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.
Continental, with 152,000 employees, specializes in systems and components for the auto industry, including electronic safety systems, tires and fuel-economy technologies. Continental expects 2008 revenue of €26.4 billion.
Schaeffler has 66,000 employees and posted revenue of €8.9 billion for 2007. Continental had rejected Schaeffler Group's previous €70.12-a-share offer as too low. Schaeffler had already secured control over more than 36 per cent of Continental's shares using option agreements. (See: Continental rejects Schaeffler's $17.8 billion takeover offer)
Continental rose 31 cents, or 0.4 per cent, to €73.80 in Frankfurt trading. The stock has declined 17 per cent this year. Herzogenaurach, Germany-based Schaeffler is closely held and owned by billionaire widow Maria-Elisabeth Schaeffler and her son.
Schaeffler, formed when INA-Holding Schaeffler KG bought FAG Kugelfischer AG in a hostile bid in 2001, makes parts for vehicle transmissions and chassis, in addition to factory equipment and precision components for aircraft. Schaeffler ranks second to Sweden's SKF AB in making ball bearings.
Continental and Schaeffler have a 13-year-old joint venture to produce timing belts for cars. Volkswagen, Europe's biggest carmaker, is the largest customer of both manufacturers and has backed the merger.