Continental Back in German DAX After Schaeffler Recovery

Continental AG (CON), Europe’s second- largest auto-parts maker, returned to Germany’s benchmark DAX index (DAX) after a 45-month absence in a sign of its recovery from debt woes that invited a takeover bid from Schaeffler AG.

Continental is joined by Lanxess AG (LXS), a maker of synthetic rubber, in the gauge that tracks Germany’s 30 biggest listed companies, Deutsche Boerse AG, the Frankfurt-based exchange operator that controls the index, said in a statement yesterday. MAN SE (MAN) was taken out of the index after Volkswagen AG (VOW) increased its stake in the truckmaker to more than 75 percent. Metro AG (MEO) was also removed because it no longer fulfilled the criteria.

Continental, based in Hanover, Germany, was dropped from the DAX after family-owned Schaeffler gained control of more than 90 percent of the stock. The industrial-bearing maker, which has since reduced its holding, made the bid in 2008 when Continental was hampered by loans from the acquisition of the VDO car-parts business. The auto supplier has since cut debt and boosted profit by expanding outside Europe.

“The perception of Continental will improve,” Frank Schwope, an analyst with Norddeutsche Landesbank Girozentrale in Hanover, said before the announcement. “The DAX listing rewards the company’s good operating results.”

Value Triples

Continental shares rose as much as 2.4 percent to 80.90 euros and were up 1.5 percent as of 12:00 p.m. in Frankfurt. The stock has gained 67 percent this year, valuing the company at 16.1 billion euros ($20.3 billion), more than triple its market capitalization at the end of 2008.

Continental, also Europe’s second-largest tiremaker, raised its 2012 revenue and profit outlook in August after second- quarter earnings jumped on lower raw material costs. Stronger results and a 1.1 billion-euro share sale in 2010 helped Continental reduce debt to 6.88 billion euros in June from a peak of 10.9 billion euros in 2007.

“I am optimistic for the near future,” Chief Executive Officer Elmar Degenhart said at a press conference in Frankfurt today. “The return to the DAX is both a recognition and a motivation.”

He expects Continental to continue to grow faster than global car markets by 4 to 5 percentage points next year. Degenhart forecast an increase in worldwide light vehicle production of as much as 3 percent in 2013, as expansion in North America and Asia offsets stagnation in Europe.

Takeover Backfired

Continental has targeted a return to Germany’s leading index since March 2011 when Schaeffler sold shares as part of a reorganization.

Schaeffler’s sale increased Continental’s free float to 39.7 percent from 24.9 percent. It still directly holds 49.9 percent of Continental’s shares. Another 10.4 percent is parked on its behalf at B. Metzler Seel. Sohn & Co. and M.M. Warburg & Co.

Schaeffler’s takeover effort ultimately backfired, as more investors than it expected accepted the offer with markets collapsing in the midst of the financial crisis. The deal saddled the Herzogenaurach, Germany-based manufacturer with more than 10 billion euros in debt.

“We have the unconditional backing and support of our major shareholder,” Degenhart said today. “The cooperation worked smoothly in the past three years.”

Independent Operators

While Schaeffler and Continental team up in procurement and turbo chargers, the companies operate independently. Schaeffler does not plan to sell additional Continental stock in the near future, Klaus Rosenfeld, Schaeffler’s chief financial officer, said on an Aug. 28 conference call. A DAX listing would have no “immediate implication” on the relationship between the two companies, he said.

The changes in the composition of the index will take effect on Sept. 24.

MAN’s free float was reduced as part of VW’s plans to create a truck-making alliance between its Scania AB (SCVB) affiliate, its own commercial-vehicle operations and MAN.

“The move is based on the change in the shareholding structure,” said Andreas Lampersbach, an MAN spokesman. “This is not an issue for MAN. We think we are still attractive for investors being part of the VW group.”

MAN and Metro will join the DAX Mid-Cap Index, or MDAX. (MDAX) Property developer TAG Immobilien AG (TEG) will also join the MDAX, replacing engine manufacturer Deutz AG (DEZ), which will shift to the SDAX index of smaller stocks, Deutsche Boerse said.

To contact the reporter on this story: Dorothee Tschampa in Frankfurt at dtschampa@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net

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