Schaeffler cuts Continental AG stake to lower debt

FRANKFURT Mon Sep 24, 2012 2:48pm EDT

The logo of Schaeffler Group the world's second largest ball-bearing maker and INA a brand of the company is pictured outside the headquarters in Herzogenaurach July 16, 2008. REUTERS/Michaela Rehle

The logo of Schaeffler Group the world's second largest ball-bearing maker and INA a brand of the company is pictured outside the headquarters in Herzogenaurach July 16, 2008.

Credit: Reuters/Michaela Rehle

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FRANKFURT (Reuters) - German automotive parts supplier Schaeffler is selling shares of partner Continental AG (CONG.DE) currently worth about 1.69 billion euros ($2.18 billion), reducing its stake to 49.9 percent and lopping off a chunk of its debt in the process.

The sale further unwinds one of the most debt-fuelled acquisition deals in German corporate history executed just as Lehman filed for bankruptcy in 2008.

In a statement after the market closed on Monday, Schaeffler said its two German private banks, M.M. Warburg and Bankhaus Metzler, will place with investors as part of an accelerated bookbuilding offering about 20.8 million shares -- or roughly 10.4 percent of tyre maker Continental's outstanding stock.

"Roughly 1.6 billion should result (in net proceeds), but we need to wait until tomorrow," finance chief Klaus Rosenfeld told reporters during a conference call.

Two sources told Reuters the placement would likely be priced between 77.50-79.30 euros, a discount to Monday's closing price of 81.49 euros yet still higher than the 75 euros Schaeffler first agreed to offer investors in August 2008.

The proceeds from the sale will go entirely to reducing just over 5 billion euros in debt weighing on Schaeffler Holding, which Rosenfeld said would amount to about 3.5 billion after the transaction.

During a conference call with reporters, the Schaeffler CFO declined to say if the company planned to sell further Continental shares despite his company's announcement that the Schaeffler family had agreed to a six-month lockup period.

The group nearly bankrupted itself in a debt-financed attempt to swallow Continental, a company three times its size. After Lehman collapsed and equity prices swooned, shareholders rushed to dump their stock with Schaeffler saddling it with more than the 49.9 percent it originally wanted. The rest had to be parked with two private banks as per an agreement with Continental.

Schaeffler later agreed with its handful of lenders to hive off its operating assets into a separate company and divvy up its near 12 billion euros in debt between the two.

Ball bearings and clutch maker Schaeffler AG, the operating unit, shouldered debt of 7.09 billion euros at the end of June. This is more than triple its earnings before interest, taxes, depreciation and amortisation (EBITDA) over the previous twelve months.

Goldman Sachs (GS.N) leads the consortium placing the Continental shares. Commerzbank (CBKG.DE) and UniCredit's (CRDI.MI) German unit HVB are co-bookrunners.

Continental's shares have gained almost 74 percent so far this year, winning them promotion to the Dax .GDAXI index of 30 leading German shares. On their first day of trading on the Dax on Monday they closed down 2.5 percent at 81.49 euros.

(Reporting By Christiaan Hetzner; Editing by Bernard Orr)

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Comments (3)
haddin wrote:
This is a smart move on Schaeffler’s part. This step will curb the debt down to €3.5 billion. Schaeffler bought the shares for €75 but now can sell those above €77.5.

At the same time, Continental deserves some applause, too. Some 74 percent gain mentioned in this article, return to DAX -all these are not an easy task to accomplish.

Sep 24, 2012 7:56pm EDT  --  Report as abuse
pppjnsn wrote:
I agree – this is a very clever move by Schaeffler. Not only have they sold their shares for a profit they have also received €80 million in dividends from Continental and are still their biggest shareholder. Win win situation I would say.

Sep 25, 2012 8:07am EDT  --  Report as abuse
boucepaul wrote:
Schaeffler group sold 10% of Continential share to refinance her debt and schedule other research plan. Schaeffler makes profit throughout this investment. Btw, Continental expects a steady growth rate in Asia market. In long run, this trade does good to both parties.

Schaeffler could stay in strong cash flow by this trade. I can see a healthy bearing company start growing bigger.

Sep 27, 2012 8:34pm EDT  --  Report as abuse
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