Schaeffler Accused of Blocking Continental Merger

FT reports that Dr Neumann is now “heading for a showdown with Schaeffler at [the] supervisory board meeting next week, when he will push for a decision on several key points as a basis for a merger of the companies.” The financial newspaper described a proposal document Dr Neumann has presented to supervisory board members ahead of the meeting. In it he demands that the combined group strive toward an investment grade rating as quickly as possible: “From 2010, the group should have a maximum net debt of three times operating profit (earnings before interest, tax, depreciation and amortisation) and equity ratio of 25 per cent, the document says.” These new details put earlier reports about a potential 1 billion euro capital raising plan into context. Now it is clear that this is plan B if the board won’t agree with Dr Neumann’s proposals. Meanwhile, Reuters has published a commentary suggesting Continental could and should “turn the tables” on Schaeffler.

Reuters’ Alexander Smith believes “it would be difficult for them to torpedo a fundraising unless they had an alternative funding plan” and therefore if Conti’s takeover advances are rebuffed the suggested capital raising could dilute Schaeffler’s shareholding and hurt the ball-bearing makers position enough to see them off: “Conti seems to be talking about issuing shares at a discount of around 15 per cent to the current level…were it to do this, and Schaeffler did not invest, its direct stake would fall to 35 percent. And assuming its banks did likewise, the total stake would fall to 63 per cent.” According to Smith, “The outcome is likely to be decided by the bankers. And here it looks as if Conti has the edge. It is taking steps to cut its debt, while pushing for a resolution of the stand-off between itself and Schaeffler. Meanwhile, Schaeffler looks to be playing for time…”