Schaeffler Plans IPO to Cut Debt, Said to Raise $3.4 BillionBy , , and
Schaeffler seeking to reduce debt accumulated in Conti bid
Holding company also plans $4.1 billion overhaul of borrowings
Schaeffler AG, the German family-owned industrial company specializing in ball bearings and automotive parts, plans an initial public offering that may be among the largest in Germany this year as it seeks to pay down debt.
The company may raise as much as about 3 billion euros ($3.4 billion) in the IPO, people familiar with the matter said, asking not to be named because the details aren’t public. Schaeffler plans to list a stake of about 25 percent in Frankfurt by selling as many as 166 million new and existing shares, the manufacturer said in a statement Monday. Initial trading is targeted for Oct. 5, it said in a separate presentation. The founding Schaeffler family’s holding company also said it plans to rearrange 3.6 billion euros of debt, and four banks have agreed to loans and a revolving credit line.
A successful IPO of Schaeffler would advance a turnaround after the credit crisis, which weighed on the manufacturer as it made a takeover bid for German car-parts maker Continental AG at the height of the global crunch. The company’s net debt stood at 6.24 billion euros at the end of the first half, accumulated mainly from becoming the biggest shareholder in Hanover, Germany-based Continental, in which Schaeffler owns about 46 percent.
“It’s been clear for some years that the only way to cut their debt was to do an IPO,” said Juergen Pieper, an analyst at Frankfurt-based Bankhaus Metzler. “This has been the motivation for a long time.”
The potential value compares with drugmaker Bayer AG’s planned 2.5 billion-euro listing of plastics unit Covestro. As many as 100 million Schaeffler shares will be sold by the holding company and 66 million will be part of a capital increase, the bearing manufacturer said. Deutsche Bank AG and Citigroup Inc. are coordinating the IPO, with Bank of America Merrill Lynch and HSBC Holdings Plc as bookrunners, according to the term sheet for the sale.
Proceeds from the new shares will be used to reduce debt at both Schaeffler AG and the holding company, and management of the operating business plans to further repay an additional 1 billion euros of debt from operating cash flow by 2018. Schaeffler plans starting this year to pay a dividend to shareholders of 25 percent to 35 percent of annual net income.
The IPO “is the final step of the realignment of our capital and corporate structure,” said Georg Schaeffler, the company chairman who with his mother Maria-Elisabeth Schaeffler-Thumann controls the manufacturer.
Interest in the IPO from investors has been “promising,” Chief Executive Officer Klaus Rosenfeld told journalists on a conference call. Schaeffler AG is seeking to meet at least 100 potential investors prior to the sale, he said. He declined to specify a target figure for the IPO’s value. The Schaeffler family intends to maintain control of the manufacturer, and the company isn’t planning to cut its 46 percent stake in Continental, he said.
Schaeffler’s roller-bearings are used in the London Eye Ferris wheel and Airbus A380 double-decker airliner. The manufacturer, based in Herzogenaurach in southern Germany, posted a 4.9 percent increase in revenue at constant currency rates in the first half, to 6.7 billion euros. Business this summer was weaker than expected, especially automotive in China, and sales for the full year probably will increase 4 percent to 5 percent at constant exchange rates, the company said.
Even with the Chinese economic slowdown damping prospects in coming months, Schaeffler’s share sale isn’t dependent on short-term market prospects and will proceed, Rosenfeld said.
Schaeffler, which competes with SKF AB of Sweden and Timken Co. in the U.S., said this year’s profit margin will be similar to the 12.2 percent of revenue recorded in the first half. Earnings before interest and taxes rose 51 percent last year to 1.5 billion euros.
Georg Schaeffler ranks among the richest Germans, with a fortune of about $19.8 billion, according to the Bloomberg Billionaires Index. The shares to be sold in the offering won’t have voting rights, allowing the family to retain control.
The banks arranging the IPO also agreed to provide a term loan, a revolving credit facility and a bridge loan that will be repaid by the issuance of new bonds by Schaeffler Holding later, the company said in a separate statement. All outstanding bonds of its Schaeffler Holding Finance unit will be redeemed, it said.
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