Maria-Elisabeth Schaeffler, the widow of the founder, and her son Georg offered to sell a stake in the 53-year-old manufacturer and yesterday said they are pushing for a rescue package from the German government. That may be the only option left after an unsuccessful search for other investors.
“They won’t find an outside investor in the current climate,” said Ferdinand Dudenhoeffer, director of the Center for Automotive Research at the University of Duisburg-Essen. “There are no rich Russians around, and the private equity guys have their own troubles.”
Schaeffler’s troubles have piled up since its July 15 hostile bid for Hanover, Germany-based Continental, a company three times its size. Schaeffler, based in the Bavarian hamlet of Herzogenaurach, expected that derivatives contracts would secure it a stake of 30% to 50% and instead 82.4% of Continental’s capital was tendered as investors sold amid collapsing financial markets.
“Even if the very long-term prospects and formation of the combined group might be good, the statements from Schaeffler highlight the stressed financial situation,” Marc-Rene Tonn, a Hamburg-based analyst at M.M. Warburg, said in a note today.
Schaeffler is seeking “temporary” aid from Chancellor Angela Merkel’s government after it failed to find investors “despite actively searching,” the Schaefflers said yesterday in a statement.
“We will do everything to prevent a senseless breakup driven by short-term interests,” said the Schaefflers, who had previously ruled out selling part of the family-owned company.
Continental shares were up 7 cents, or 0.5%, at 14.55 euros at 1:18 p.m. in Frankfurt, 81% below the price Schaeffler paid. The cost to insure against a default by Continental fell 59.5 basis points to 940, according to CMA Datavision prices at 10 a.m. in London. A basis point on a credit-default swap contract protecting 10 million euros of debt from default for five years is equivalent to 1,000 euros a year.
Detlef Sieverdingbeck, a spokesman for Schaeffler Group, declined to comment on how much the company is seeking to raise and how big a stake is for sale. “No reasonable option will be excluded,” he said.
Attempts for Aid
The company was rebuffed in previous attempts for German aid after talks on Jan. 28, when the government called for Schaeffler to submit a “viable” business plan. The talks were led by Economy Minister Michael Glos, who resigned Feb. 7. He is being replaced by Karl-Theodor von und zu Guttenberg, 37, general secretary of the conservative Christian Social Union party. Merkel ruled out government support for Schaeffler, which needs 3 billion to 5 billion euros, Bild reported Feb. 2.
Still, the state is the company’s best chance of getting fresh capital, and the offer to part with some of the family’s wealth could help, Dudenhoeffer said.
“The government must help them,” said Dudenhoeffer, who is also managing director at research firm B&D Forecast. “If they don’t, they will irreversibly destroy a part of Germany’s industrial landscape.”
Continental’s credit rating was lowered two levels to BB, the second-highest junk grade, Jan. 27 by Standard & Poor’s, which cited risks related to Schaeffler’s holding in the company. Schaeffler is seeking to combine the auto-parts operations of the two companies to cut costs.
Continental CEO Karl-Thomas Neumann was tapped to review such a combination last month after Schaeffler successfully removed Hubertus von Gruenberg as chairman of Continental’s supervisory board. Schaeffler had charged von Gruenberg with “sabotaging” integration efforts.
Schaeffler has estimated 899 million euros in interest expenses in the first year of the deal, enough to suck up 84% of operating profit, based on first-quarter 2008 figures given in the Continental offer document.
Since then, the weakest car markets in decades have likely eroded earnings, and Schaeffler’s expenses have risen after the company raised the bid in August.
The company directly holds 49.9% of Continental’s capital after transferring 40.3% to private German banks for possible sale later.
The arrangement is the result of an August agreement between the two companies that governs the relationship. It restricts Schaeffler from boosting its direct stake to a majority or adding to Continental’s debt, and calls on Schaeffler to support management’s strategy. (Tire Review/Akron)
