Conti to Buy Parts of Schaeffler?

It appears the tables have turned for Continental and Schaeffler. According to Reuters, sources with “knowledge of the matter” report Schaeffler is considering a plan to sell a large piece of its business to Conti in order to address its sizable debt. The ball bearing manufacturer is struggling with debts of close to 11 billion euros and has announced plans to reduce annual labour costs by 250 million euros – a sum equivalent to the laying off of 4,500 employees.

“The logic of the original plan no longer works,” a source close to Schaeffler told Reuters. “To solve Schaeffler’s problems, something radical has to happen. We have to think about switching the roles.” While Continental also faces large debts, some insiders believe that a sale of parts of Schaeffler would accelerate cooperation with Conti and bring about cost savings that could help it through the automotive industry downturn.

However Schaeffler’s creditors are said to hold mixed views regarding the sale of assets to Continental as it may require them to forgo some loans. It would also see their position as creditors migrate to Continental – a company that, unlike Schaeffler, sees its stock-market value fluctuate. Despite this, a second source told Reuters this “is not necessarily a problem”, adding that “it all depends on how the deal is set up.”

The final say in the matter will most likely go to the German government, as any reverse takeover will probably require its financial support. Media reports indicate that Schaeffler has already sought four billion euros in state aid, yet some view Conti as more likely to receive funds; Schaeffler co-owner Maria Elisabeth Schaeffler (who once said “you can’t get along in this world by being nice to everyone”) is often portrayed by German media as an unsympathetic “high-society lady”, a claim recently fuelled by photographs showing her sporting a fur coat at an upmarket ski resort. Comments from Germany’s labour minister Olaf Scholz – that “you cannot go asking for help from the state in a mink coat” – reflect the opinion of Mrs Schaeffler held by many Germans.

To date, neither Schaeffler nor Continental have commented on the possibility of any such transaction.