$14.4-billion in debt, Schaeffler fails to get government succour

31 January 2009

Schaeffler Group, the car-parts maker strapped with €11 billion ($14.4 billion) in debt from buying Continental AG, failed to secure German government aid and was told to come up with a business plan first.

Representatives of Schaeffler and Continental, Europe's second-largest automotive-component maker, met late yesterday with federal and state officials, the economy ministry said today. A "viable and forward-looking" plan, agreed on with creditors, is "a prerequisite for further negotiations," the Berlin-based ministry said.

The company, owned by billionaire Maria-Elisabeth Schaeffler and her son Georg, is seeking government assistance to ease debt after buying 90.2 per cent of Hanover, Germany-based Continental. Talks with German states, including Bavaria, Lower Saxony and Baden-Wuerttemberg, have been unsuccessful.

Bavaria's government ruled out a direct investment in Schaeffler after negotiations on 27 January, saying that only loan guarantees would be considered.

Maria Schaeffler defended the request for state aid following her company's $13.1 billion leveraged gamble to take over Continental, three times its size. "We are experiencing the biggest financial crisis in decades, we have a global recession and a crisis in the automotive industry," she explained. (See: Continental agrees to conditional sale to Schaeffler)

Asked whether she was using the meltdown in capital markets as an excuse for management mistakes in the debt-financed takeover of Continental, she said Schaeffler acted in its best judgement, adding, "The financial crisis is no pretence."