Schaeffler Sells 1.8 Billion Euros in Continental AG Shares
M.M. Warburg and Bankhaus Metzler placed 29.7 million shares in Europe’s second-largest tiremaker held on Schaeffler’s behalf at 60 euros apiece, the Herzogenaurach, Germany-based company said today. That reduces the stake controlled by Schaeffler to 60.3 percent from 75.1 percent.
Continental has surged 63 percent in the past year, raising its market value to 12.7 billion euros, as a rebound in the auto industry increases earnings. Schaeffler said the higher circulation of Continental stock will position the tiremaker to reapply for inclusion on Germany’s benchmark DAX Index. (DAX)
“This expands the independence and strategic options for Continental and cuts Schaeffler’s access to its profits,” said Aleksej Wunrau, an analyst at BHF-Bank AG in Frankfurt with a “market weight” recommendation on the shares. “A merger is still possible but a lot less probable now because Schaeffler would have to confront a blocking minority of shareholders.”
Continental rose 4 percent to 63.40 euros at the market close in Frankfurt today, the stock’s highest gain since Feb. 8.
Closely held Schaeffler accumulated 12 billion euros in debt from purchasing its stake in the car-parts maker in 2008. As part of the today’s transaction, Schaeffler, which intends to convert to a corporation in the course of 2011, increased its direct Continental holding to 49.9 percent from 42.2 percent.
Continental’s free float will rise to 39.7 percent from 24.9 percent. That’s “raising its chances to enter the DAX,” said Anita Paluch, a sales trader at ETX Capital in London.
Deutsche Boerse’s next quarterly review of index members is scheduled for June 6, said spokesman Andreas von Brevern. Any changes would be effective as of June 20, he said, declining to comment on Continental’s potential inclusion.
The two banks, which will still hold 10.4 percent of the shares, and Schaeffler won’t sell additional Continental stock in the next 12 months, they said.
Money from the sale will help reduce debt at Schaeffler’s holding company, owned by Maria-Elisabeth Schaeffler and her son Georg, by 2.8 billion euros to 4.6 billion euros, the component maker said. The interest rate on the debt will be reduced to less than 10 percent from as much as 17 percent. The credit facility was arranged by UBS AG, UniCredit SpA, Royal Bank of Scotland Plc, Commerzbank AG and Landesbank Baden-Wuerttemberg in 2009.
“As a result of the refinancing, Schaeffler’s financial position and financing conditions have improved significantly,” Klaus Rosenfeld, Schaeffler’s chief financial officer, said in today’s statement.
The holding company will reach the 2.8 billion euros in debt reduction by using the 1.8 billion euros from the share sale and 400 million euros from operating cash. The final 600 million euros will be transferred to Schaeffler’s operating business, where net debt was 5.76 billion euros as of Sept. 30.
The parts maker will “continue to examine all strategic options to further intensify the cooperation with Continental,” Schaeffler Chairman Georg Schaeffler said in the statement.
Continental said in December it’s exploring options for a “possible” merger with Schaeffler. On March 3, Continental Chief Executive Officer Elmar Degenhart said there are “no joint activities” to prepare a combination.
Continental this month reported fourth-quarter revenue and profit that beat analyst estimates and predicted rising sales from Asia this year will compensate for additional costs from surging rubber prices.
“We appreciate that Schaeffler has made a decision that creates a solid starting position for future developments,” Continental spokesman Hannes Boekhoff said in an e-mail. “The decision gives Continental the option of returning to the DAX. We want to use this chance in the interest of all shareholders to further work on the recovery of the stock.”
The Hanover, Germany-based company is also close to agreeing to new financing after banks offered more loans than it asked for, three people familiar with those talks told Bloomberg March 26. Continental is seeking to secure cheaper terms and replace loans coming due next year. The company, which requested 6 billion euros, was offered about 8.5 billion euros in loans, two of the people said.
Continental was seeking 6 billion euros of term loans and revolving credits from lenders for as long as three years to replace maturing debt, people familiar with the matter told Bloomberg News on March 10.
Standard & Poor’s rates Continental’s debt B, or five steps below investment grade. Moody’s Investors Service ranks it one step higher at B1. Both have a stable outlook on the ratings. Continental aims to return to investment grade by 2012.
One part of the credit coming due is a 4.06 billion-euro term loan. The other is a forward-start credit line of 2.5 billion euros signed in December 2009. Continental agreed to pay interest of between 475 basis points and 500 basis points more than benchmark lending rates for the loans, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.
The debt stems from Continental’s 2007 acquisition of Siemens AG’s VDO unit for 11.4 billion euros.
Citigroup Inc. and Deutsche Bank AG are coordinating the refinancing for the Hanover, Germany-based company, people familiar with the discussions told Bloomberg on March 9.
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