Industrials

Chris Bryant is a Bloomberg Gadfly columnist covering industrial companies. He previously worked for the Financial Times.

It takes a certain chutzpah to sell shares to the public -- and then deny any say in running the company to those stumping up the cash.

Schaeffler Gains After IPO

Schaeffler, the German maker of ball-bearings and automotive parts, did just that when it sold an 11 percent stake to investors, raising 938 million euros ($1 billion) last month.

Institutional investors were only able to buy non-voting preference shares in the company. Minority status makes them effectively powerless anyway -- but they can't even register a protest vote over directors or dividend policy. Georg Schaeffler, Germany's wealthiest man, is firmly in control.

For now, investors seem happy enough to accept that in exchange for entry into one of the historic jewels of industrial Germany and the promise of a juicy dividend. Schaeffler has promised to pay out as much as 35 percent of net income to shareholders.

But as the recent humbling of Volkswagen shows, that arrangement isn't always a good thing: the carmaker's crisis is, in part, the product of poor corporate governance and a reminder that family ownership can be outright dangerous for outsiders.

Even though the IPO helped Schaeffler reduce a debt pile caused by its near-disastrous attempt to buy tyre and electronics company Continental, it's still burdened by 6 billion euros in net debt, almost three times times its Ebitda.

With Volkswagen Schaeffler's biggest customer, any dip in the carmaker's sales would be a blow. Schaeffler's margins would also be squeezed if VW starts bargaining harder in procurement talks to help foot the bill for the scandal. Steelmaker ThyssenKrupp warned about VW's tighter budgets on Thursday.

In the medium term, the diesel scandal may also accelerate the switch to electric vehicles, which could make redundant some of the mechanical components that Schaeffler supplies for vehicles with traditional combustion engines.

As a public company, Schaeffler seem immune from these concerns. The shares have climbed about 16 percent since the IPO.

On Thursday, in its first earnings since its market debut, Schaeffler reiterated its target of 4 percent to 5 percent growth in revenue this year, before currency fluctuations. It's also targeting an impressive operating margin of 12 to 13 percent.

Schaeffler's Operating Margins
Company has set target of 12 to 13%

Deutsche Bank has estimated that earnings per share in 2016 will be about 1.58 euros, putting the forward price-earnings ratio at about 9, less than Schaeffler's automotive peers, which trade at 11.6 times.

Schaeffler could reduce that discount by conceding more oversight to outside shareholders. After all, BMW's consistently high profits demonstrate it is possible to marry family control with investor satisfaction.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Chris Bryant in Frankfurt at cbryant32@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net