August 21, 2008 / 1:55 AM / in 9 years

Schaeffler claims victory over Continental

4 Min Read

FRANKFURT (Reuters) - Ball bearings maker Schaeffler has won the battle for control of tires-to-brakes firm Continental in a deal that opens the way to creating the world's third-biggest car-industry supplier with sales of $50 billion.

On Thursday, Continental (CONG.DE) management gave its blessing to Schaeffler's fait accompli, handing it control after the family-owned firm made a series of largely symbolic compromises.

Continental Chief Executive Manfred Wennemer, who attacked Schaeffler as "egotistical, autocratic and irresponsible" after it covertly gathered 36 percent of Continental's stock, will go by the end of the month.

The web of deals that gave Schaeffler indirect control of more than a third of Continental scared away rivals and undercut Wennemer's search for a friendly white-knight bid.

Wennemer also turned to stock-market watchdog Bafin to investigate Schaeffler's tactics but on Thursday it gave the predator, one third the size of Continental, the green light.

The agreement struck this week allows Schaeffler's stake to creep up to just under 50 percent.

But with effectively 36 percent, the Bavarian group owned by glamorous billionaire Maria-Elisabeth Schaeffler <ID:nL15284836> and her son, already has control.

Together, Schaeffler, whose ball bearings are used to steer a car, and Continental, which makes the electronics used in satellite navigation, face a tough future as higher oil prices erode car sales.

"It's not about synergies," said Stuart Pearson, an analyst with Credit Suisse, but "more about getting bigger to survive in the increasingly difficult environment of the auto industry."

Olive Branch

Schaeffler, whose mechanical joints can be found in everything from the London Eye Ferris wheel to the U.S. space shuttle, made a series of gestures to coax Continental's management.

It raised its cash offer to 75 euros per share from the 70.12 euros -- valuing the world's fourth-largest car-industry supplier at around 12 billion euros ($18 billion).

Although Schaeffler will not change the formal offer, anybody that sells stock gets the higher price. The group's shares have been trading at about 74 euros.

Upping the price, however, is largely symbolic. Schaeffler hopes Continental's shareholders will not accept the offer, allowing it to creep towards majority control without being required to make a second full-blown takeover bid.

Schaeffler also pledged to keep its stake below 50 percent for four years in an agreement which will be overseen by former German Chancellor Gerhard Schroeder.

Workers meanwhile were won over with a promise not to meddle with contracts.

"The time of uncertainty is over," said Continental's deputy chairman and worker representative Werner Bischoff. "Now it is time to look to the future."

Schaeffler wants four seats on Continental's supervisory board, sources familiar with the situation told Reuters.

Maria-Elisabeth Schaeffler already has close ties to Continental Chairman Hubertus von Gruenberg, who had pushed for agreement between the two sides.

Schaeffler's move is similar to Porsche's (PSHG_p.DE) takeover of Volkswagen (VOWG.DE). 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. (Reporting by Sylvia Westall, Arno Schuetze, Philipp Halstrick. Writing by John O'Donnell. Editing by Paul Bolding and David Cowell)

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