Continental AG, Faurecia May Drive European Auto-Parts Deals

Continental AG and Faurecia SA may drive mergers and acquisitions in Europe’s auto-components industry after a two-year global slowdown as private equity companies scout for deals.

Transactions involving European auto-parts manufacturers as targets may total as many as 85 this year, a 13 percent jump from 2009, after 50 deals in the first eight months, said PRTM, a consulting firm based in Waltham, Massachusetts. Their combined value may fall short of the $9.2 billion recorded last year, when Schaeffler Group paid $6.5 billion for a stake in Continental, the world’s second-largest auto-parts maker.

“After the crisis, M&A markets are opening up again,” Juergen Geissinger, chief executive officer of Schaeffler, the No. 2 roller-bearing manufacturer, said in an interview. “Companies become less cautious about where to invest their capital -- and that brings new activity.”

In Europe, the push to consolidate is reinforced by the gradual withdrawal of government-backed “cash-for-clunkers” payments that softened the collapse of car sales during the crisis and are now hampering the recovery. Pressure for link-ups is greatest among makers of chassis parts, transmissions, seats and door panels -- businesses where suppliers are small and potential buyers abundant, PRTM said.

Seat Belts, Fuel Tanks

Globally, supplier acquisitions may total 300 in 2010 after 241 last year, according to a PRTM study, which examined data and executive comments to assess the potential roles of 560 automotive suppliers as buyers, sellers or financially distressed companies. Industry-wide, 108 deals took place through May, the fastest pace in nine years.

Among Europe’s largest auto-parts deals in 2010 is Plastic Omnium SA’s $333 million buyout of Inergy Automotive Systems, the world’s largest maker of fuel tanks for cars, announced in June. Autoliv Inc., the No. 1 maker of automotive air bags, took full control of Estonian seat-belt maker AS Norma in April for $48 million.

“The signs are positive, with people getting more access to liquidity than they had before,” Dietmar Ostermann, head of PRTM’s automotive practice, said by telephone. “The private- equity market is all over this space right now and has looked at targets -- now it’s time to act.”

French Deals

One Equity Partners, JPMorgan Chase & Co.’s private-equity arm, may increase its 13 percent stake in Faurecia, Europe’s biggest maker of car interiors, PRTM said. A deal may further reduce French carmaker PSA Peugeot Citroen SA’s 57.4 percent holding in Faurecia. One Equity took on the Faurecia shares last November in exchange for the New York-based fund’s holding in U.S.-based Emcon Technologies.

Photographer: Guenter Schiffmann/Bloomberg

Schaeffler chief executive officer Juergen Geissinger said, “After the crisis, M&A markets are opening up again.” Close

Schaeffler chief executive officer Juergen Geissinger said, “After the crisis, M&A... Read More

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Photographer: Guenter Schiffmann/Bloomberg

Schaeffler chief executive officer Juergen Geissinger said, “After the crisis, M&A markets are opening up again.”

At the same time, Faurecia may dispose of its engine- cooling business, according to the PRTM study.

Max Hohenberg, a spokesman for One Equity Partners in Munich, declined to comment, as did a Faurecia spokesman.

The French company agreed in June to buy four additional plants from Plastal GmbH after taking on some assets earlier this year from the insolvent German plastic auto-parts maker.

Moody’s Investors Service today improved its outlook for Europe’s car-parts makers to stable from negative, saying that “measures recently implemented to reduce costs and adjust operations are far-reaching and will more than offset a likely slowdown in European car production” in the second half.

Government Subsidies

Passenger-car registrations in Germany, which phased out subsidies last September, slumped 29 percent in the first eight months. Germany’s 5 billion-euro ($6.5 billion) fund to encourage consumers to trade in older cars for smaller, more fuel-efficient models ran out last September.

Europe’s light-vehicle market will shrink 3.5 percent this year, while the U.S. grows 10 percent and China surges 23 percent, according to forecasts by IHS Automotive. The divergence is seen persisting next year, when Europe will likely gain 1.8 percent, the U.S. 13 percent and China 8.2 percent, the U.S.-based researcher said.

European industrial overcapacity will also fuel consolidation, said Vinzenz Schwegmann, who heads AlixPartners LLP’s auto team in Europe. “The crisis has not really driven capacity reduction in Europe the way it did in the U.S.,” he said in an interview.

Schaeffler Drive

Schaeffler, the Herzogenaurach, Germany-based supplier that controls about 75 percent of Continental and eventually plans to merge the two companies, may force asset sales at the tiremaker to help reduce Continental’s 8 billion euros of net debt as of June 30, PRTM’s Ostermann said. The truck-tire business and ContiTech rubber-parts unit are possible candidates, he said.

The two divisions may fetch a combined value of 2.5 billion euros, said Aleksej Wunrau, an analyst at BHF-Bank AG in Frankfurt who recommends buying Continental shares.

There are no plans to leave any part of the two companies outside of a merged business, Schaeffler CEO Geissinger said Sept. 1.

Valeo SA, a French supplier whose product range spans headlamps, air-conditioning and hands-free parking systems, may sell its windshield wipers division to focus on fuel-saving technologies, the consulting firm said.

The company, which said in March it aims to keep all divisions that achieve sales growth and a 20 percent return on capital, sees itself as a buyer rather than a seller, spokeswoman Kate Philipps said. “There are no particular businesses for sale, and we’re confident that all divisions can meet the criteria,” she said by telephone.

Smaller Deals?

Continental fell 52 cents, or 1 percent, to close at 54.31 euros in Frankfurt trading. Faurecia gained 1.4 percent to 15.82 euros in Paris. Valeo declined 1.4 percent, while Peugeot gained 3.9 percent.

Many of the deals may focus on smaller, privately held companies, according to Michael Muders, who manages about 500 million euros in European stocks at Frankfurt-based Union Investment.

“We’re expecting consolidation, but we don’t necessarily think it’s going to affect listed companies,” said Muders, who owns Continental shares. “Those companies have seen a relatively strong recovery, and Continental for example is back on a solid earnings path, which helps them cut debt.”

Continental returned to a profit in the first quarter and posted second-quarter net income of 121 million euros after cutting thousands of jobs and reducing development spending.

Behr, Hella

Behr GmbH, a German thermal-parts maker, may dispose of some engine-cooling or air-conditioning activities, PRTM said. Hella KGaA Hueck & Co., a headlamp maker, is also likely to sell some assets, the consultant said. Both companies are privately held.

Globally, the number of auto parts deals peaked at 338 in 2007 before falling to 294 in 2008 and 161 last year, according to data compiled by Bloomberg. The value of the mergers in the past two years, excluding government-sponsored deals involving General Motors Co. and Delphi Corp., was less than $18 billion a year after the 2007 peak of $46 billion.

Billionaire investor Wilbur Ross said he’s hunting for acquisitions in China and India for International Automotive Components Group’s interior-parts business and those that make other components. Acquisitions probably would be less than $500 million in size, he said.

Other possible buyers include Eaton Corp. and Johnson Controls Inc., and investors such as Texas Pacific Group and Cerberus Capital Management LP, according to PRTM. Sellers may include Hitachi Ltd., Visteon Corp., TRW Automotive Holdings Corp. and Delphi.


Likely buyers:

Denso Corp.
Illinois Tool Works Inc.
Asahi Glass Co.
Johnson Matthey Plc
Bridgestone Corp.
BASF SE
Toyota Auto Body Co.
Sherwin-Williams Co.
Hyundai Mobis
Bayer AG
Cummins Inc.
Toyota Industries Corp.
Baosteel Group Corp.
Saint-Gobain SA
PPG Industries Inc.
DuPont Co.
ArcelorMittal
Aisin Seiki Co.
Koninklijke Philips Electronics NV
Textron Inc.
Michelin & Cie.
Sumitomo Electric Industries Ltd.
Eaton Corp.
SKF AB
Akzo Nobel NV

Likely Sellers:

Continental AG
Faurecia SA
Valeo SA
Hitachi Ltd.
Visteon Corp.
Futaba Industrial Co.
ThyssenKrupp AG
Mitsubishi Chemical Holdings Corp.
TRW Automotive Holdings Corp.
Calsonic Kansei Corp.
Delphi Corp.

Potentially Distressed:

Pioneer Corp.
ArvinMeritor Inc.
NTN Corp.
Behr GmbH & Co. KG
Tenneco Inc.
Hella KGaA Hueck & Co.

To contact the reporters on this story: Cornelius Rahn in Frankfurt at crahn2@bloomberg.net; Mark Clothier in Southfield, Michigan, at mclothier@bloomberg.net; Laurence Frost in Paris at lfrost4@bloomberg.net

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