UPDATE 1-Continental kept in the dark by key investor-CEO

Wed May 15, 2013 10:27am EDT

* Schaeffler ended 2008 investment accord

* Continental says Schaeffler move "won't impact" good ties

* Schaeffler says committed to "long-term" holding (Adds background, CEO comment)

By Andreas Cremer

HANOVER, Germany, May 15 (Reuters) - German auto parts and tyre maker Continental said it was kept in the dark about the decision of debt-laden top investor Schaeffler to quit a five-year-old investment accord and does not know how their future relationship will evolve.

Family-owned Schaeffler, which makes industrial bearings and transmission parts, said on Monday it would end a 2008 agreement designed to temporarily limit its stake in Continental to 49.99 percent to resolve a past row over control of Europe's second-largest car-parts maker.

Hanover-based Continental expects its "well-functioning and goal-oriented cooperation" with Schaeffler to continue even without the agreement but was not briefed about the move, Chief Executive Elmar Degenhart said on Wednesday.

"A joint termination (of the accord) was not discussed," the CEO said at the annual general meeting which was attended by Schaeffler owners Maria-Elisabeth Schaeffler and Georg F.W. Schaeffler who remained silent during the four-hour session.

"We have no information about the future development of the Schaeffler holding or other plans by the company," Degenhart said.

The 2008 agreement, the climax of an extended hostile takeover battle by the ball-bearing firm, protected Continental among others from a break-up or a delisting after the departure of its then management.

Analysts suspect the accord was also designed to prevent any asset stripping and that its termination might be a prelude to Schaeffler restructuring the company or reducing its stake.

Schaeffler's debt had peaked at about 12 billion euros ($15.57 billion) as more shareholders than expected took up an offer from Schaeffler to buy stock.

Operating unit Schaeffler AG and its holding parent Schaeffler Verwaltungs GmbH now shoulder a combined 10.3 billion euros in overall debt despite having reduced their stake from around a level of around 90 percent immediately after the deal.

Its holding in Continental, which earlier this month reaffirmed its 2013 outlook on the back of a pick-up in business, is worth almost 12 billion euros, according to Thomson Reuters data.

Continental's shares traded close to 100 euros on Wednesday, compared with less than 15 euros some four years ago.

"We consider our investment in Continental a long-term strategic investment aimed at sustainably increasing the value of Continental AG," Schaeffler said on Monday when announcing to terminate the accord at its earliest possible date in May 2014.

"We cannot say what will happen after that date," Continental chairman Wolfgang Reitzle said.

Schaeffler's earnings before interest and tax (EBIT) last year fell 16.3 percent to 1.4 billion euros on plunging auto demand in Europe, where over half of group sales of 11.1 billion euros were made.

Expecting growth of around 2 percent this year in global car production, Schaeffler aims to boost sales 4 percent and keep the EBIT margin steady at about 13 percent. ($1 = 0.7705 euros) (Editing by Harro ten Wolde and David Cowell)

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