Continental split could accelerate value

Tyres are seen at the plant of German tyre company Continental in Hanover
Tyres are seen at the plant of German tyre company Continental in Hanover, Germany March 2, 2017.

LONDON, Feb 17 (Reuters Breakingviews) - Continental (CONG.DE), which recently hived off its engine unit, is now considering a four-way breakup, Manager Magazin reckons. The split, which would divide the Hanover-based group into automotive, autonomous driving, tyres and industrial units, could see its equity valued at 40 billion euros to 45 billion euros. That’s up from the current 18 billion euros, according to the report, and would mean its valuation jumping from 0.6 times 2020 sales to 1.5 times.

That might seem bold. But Continental’s tyres and industrial units, when benchmarked against peers, could justify multiples of perhaps 1.3 and 2 respectively, suggesting a combined 24 billion euro value. The biggest question is the autonomous driving division. Value that at a tech-style 10 times 2020 sales, and it could be worth 17 billion euros. Applying Continental’s own 0.6 times multiple to the rump auto business does get you to an enterprise value of 49 billion euros, or 45 billion euros less debt.

There are challenges. Separating the automotive unit from its autonomous counterpart may weaken the core business and destroy value. Still, the more Continental’s lowly valuation comes under the spotlight, the harder it will be to resist a breakup. (By Neil Unmack)

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(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)

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