July 16, 2008

Private German Firm Bids for Continental

By From news reports

Continental, the European tire company, received a euro 11.2 billion takeover approach from the ball-bearing maker Schaeffler Group that would create the No. 1 car parts supplier in the world. Shaeffler said it might even be happy with a minority stake.

If Schaeffler succeeds in buying Continental, which is three times its size, it would be the first time a German family business takes over a company listed on the country's blue-chip DAX. The deal, announced Tuesday, is worth $17.81 billion.

The purchase would also rank as the largest in the auto parts industry since the euro 11.4 billion acquisition by Continental of the Siemens VDO car components unit in 2007. The deal also would propel the combined business past Robert Bosch as the biggest auto component company.

The offer from Schaeffler is 29 percent more than Continental's share price Friday, the day before German newspapers published reports of the possible bid.

Continental, based in Hannover, has been nervous about the interest of Schaeffler, owned by a German billionaire, Maria- Elisabeth Schaeffler. This week, Continental asked the German market regulator, Bafin, to intervene.

In a letter to Bafin seen by Reuters, the Continental chief executive, Manfred Wennemer, called on the regulator to take "necessary steps" to correct what it called an inappropriate situation after Schaeffler acquired more than a third of the company, mostly via options.

In a statement Tuesday, Schaeffler sought to calm fears, saying that it did not intend to break up the company or reduce jobs. Schaeffler added that the companies complemented each other.

"Schaeffler expressly supports the strategy of Continental, including its tire business," Schaeffler's chief executive, Jurgen Geissinger, said.

Continental, which was built through a series of acquisitions of high-technology car parts makers, said it was studying the offer and would respond.

Continental has been weakened by heavy borrowing to pay for its purchase of VDO.

Continental and other car parts makers have been squeezed by slumping demand and soaring costs. Auto sales have fallen 10 percent in the U.S. and 0.7 percent in Europe this year as customers hold back spending because of concerns about economic growth and soaring gasoline prices. The price of oil, also used in tire making, has nearly doubled over the past year.

It had often been speculated that a private equity firm would buy Continental. But those investors rely heavily on debt, and the credit market freeze makes it harder for them to compete.

Shares in Continental rose 12 percent Tuesday, after jumping by more than a fifth Monday.

Originally published by Reuters, Bloomberg.

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