Nothing Positive Here - Tire Review Magazine

Nothing Positive Here

Been watching the Conti takeover situation carefully, and I don’t see this ending well.

Frankly, any time a substantially smaller company makes a run at a far larger firm, bad things happen. We’ve seen it over and over again. When that takeover attempt can only be described as “hostile,” worse things happen.

Ball-bearing maker Schaeffler Group, one-third the size of Continental AG, saw weakness and is trying to exploit it. Conti, burdened by billions in loans it took to acquire Siemens VDO, saw the market go away from it as global auto sales plummeted. That left Conti, while financially healthy, less than secure in its valuation.

For whatever reason, certainly not one that has anything to do with good business, the privately held Schaeffler Group decided to play the black knight. Stock traders, who are in it for the money, will follow along without a care as to the result.

What will Schaeffler do if it wins its bid? Well, as it will then be burdened by Conti’s debt load and will have limited ability to raise additional funding and will need pretty much a whole new top management team, I suspect Conti will be parsed out in chunks, with Schaeffler keeping what it sees as the most valuable. The tire group will not be one of those, to be sure.

And that is too, too bad.

The situation is somewhat reminiscent of the late James Goldsmith’s greenmail run at Goodyear back in 1986. The tiremaker went debt-heavy trying to fend the Brit off, and while it eventually won the battle it was badly damaged in the process. Goldsmith went away, millions the richer. Goodyear barely hung on, and spent the better part of the next 20 years trying to recover.

What does Schaeffler bring to the Conti table? Nothing. What will Schaeffler lose in the bid? Nothing.

If you have comments to share, send to me at [email protected].

– Jim Smith

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