Continental agrees to conditional sale to Schaeffler

22 August 2008

Schaeffler Group has won control of Continental AG with a sweetened bid that values the German tyremaker at €12.1 billion ($17.9 billion) and creates the world's largest car-parts manufacturer. Schaeffler Group made substantial concessions, including a raised offer and guarantees not to take a majority stake before 2012, to win over Continental's management.

Schaeffler, the second-biggest maker of ball bearings, will pay €75 a share, 7 per cent more than its original offer, and buy a stake that won't exceed 49.99 per cent for four years. The offer is a 39 per cent premium to Conti's price before Schaeffler first announced its interest on 12 July. (See: Continental AG in talks with parts maker Schaeffler for a $19 billion sale)

In addition, Schaeffler will pay Continental up to €522 million to compensate for any adverse changes to financing agreements and taxes as a result of the new investor agreement.

Schaeffler also agreed to maintain Continental's Hanover headquarters and retain its strategy, business divisions and dividend policy. It also agreed not to increase its debt-to-equity ratio without Continental's consent. The companies will also look for strategic projects, particularly in the Powertrain division.

Continental CEO Manfred Wennemer, who had opposed the bid, will leave, the Hanover-based company said today. Wennemer, whose term would have ended in 2011, had signaled that Chief Financial Officer Alan Hippe and Chief Technology Officer Karl-Thomas Neumann could be possible successors. Continental's supervisory board, akin to a board of directors, will lead the search for a new CEO.

In a statement yesterday, Continental said it "expects smooth cooperation" and it will "examine the possibilities for strategic cooperation projects" under terms set out in an investment agreement. In a separate statement also released Thursday, Schaeffler Group welcomed the agreement as a "constructive solution that is in the interest of both companies."

The deal will combine Schaeffler's engine-management technology, ball bearings and clutch business with Continental's expertise in fuel-saving and safety technologies as well as vehicle electronics. The combined entity will compete head to head with rivals Robert Bosch GmbH and Japan's Denso Corp.