Conti: Schaeffler Takeover is ‘Desirable’

Schaeffler Group’s so-called “sneaking takeover” of Continental AG now appears to be unstoppable, following the supervisory and executive boards’ decision that an agreement with Schaeffler is “desirable.” The supervisory board has consented for the executive board to enter into direct negotiations with Schaeffler for either a better premium for Continental shareholders or to persuade it to limit its stake. Both boards agreed, after intensive deliberation, that Schaeffler’s revised 11.3 billion euro offer does not value the company sufficiently highly “and fails to reflect the best interest of the company.” In response Schaeffler cautiously welcomed Continental’s decision: “The Schaeffler Group welcomes that the management and supervisory boards of Continental AG are of the opinion that an agreement with Schaeffler Group is desirable…[and]…is now waiting for Continental AG to substantiate their expectations.”

What really rattled Continental about Schaeffler’s original offer, which was the lowest it legally could have been under German law (market regulator Bafin up it from 11.2 to 11.3 billion so it would match its minimum calculation), was that it does not take tax disadvantages and increased re-financing costs triggered by such a bid into account. This is something that is particularly significant in Hannover because Conti is one of the most high leveraged tyre businesses around. And if that isn’t enough Schaeffler’s takeover will trigger a renegotiation of the terms of the 13.5 billion euro loan Conti took out to buy Siemens VDO. When you take the credit crunch into account, it will be difficult for Conti to secure the same terms it did then.

Playing down talk of a boardroom rift, the official Continental statement on yesterday’s supervisory board meeting included a note of support for the executive board, led by chief executive Manfred Wennmer: “The Supervisory Board distinctly supports all the actions taken by the Executive Board. Consequently, the Supervisory Board has today approved the pursuit of the options of action identified by the Executive Board.”

Despite the signs that Conti appears to be warming to the Schaeffler Group in general, both boards said they unanimously declined the takeover offer in its current parameters and “fully support the continued legal examination by relevant financial supervisory authorities.”

A Financial Times report on yesterday’s four-hour marathon supervisory board meeting quoted supervisory board chairman, Hubertus von Grünberg, as saying negotiations with Schaeffler should start immediately. FT said Manfred Wennemer had presented the supervisory board an array of defence options against Schaeffler’s move, including the search for a “white knight.”