. operation when it founded
the American Metal Company in New York as a subsidiary in 1887.3
MG’s history mirrored the rise and fall of Germany’s industrial history through World War I and
World War II. By 1945, many of MG’s businesses were in ruins, but, just as the country
achieved a remarkable recovery, MG was able to recover from the wars and grow into an
industrial conglomerate over the next four decades. In 1989, Heinz Schimmelbusch was
appointed the chairman of the MG board. A young and energetic executive with a vision,
Schimmelbusch completed a series of acquisitions, dramatically increasing the size of the
company and expanding into new businesses. By the early 1990s, MG had more than 50,000
employees with US$17 billion in revenue.4
MG’s U.S. operation went through a significant reorganization in the 1980s. MG established
capabilities to trade financial instruments and commodities. MGRM, a U.S. subsidiary, started a
new energy business in the early 1990s that offered contracts to its customers that allowed them
to buy oil products (e.g., gasoline and heating oil) from MGRM at a fixed price over many years.
MGRM’s new business took off quickly, and it had accumulated a significant amount of
contracts by 1993. Instead of securing physical oil and storing it for future sale, MGRM adopted
a synthetic storage strategy that allowed it to secure its oil supply via futures markets.5
The
ability to secure oil via derivative trades was at the core of MGRM’s hedging program.