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Schaeffler Raises $1.3 Billion in Continental Stake Sale

Continental Automobile Tire
A logo sits in the side of a Continental AG automobile tire during the Frankfurt Motor Show, in Frankfurt. Photographer: Hannelore Foerster/Bloomberg

Schaeffler AG and its holding company Schaeffler Verwaltungs GmbH raised about 950 million euros ($1.3 billion) to repay debt by selling a combined 4 percent stake in Continental AG.

The biggest stockholder in Europe’s second-largest car-parts maker placed 7.8 million Continental shares at a price of 122.50 euros each, the Herzogenaurach, Germany-based company said today in a statement. The stock was sold at a 3.5 percent discount to yesterday’s closing level.

“This takes pressure off Schaeffler,” which still has enough votes to control Continental’s shareholders meetings, said Frank Schwope, an analyst with NordLB in Hanover, Germany.

Prior to the sale, the Schaeffler group had borrowings totaling 10.3 billion euros stemming from its takeover of a majority of Continental in early 2009. Since then, Schaeffler has been reducing its holding in the Hanover, Germany-based manufacturer and refinancing debt to lower costs.

Closely held Schaeffler still owns 46 percent of Continental and doesn’t plan to reduce the stake further in order to maintain a “safe majority” at the annual meeting, Chief Financial Officer Klaus Rosenfeld said today.

Continental shares fell as much as 4.3 percent to 121.50 euros and were down 3.6 percent as of 12:26 p.m. in Frankfurt trading. The stock has climbed 40 percent this year, valuing the German supplier at 24.5 billion euros.

‘Strategic Importance’

“The further reduction of debt is an important step for the continuous successful development of our company,” Maria-Elisabeth Schaeffler and her son Georg, the manufacturer’s owners, said in the statement. “We will maintain our shareholding in Continental as it is of long-term and strategic importance to us.”

Schaeffler AG, which makes bearings for autos and industrial equipment, will use an additional 325 million euros in excess cash flow to repay a total of 1.28 billion euros of debt for the group, the company said.

The proceeds help to reduce net debt to 5.5 bln euros at Schaeffler AG and to 3.2 billion euros at the holding company owned by Maria-Elisabeth and Georg which is the parent of Schaeffler AG, Rosenfeld said during a conference call.

“We’re bringing down debt to about 9 billion euros, which will be hopefully recognized by the rating agencies,” he said during a conference call. “The share sale is another important step toward deleveraging the company.”

The company agreed not to sell additional Continental stock for at least 180 days as part of the placement, which was managed by Goldman Sachs Group.

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