Continental wants talks with Goodyear on purchase

Reuters / May 5, 2006 - 8:30 am / UPDATED: 5/5/2006 10:30 A.M.

Hanover, Germany - German tyre and car parts maker Continental AG plans to approach Goodyear Tire & Rubber Co. about its interest in acquiring its US rival's Engineered Products division.

"We want to make contact," CEO Manfred Wennemer said on Friday on the sidelines of Continental's annual general meeting in Hanover.

Earlier, the CEO had already announced he was still looking for further acquisitions after his deal struck in April to purchase Motorola's automotive electronics business for $1 billion.

"By no means have we reached the end of the line as far as acquisitions are concerned," Wennemer told shareholders, adding that it was interested in beefing up its ContiTech non-tire rubber division with assets in North America.

Measures to cut costs wherever possible matched with brisk demand for the firm's electronic braking systems that help prevent deadly rollovers has helped Continental post record earnings year after year.

Armed with a bulging pile of cash and a strong balance sheet, Continental has repeated for months its commitment to shell out up to $5.10 billion (4 billion euros) on a buying spree that would above all enhance the supplier's geographical footprint.

SMALL BEER

Consequently, finance chief Alan Hippe reaffirmed on Thursday, May 4, that the company remained interested in a potential acquisition of Goodyear's Engineered Products business, which posted sales of $1.63 billion last year and had a 6.3 percent operating margin.

Goodyear chose late last September JP Morgan and Goldman Sachs to advise on the potential disposal of its non-tyre rubber business, whereupon Hippe confirmed just over a month later that his company was carefully eyeing the asset as an attractive complement for its ContiTech non-tyre rubber division.

Sanford Bernstein's automotive analyst Stephen Cheetham wrote in a research note that the Goodyear division was most likely to be the next candidate on Continental's buying list.

"We don't think this is a major acquisition: even applying a 20 percent premium to the 0.2 times multiple paid for Phoenix, the total consideration would be only 350 million euros," he told clients, referring to Engineered Products as "relatively small beer".

During the annual meeting, Wennemer added that it remained open whether Continental would increase tire prices further to compensate for high raw material costs following Thursday's announcement of a 3 percent hike to come in Europe and North America.

He also said an initial public offering for ContiTech, continued to be an option but was not currently in the pipeline.

"It's not a bad option if need be," he said.

On Thursday, the Hanover-based firm reported operating profit rose by just over a quarter for the first quarter but cautioned that the earnings risk from raw material prices could be greater this year than it previously anticipated.

From Automotive News (A Crain publication)