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German Town Pays Homage to Suicide Businessman

When the body of Adolf Merckle was discovered on the railroad tracks here last week, authorities ruled the German billionaire’s death to be a suicide.

They said he had thrown himself in front of a train, just a day before it was announced that the company he had founded 34 years ago was being sold.

But for Jürgen Wiedenmann, the owner of a sporting goods store here, Mr. Merckle’s creditors were responsible even if they were not present by the tracks on that snowy night. “The banks pushed him to it, I’m sure,” Mr. Wiedenmann said.

It is a common opinion in this small south German town of 12,000, where his employees and residents saw Mr. Merckle as a decent, taciturn man who looked after his workers and his community, despite his wealth. He was No. 94 on Forbes magazine’s most recent ranking of the 400 richest people in the world.

His four children grew up in a modest one-family house with the Merckle name on the mailbox. “I look at this as the banks’ taking the heart out of the family,” said Karl-Heinz Irgang, a member of the Blaubeuren City Council.

Mr. Merckle’s suicide shocked Germany as much as it angered Blaubeuren, where he was eulogized Monday at a memorial service that overflowed the hamlet’s church.

He was the embodiment of the Mittelstand, the corps of family-owned businesses that form the backbone of German manufacturing. Mr. Merckle, however, dared to step beyond the conservative confines of most German family entrepreneurs and delved into debt and complicated financial transactions to lighten his tax burden and enrich his empire.

“He formed a picture of the risks and acted,” Mr. Irgang said. In the process, those who knew him well said, he developed a keen sense of how far to push — until the last two years.

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During the sole interview he gave in the months before his death, to the German daily Frankfurter Allgemeine Zeitung, Mr. Merckle blamed a “chain reaction” that broke a financial model that had worked “superbly” before the crisis.

“The collapse on world markets led to negative effects for servicing existing loans, which in turn contributed to — in the view of the banks — to declining creditworthiness, which in turn created a corresponding reaction in the capital markets, and so forth,” he said.

His magical touch seemed to completely desert him on Oct. 28. Along with many seasoned investors, he was snared in a “short squeeze” after betting that shares in Volkswagen, Europe’s largest automaker, would fall.

Porsche, however, which is taking over the company, had secretly cornered nearly 75 percent of VW stock. This created a scarcity that sent VW shares to more than $1,200, giving the company, briefly, the highest market value in the world.

It was clear at the time that some of the biggest hedge funds in the world were caught in the squeeze. No one knew how many ordinary investors were caught. But in November, it became clear Mr. Merckle was one of them.

Adolf Merckle was born in 1934 into a German family with roots in the present-day Czech Republic. In the months after World War II, enraged Czechs expelled ethnic Germans. Many of those Germans, including Mr. Merckle’s father, came to West Germany, setting the stage for an economic renaissance.

The Merckles settled in Blaubeuren, near the industrial city of Ulm, where a small mountain range gives way to the foothills of the Alps. The elder Mr. Merckle re-established his wholesale chemicals business in a small building that still bears the family name.

His son moved the business from chemicals to pharmaceuticals, creating Ratiopharm in 1974. He tapped a growing demand for what became known as “branded generics,” pharmaceuticals that were not patented but were marketed under a trusted name.

Sales of paracetamol, a painkiller, fed Ratiopharm’s rapid growth. In 2007, it had sales of 1.7 billion euros, or $2.3 billion at current exchange rates.

Phoenix, a pharmaceutical wholesaler, was the second pillar of the Merckle empire. It had sales of 21.6 billion euros in its last full fiscal year.

Over time, Mr. Merckle amassed other properties, like a leather business and a maker of ski-slope grooming equipment. He even acquired a castle near the Baltic Sea, Schloss Hohen Luckow, where world leaders had dinner when Germany was host to the Group of 8 meeting in 2007.

At the same time, Mr. Merckle was using some of his companies mainly to reap tax and financial benefits — as opposed to building things, which is more valued by the Mittelstand and many Germans.

One Merckle business, Spohn Cement, was based in the north German village of Norderfriedrichskoog, population 40. Its only commercial relevance was, for many years, its low municipal business levy.

Mr. Merckle acquired his chief investment vehicle, VEM Vermögensverwaltung, based in Dresden, from the government agency charged with privatizing East Germany’s state assets after unification in 1990. Part of a small industrial conglomerate, its losses eased the Merckle empire’s tax burden.

VEM and Spohn bundled Merckle family holdings, but often via intermediary firms that together created a byzantine structure fully understood only by Mr. Merckle and his closest confidantes. (No one has said the tactics were illegal in any way.)

In 2005, Mr. Merckle took another leap that broke with the ethos of the Mittelstand: He embraced leverage, in a sector far afield from his own.

Spohn mounted a takeover offer for HeidelbergCement worth 6.5 billion euros. Spohn settled for buying half the company, a transaction that Mr. Merckle pulled off with loans collateralized by the shares acquired.

Months before the credit crisis began in August 2007, HeidelbergCement spent $15.8 billion to take over a British rival, Hanson, and VEM, the other Merckle vehicle, raised its stake in HeidelbergCement to nearly 90 percent when it bought all of a 500-million-share offering.

Shares of HeidelbergCement that had been worth 73.97 euros in mid-September closed Monday at 34.05. The company lost its investment-grade credit rating with Standard & Poor’s in October.

One theory of why Mr. Merckle speculated in Volkswagen stock is that it may have been a last, bold bid to rescue the Merckle family empire, according to one person briefed on the subsequent negotiations with banks, who spoke only on condition of anonymity because of Mr. Merckle’s death.

“Either you are a gambler, or you are feeling a bit desperate and are trying to dig yourself out of a hole,” the person said. “And I don’t think he was a gambler.”

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Whatever the reason, the short squeeze cost Mr. Merckle 400 million euros.

The losses created a severe cash shortage at VEM, and put Mr. Merckle at the mercy of a consortium of 30 banks, including Royal Bank of Scotland, Landesbank Baden-Württemberg, Commerzbank and Deutsche Bank.

Mr. Merckle wanted to sell parts of his main businesses, an outcome that would have left him poorer, but still in control. But in the end, only a sale of Ratiopharm satisfied the banks.

That impending loss, people in Blaubeuren insisted, must have pushed Mr. Merckle to take his own life.

But at Mr. Merckle’s memorial service, Gerhard Maier, a retired Protestant bishop, said, “What brought a man of great will who felt responsible to God to the point where he took his own life is something that, deep down, we humans will never comprehend.”

Next to the cash register at Mr. Wiedenmann’s store, a card reads simply, “We mourn for Adolf Merckle.”