Continental rejects $18 bln bid from family firm

FRANKFURT Wed Jul 16, 2008 10:30am EDT

1 of 2. Manfred Wennemer, CEO of German tire and car parts maker Continental AG gives the company's annual news conference in Hanover February 21, 2008. Schaeffler Group launched an unsolicited $17.9 billion bid for Continental AG but said it might be happy with a minority stake.

Credit: Reuters/Morris Mac Matzen

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FRANKFURT (Reuters) - Tires-to-brakes maker Continental vowed to fight for its independence, telling shareholders on Wednesday to reject an 11.2 billion euro ($17.8 billion) bid from family owned Schaeffler Group.

Ball-bearing maker Schaeffler announced a cash offer of 69.37 euros per share on Tuesday after winning control of more than a third of Continental's shares through a web of options organized for it discreetly by banks.

But Continental's stock, which has recently spiked, was trading above the offer price at around 73 euros on Wednesday indicating investor hopes that either Schaeffler will increase its offer or a rival bidder steps in.

The takeover would be the biggest so far this year in Europe and put Continental head to head with Bosch for the position of second-biggest global car-parts supplier -- behind Japan's Denso.

If Schaeffler succeeds in buying the group, which is three times its size, it would also be the first time a German family business has taken over a company listed on the country's blue-chip DAX index.

Schaeffler chief Juergen Geissinger earlier sought to calm management fears, saying that he did not intend to break up Continental or slash jobs. The firms, said the engineer, were a good fit.

But Continental Chief Executive Manfred Wennemer lashed out on Wednesday at Schaeffler's offer, which he said was not a fair price for the company.

Wennemer warned that Schaeffler could ultimately dismantle the group, something the unwelcome bidder has said it does not want to do.

Analysts have speculated that Schaeffler would sell Continental's tire business, its single biggest money-spinner, to pay for the deal.

NICE TRY

Continental is working with Goldman Sachs to mount a defense against Schaeffler, owned by German billionaire Maria-Elisabeth Schaeffler.

"You can't get along in this world by being nice to everyone," Schaeffler told a German newspaper in 2001 when she pushed through the hostile takeover of a rival.

But she may not succeed this time. Stephen Thomas, a fund manager at Frankfurt Trust, said he was betting through options the takeover would flop. "The markets expect a higher price," Thomas said.

Continental was built through a series of acquisitions of high-tech car parts makers, bought with money earned selling car tires.

Weakened by an 11 billion euro debt pile borrowed to pay for its purchase of VDO -- which makes the technology inside satellite navigation and fuel injection systems -- Continental now faces a slowdown in car buying as high oil prices bite.

Over the past year, like many rivals, Continental's stock has suffered. Before this week's bounce, it had halved in value.

It had long been speculated that a private equity firm might buy Continental, but these investors rely heavily on debt and the credit crunch makes it harder for them to compete with often cash-rich trade buyers.

Schaeffler's move is similar to Porsche's takeover of Volkswagen. The smaller sports car maker also bought a stake of 30 percent, then made a token takeover bid and is now creeping towards majority control.

Before the takeover bid came, Continental was trading at an EV/EBIT multiple of 7.5 times, roughly in line with other European car-parts suppliers like Michelin, Brembo, Autoliv and Valeo, according to Equinet.

(Additional reporting by Patricia Nann, Peter Starck, Sylvia Westall and Arno Schuetze in Hanover)

(Editing by Erica Billingham and Quentin Bryar)

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