Tire Business staff report
Hanover, Germany (July 24, 2008) - The supervisory and executive boards of Continental A.G. have declined an $11.2 billion buyout offer made by Schaeffler Group after what Conti described as â€œintensiveâ€ deliberations.
Conti's two boards issued a statement July 23 that they came â€œto the strong conviction that the announced takeover offer by Schaeffler Group does not value the company adequately and fails to reflect the best interest of the company. In particular, it does not take tax disadvantages and increased refinancing costs triggered by such a bid into account. All members of both boards have declined the offer in its current parameters and fully support the continued legal examination by relevant financial supervisory authorities.â€
Schaeffler, which acquired more than 30 percent of Conti's stock, recently offered to acquire the Hanover-based tire and automotive company for 69.36 euros-the equivalent of $110.20 cents per share at the current exchange rate. At the time, Conti called the offer â€œhighly opportunistic, does not come close to the true value of Continental, does not create trust and lacks a convincing strategic rationale.â€
In supporting all the actions taken by the executive board, the supervisory board said the two bodies â€œwill continue to act in the best interest of the company and all of its stakeholders.â€
However, Conti said both boards are of the opinion â€œthat an agreement with Schaeffler Group is desirable.â€
â€œIn the case that Schaeffler Group shows willingness to negotiate about either an adequate premium for Continental shareholders or the willingness to limit their targeted stake to an acceptable level for Continental, the supervisory board has given the executive board its consent to enter into direct negotiations with Schaeffler Group.â€
The boards added that after determining the intentions of the bidder and after publication of the offer document, the company will comment on the offer â€œin the context of the legally required response according to Section 27 of the WpÃœG (German Securities Acquisition and Takeover Act).â€
Global financial services firm Morgan Stanley & Co. International Plc said that from its analysis of the joint press release issued by the Conti boards, it had gleaned five key points.
The boards' statement marked a change in tone from the language of the initial management statement about the proposed takeover. The most recent press release â€œlacked the emotional languageâ€ of initial statements, Morgan Stanley said, citing the statement: â€œAll members of both boards have declined the offer in its current parameters and fully support the continued legal examination by relevant financial supervisory authorities.â€
The company said there was no specific mention of a defense strategy in the boards' statement, though it does highlight three issues with SchaefflerÂ´s bid: the value of the offer; the tax disadvantages; and a trigger of increased refinancing costs.
According to Morgan Stanley, â€œConti states that the offer does not value the company adequately. The release also states 'the supervisory board hasâ€¦approved the pursuit of the options of action identified by the executive board.' Precisely what those actions are remains to be seen.â€
The financial firm pointed out that, in principle, the boards did not reject outright a deal with Schaeffler. â€œIndeed, the release states that '... an agreement with Schaeffler Group is desirable.' Again, a significant change in tone from earlier statements.â€
Pointing out that Conti's objecting to the deal's valuation is at odds with the potential trigger of higher refinancing costs, Morgan Stanley noted â€œthat the higher the offer price, the greater consideration needs to be given to change-of-control lending covenants.â€
The company concluded its analysis by saying the Conti boards' action demonstrates unity between them. In the supervisory board stating that it supports all the actions of the executive board, Morgan Stanley said the press release â€œappears to be designed to assure investors of unity between the two boards.â€
From Tire Business (A Crain publication)
Schaeffler Gets Support for Continental Bid, Handelsblatt Says Bloomberg (Germany)
Continental AG to enter talks with Schaeffler without price target - source Thomson Financial (Germany)