SCHAEFFLER Group yesterday won control of Continental AG with a sweetened bid that values the German tire maker at 12.1 billion euros (US$17.95 billion) and creates the world's largest car-parts manufacturer.
Schaeffler, the second-biggest maker of ball bearings, will pay 75 euros a share, 7 percent more than its original offer, and buy a stake that won't exceed 49.99 percent for four years. Continental Chief Executive Officer Manfred Wennemer, who had opposed the bid, will leave, the Hanover-based company said.
The deal gives Schaeffler control of Europe's second-largest tire maker without having to buy the whole company and take on 11 billion euros of debt, according to Bloomberg News.
CEO Juergen Geissinger used stock options to build a stake and force Continental to sell in a strategy that parallels Porsche SE's creeping takeover of Volkswagen AG. Wennemer had said Schaeffler was seeking a purchase on the cheap.
"Continental was in a pretty poor negotiating position to demand a big price increase," said Robert Heberger, an analyst at Merck Finck in Munich. "They did well to get 75 euros, even though it should have been higher."
Continental was trading up 45 cents, or 0.6 percent, at 73.94 euros yesterday in Frankfurt. The stock has declined 17 percent this year. Schaeffler is closely held and owned by billionaire widow Maria-Elisabeth Schaeffler, 66, and her son.
Schaeffler's bid, which was raised from 70.12 euros, is 39 percent higher than Continental's close on July 11, the last trading day before the Financial Times and Frankfurter Allgemeine Zeitung newspapers reported that an offer was likely.
Not greedy
"You can always argue that an even higher price might have been possible, but considering the challenging industry environment one shouldn't be too greedy," said Christoph Berger at Cominvest Asset Management in Frankfurt.
Terms of the deal stipulated that Continental would be kept intact and retain its stock listing. The agreement will be monitored by former German Chancellor Gerhard Schroeder, once the premier of Continental's home stage of Lower Saxony.
Schaeffler has "a much longer investment horizon" than listed companies and was therefore able to make concessions, Berger said.
"The dispute regarding the public takeover offer has been settled," the tire maker said in the statement. "Continental will start a new chapter in its history and therefore CEO Manfred Wennemer has asked to be released from his duties."
Continental became vulnerable to a takeover after last year's 11.4-billion-euro purchase of Siemens AG's VDO car-components unit added 9.5 billion euros to its debt and caused the share price to decline by more than 50 percent. Schaeffler made a formal offer on July 30, two weeks after announcing it controlled almost 36 percent of Continental, including 28 percent through swap rights.
Wennemer, 60, took over as CEO in September 2001 and used the VDO acquisition to transform the tire maker into a car-parts supplier second only to Robert Bosch GmbH. He called Schaeffler's swaps illegal and said on July 16 that the approach was "egoistic, high-handed and irresponsible."
German financial regulator BaFin said yesterday that the swaps positions didn't breach disclosure rules. Wennemer is to leave the company by August 31, Continental said.