Zeppelin Pioneer’s Hometown Stirred by $11 Billion Bid

The transmission in your BMW sedan paid for the playful crocodile mascot and the art and cooking classes at the Spielehaus, a youth center in the southern German town of Friedrichshafen on the shores of Lake Constance.

The Spielehaus is among dozens of beneficiaries of ZF Friedrichshafen AG, the car-parts maker that wants to propel itself to No. 2 in the industry by buying TRW Automotive Holdings Corp., based 4,200 miles away and listed in New York. Controlled by the Zeppelin Foundation, a legacy of airship pioneer Ferdinand von Zeppelin, ZF pays annual dividends that funded about two-thirds of Friedrichshafen’s budget last year.

The money subsidizes a bike track, a hospital, a university and 32 preschools in this tidy city on the border to Austria and Switzerland. The potential $11 billion takeover is intended to add electronic components ZF needs to compete as cars become more complex. It shows the financial might of Germany’s stolid privately held companies and will test the traditionalist region’s ability to maintain its prosperity under the pressure of globalization.

“For the employees it was very much a surprise,” said Lothar Loeffler, who has worked on the production line at ZF for about seven years. “It did leave people unsettled. There are lots of rumors among the employees.”

Job Preservation

Workers’ main concern is job preservation, said Loeffler who, in addition to his full-time job, helps out at his partner’s cleaning company MLA-Gebaeudereinigung when he can.

Unemployment in the Lake Constance district, which includes Friedrichshafen, was 2.8 percent in August, less than half the national average, according to the German federal labor agency. The town ranks 11th in a nationwide list of 440 regional business locations, according to local authorities. Also home to MTU Friedrichshafen, now part of Rolls-Royce Power Systems, and Zeppelin Systems GmbH, it’s one of the most prosperous municipalities in Germany.

“We have de facto zero unemployment,” said Walter Mueller, the manager of Mercedes-Benz dealership AMF Auto-Mueller GmbH in Friedrichshafen, with 60 workers. “I struggle to keep employees who are leaving to join the industrial companies nearby.”

Talks are restarting on a crucial component of the deal, ZF’s attempt to extract itself from a joint venture with Robert Bosch GmbH, according people familiar with the negotiations who asked not to be identified because they are private. If terms with Bosch are reached, an agreement to acquire TRW could come as early as this month, the people said.

Small Takeovers

ZF confirmed the talks initially in July. The company didn’t respond to phone calls and emails seeking comment on the potential impact of a deal on the region.

The manufacturer is one of the global leaders in transmissions, supplying 8-speed automatic gearboxes for the BMW 5-Series. The company also makes clutches, axles and shock absorbers. TRW supplies electronic parking brakes, steering systems and crash sensors.

If the takeover goes through, it would create a company with almost $40 billion in annual sales, leaving only Bosch itself ahead in the auto-parts market and boosting the ZF’s bargaining power toward auto manufacturers by allowing it to offer more comprehensive packages to equip new cars.

That prospect surprised residents accustomed to small-scale acquisitions under former Chief Executive Officer Hans-Georg Haerter, who worked at ZF for more than 30 years before leading the company from 2007 to 2012. Haerter didn’t pursue big deals.

Maiden Voyage

The new CEO Stefan Sommer, a Porsche aficionado who was featured in an article in Playboy last year for racing on the North Loop of the Nuerburgring track, took over two years ago. He’s pushing for expansion beyond organic growth to boost ZF’s product lineup, now focused largely on mechanical components such as transmissions, axles and clutches.

Friedrichshafen owes its industry to Zeppelin, born across the lake in Constance, who sent his eponymous airship on its maiden voyage over Friedrichshafen in 1900. The former army general fascinated the German public with daring long-distance flights. After a fire destroyed one of his early dirigibles in 1908, donations poured in to enable him to continue his work.

It was then that he established the Zeppelin Foundation, and the money laid the groundwork for the region to become an engineering hub in which entrepreneurs including Claudius Dornier and Wilhelm Maybach prospered.

Zeppelin Legacy

After the post-World War II temporary ban on German aircraft construction, the foundation was signed over to Friedrichshafen, which had been largely destroyed during the war. It started funding a wide range of initiatives in the region, and today owns 93.8 percent of ZF. Its charter states that funds are only to be used for nonprofit and charitable purposes.

“The foundation is a blessing for the town,” said Roland Schild, who has run the Spielehaus since 2000. “You only need to look around, their signs are everywhere.”

Nearly a century after his death in 1917, Zeppelin’s legacy is still plain to see. Three airships for tourists float above Friedrichshafen. Memorials, streets and buildings are dedicated in his honor, and Zeppelin motifs decorate businesses, playgrounds and museums.

Ferries connecting Friedrichshafen with other lakeside towns depart outside the art-deco Zeppelin Museum. Next door, the glass-walled library known as the Medienhaus am See, also foundation-funded, wouldn’t look out of place in the City of London.

Idyllic Setting

Still, the contrast between Wall Street and ZF’s rural headquarters couldn’t be starker.

“Welcome to Friedrichshafen; please turn your clock back 30 years,” is a joke common among professors at Zeppelin University, another legacy of the foundation, which helped start the 1,200-student private school 11 years ago.

Some shops still close for lunch and on Wednesday afternoons. On an afternoon in August, small boats bobbed offshore amid the sounds of summer theater and street artists.

Residents concede that Livonia, Michigan-based TRW, with its leading position in car-safety technology, would make a good fit for ZF.

“An acquisition in the electronic safety technology segment makes sense,” said Mercedes-Benz dealer Mueller. “I see autonomous driving as the future, and an auto supplier of the size of ZF needs to be present in that space.”

Graffiti Scrawl

At the same time, other closely held German companies have tried to secure their futures with a deal, only to see the plan backfire.

Family-owned ball-bearings maker Schaeffler Group tried to take over larger German peer Continental AG in 2008 in a largely debt-financed transaction. The endeavor hit headwinds as stock markets tanked during the financial crisis and Schaeffler’s debt ballooned.

A takeover of TRW by ZF would be the largest in the car-parts industry since then. Unlike in Zeppelin’s time, such daring is now viewed suspiciously in Friedrichshafen.

“The unfamiliar is never good,” an anonymous graffiti artist scrawled along a lakeside walkway outside the main drag. “It only brings disquiet.”

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