Is Schaeffler Walking Out on Continental Investment Agreement?

Schaeffler Group has signalled that it is willing to consider abandoning the investment restrictions it agreed earlier this year to pacify its hostile takeover of Continental – much to the annoyance of Conti executives. Schaeffler sources told Financial Times that the investment agreement had become obsolete “as it was constructed at a time when the world was very different.” The agreement limits the ball-bearing maker to a 49.99 per cent stockholding in Continental and upholds the tyre and automotive supplier’s independence as a legally separate entity.

Schaeffler initially said it was only interested in holding a minority stake in Conti, however, as it stands the company holds the rights to more than 90 per cent of the shares. In addition, on 14 December Frankfurter Allgemeine Zeitung’s Sunday edition printed an interview with Maria-Elisabeth Schaeffler and company chief executive officer Juergen Geissinger, in which the executives revealed they are seeking four seats on Continental’s supervisory board. According to Reuters, Schaeffler would like the four seats it is seeking to be occupied by company CEO Juergen Geissinger, CFO Thomas Hetmann, Maria-Elisabeth Schaeffler and her son Georg.

Suitor’s letter to banks re-opens hostile takeover rift

Meanwhile, Continental reportedly began negotiating with its banking consortium in a bid to gain more time to pay down 11 billion euros of loans. Dr Geissinger’s decision to write to Conti’s banks asking for Schaeffler to be involved appears have caused a sharply worded defence of Continental’s independence from its chief executive, Dr. Karl-Thomas Neumann.

“We have been made aware of a letter from the management of the Schaeffler Group to several of our banks…obviously attempting to influence the talks being held proactively by Continental with regard to securing our long-term financing. This move is a massive encroachment upon the sovereignty and independence of Continental’s management. We are irritated by this action of the Schaeffler Group, as we feel that it clearly goes against the spirit of the jointly reached investment agreement,” said Continental executive board chairman Dr. Karl-Thomas Neumann.

Executive board vice chairman and CFO Dr. Alan Hippe pointed out that Continental continue negotiating with its banks: “Our business partners in the banks have been familiar with our experience and reliability for many years. With this proactive step, we are safeguarding our financing as best as possible in a forward-looking manner, with a view to the uncertainties we are facing in the crisis year 2009.”

Concluding its statement on the matter, Continenal pointed out that the open-ended investment agreement it jointly reached with the Schaeffler Group in August 2008 contains extensive provisions to safeguard the interests of Continental AG, its share­holders, employees and customers. According to the company, it cannot be terminated by the parties before spring 2014. Former German chancellor Dr. Gerhard Schröder is involved as a guarantor for ensuring the obligations specified in the investment agreement are fulfilled.