Schaeffler and Conti deal has key supporters

By Douglas Bolduc and Bettina Mayer, Automotive News Europe

Top auto executives support a merger of Continental and Schaeffler Group, so does the head of Europe's parts makers association -- and even the target of the takeover says it is willing to negotiate.

The problem is that Continental believes that Schaeffler's offer is too low. Continental executives also say Schaeffler's promises are too vague and its way of accumulating a 36 percent share in Conti was underhanded.

Recently, Continental's supervisory and executive boards advised shareholders to decline Schaeffler's takeover offer. The German supplier said that the offer of €70.12 a share, which would be a total of €11.3 billion, is inadequate.

"The major point is the price," a Continental spokesman said. But the spokesman said Continental remains willing to negotiate.

"We are open to finding a friendly solution," he said.

Porsche Chief Financial Officer Holger Härter is one of the executives in favour of the merger.

"From an economic point of view it would be a good deal," he told the Frankfurter Allgemeine Zeitung.

But most of the auto executives who back the deal do so under one key condition: that the two sides can reach an agreement quickly and amicably.

Christian Aust, auto analyst at UniCredit Group's office in Munich, said that automakers want to work with partsmakers that can provide entire systems and are big enough to handle economic ups and downs.

Schaeffler defends its use of controversial swap agreements with third parties that it used to get most of its Continental shares. The manoeuvre allowed Schaeffler to gain a huge stake in its takeover target without drawing attention that likely would have caused other investors to buy Continental stock. That could have sent the price soaring.

Continental announced on July 30 that German university professor Mathias Habersack believes the swap agreements Schaeffler used to get most of its Continental stake violated German reporting and notification rules.

Mixed mood

Continental insiders told Automotive News Europe that the overall mood in the company is mixed. Workers in the tyre division fear that a Schaeffler takeover would result in the sale of the tyre unit. Meanwhile, most people in the automotive units are more positive about the possible takeover, insiders told ANE.

One insider told ANE that having Schaeffler as the new owner would be much better than having a private equity firm take over.

Ferdinand Dudenhöffer, director of the Center for Automotive Research at the University of Applied Sciences in Gelsenkirchen, Germany, expects that Schaeffler eventually will succeed in its takeover attempt.

If so, some expect Schaeffler ceo Jürgen Geißinger to push asideContinental ceo Manfred Wennemer, who has called Schaeffler's offer "high-handed and irresponsible."

Despite Wennemer's strong language, Dudenhöffer doubts Schaeffler will get rid of the man who has transformed Continental from a tire maker into a powerhouse that competes with Robert Bosch and Denso.

"Geißinger needs Wennemer because [Continental chief technical officer Karl-Thomas] Neumann is not ready to take the job," Dudenhöffer said. "And [Continental chief financial officer Alan] Hippe is out of contention because he did not foresee the danger Continental was in before Schaeffler's move. He did not protect the company well enough."

Timeline

Key events in the Continental-Schaeffler takeover battle

• July 12: The Financial Times reports that Schaeffler wants to buy Continental and is prepared to make a hostile bid

• July 14: Continental confirms it spoke with Schaeffler about a possible investment in the company; says it would consider offers

• July 16: Schaeffler reports it directly or indirectly has about 36 percent of Continental's shares; says it doesn't necessarily want a majority stake

• July 16: Continental supervisory board give management OK to fight Schaeffler

• July 22: Continental union bosses ask Schaeffler to provide proof that it does not intend to cut jobs, break up the firm

• July 23: Continental rejects unsolicited €11.3 billion (€70.12 per share) takeover bid by Schaeffler

• July 30: Schaeffler launches hostile bid

• July 30: Continental says it believes the swap agreements Schaeffler used to get a 36 percent share of Continental violated reporting and notification rules for German securities

• August 13: Continental rejects Schaeffler's hostile bid; it says the price of €70.12 in cash per share is inadequate and a merger would provide few economic advantages

From Automotive News (A Crain publication)