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Continental AG Cap Hike Passes, CEO Under Fire

(Reuters and other reports) The soap opera that has been Schaeffler Group’s ownership of Continental AG continues to take new turns, with Reuters now reporting that Conti’s CEO is being forced out and Schaeffler wants to unload the company’s rubber group.

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Yesterday Continental AG won a vote to repair its finances but could lose its chief executive and faces pressure to sell its tire business as a bitter power struggle with its main shareholder drags on.

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Continental said a boardroom push by German ball-bearings maker Schaeffler to oust CEO Karl-Thomas Neumann failed on Thursday, but Schaeffler aims to try again to unseat him at a further meeting scheduled for Aug 12, when Continental said it expects a final decision on the issue to be taken.

But Bloomberg reports that Neumann may beat the board to the punch, with plans to resign as early as today.

Neumann, 48, would be Continental’s second leader in less than a year to lose his job in a dispute over strategy. Former CEO Manfred Wennemer resigned last summer after losing the support of Conti’s board, which refused to fight off Schaeffler’s hostile run at the company.

Schaeffler has also called for a divestment of the German car parts maker’s Rubber Group again, several people familiar with the matter said.

"Schaeffler talked about the fact at the Continental supervisory board meeting that the rubber division is not part of the core business, and that a sale of the division is an option," one Continental supervisory board member told Reuters on Friday.

Continental has previously said it was examining whether a sale of assets – mainly tire activities bundled in the Rubber Group – would be the best way to pay off part of its debt.

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Schaeffler, which acquired its stake in Conti after launching a hostile $18 billion bid last July, also renewed calls for a divestment of the German car parts maker’s Rubber Group to ease debt pressures, several people familiar with the matter said.

The bid played out with Schaeffler collecting more Continental shares than it could afford, lumbering it with billions of euros of debt. It currently owns just under 50% of the company. Another 40% of shares it was tendered is parked with banks.

A supervisory board member who declined to be named told Reuters that Neumann was slated to be replaced by Schaeffler’s head of the automotive, Elmar Degenhart.

Continental’s Nikolai Setzer would become new head of the car tire business on the management board, the source said. Continental declined to comment on new manager appointments.

According to German media reports, Schaeffler also aims to place its finance chief in the position of CFO at Continental, a post that has been vacant since Alan Hippe left in April.

On Thursday, Neumann succeeded in gathering enough support among board directors to approve management preparations for a capital increase of up to 1.5 billion euros that would significantly dilute Schaeffler’s indirect stake of 90%.

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To solve the company financial problems, Schaeffler revived the issue of selling Continental’s tire business during Thursday’s supervisory board meeting, sources told Reuters.

"Schaeffler said … the rubber tire business would not count as a core business and that selling it was an option," a supervisory board member told Reuters on Friday.

Other board members said that, given the tough market environment, a quick sale could not be expected.

A Frankfurt-based trader said the size of the capital increase was at the upper end of expectations. Equinet analyst Tim Schuldt said he welcomed Continental’s decision to increase its capital as it would put the company on a much sounder financial basis.

"While it does dilute the mid-term recovery potential of Continental shares, it also reduce the balance sheet risk significantly, which we believe is much more important in the current situation," Schuldt said.

Neumann said in a statement that it would help Schaeffler as well if Continental’s financial foundation was strengthened, but said that in the process he had to struggle with some unusual and very disappointing developments.

"These make it very, very difficult for me to work over the long term in cooperation with our large shareholder," the embattled CEO said.

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Continental said it will begin talks with its creditor banks over restructuring its debt, in particular in view of a 3.5 billion euro ($4.93 billion) second tranche loan payment due in August of next year.

Continental already faces an 800 million euro cash call next month for the first tranche of the syndicated loan, meaning the company would altogether have to pay off debt over the next 12 months roughly equivalent to its current market value. (Tire Review/Akron)

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