Schaeffler Debt Deal – Paving the Way for a Merger

The Schaeffler Group has moved one step closer towards a merger with Continental AG after reaching an agreement with banks to refinance 12 billion euros in debt. According to a Schaeffler statement, the ball bearing manufacturer’s credit lines have been split into two portions of 4 1/2-year and six-year maturities and will be implemented in several stages. Refinancing deals were arranged with UBS, Royal Bank of Scotland, Unicredit SpA’s HVB Group unit, Commerzbank AG and Landesbank Baden-Wuerttemberg.

According to a Schaeffler spokesman, the bank accords mean that Schaeffler can alter its legal framework, giving it access to “all types of funding” including outside capital, by the middle of next year. The company states it will adopt a “capital-market oriented” structure. “We have reached a central milestone to further develop Schaeffler Group successfully in coming years,” said company CFO Klaus Rosenfeld. “We are also completing another important precondition for a possible merger of Schaeffler Group with Continental.”

Combined, the two companies have racked up 22 billion euros in debt; Schaeffler’s financial worries the product of its Conti stock acquisition at 75 euros a share – stock that subsequently declined 65 per cent in value. Bloomberg reports Hamburg, Germany based analyst Marc-Rene Tonn as commenting “Schaeffler has won some time and more flexibility over how to design the process, but nothing has really changed with the two companies’ combined level of indebtedness.” Analyst Hans-Peter Wodniok added that the refinancing deal “looks good at first glance but isn’t going to alleviate Conti-Schaeffler over the long term.”

Following the deal’s announcement, Continental AG shares rose 13 per cent to 25.15 euros. “No wonder that Conti’s share price is flying high today,” Wodniok added. “They’re planning a share sale and need a stock price as high as possible.”