Is Schaeffler considering another Conti share purchase?

Schaeffler, the family-run ball-bearing maker and largest shareholder in Continental AG, is reportedly considering a multi-billion euro IPO for its ball-bearing business in what could be a prelude to a further purchase of Conti shares.

The Wall Street Journal (WSJ) has led coverage of the recent financial manoeuvres between Conti and Schaeffler, however financial analysts and other commentators lend credence to the view that purchasing Conti stock could be the endgame.

It all began when Schaeffler AG transferred its 34.2 per cent stake in Continental AG into a separate holding company. According to the WSJ report, company owners Maria-Elisabeth Schaeffler-Thumann and her son Georg Schaeffler have not yet approved an IPO, but sources close to the deal suggest “floating a minority stake in business is a likely option.” A lack of denial of what isn’t happening and a lack of clarity about what is will no-doubt fuel speculation.

Schaeffler initiated a highly leveraged $18 billion takeover bid for Continental in 2008. The financial crisis saw the firm’s share price plummet, leaving Schaeffler heavily in debt. Regulatory filings show that the Continental stake, which is valued at around 13 billion euros ($15 billion), happened late last year. Schaeffler reports revenue of around €11 billion. On 30 September 2014 net external debt amounted to 5.8 billion euros.

Schaeffler reported a small decline in net profit to 936 million euros in the nine months to September 2014 despite a 17 per cent rise in earnings before interest and taxes to 1.22 billion euros on 7.1 per cent better revenue of 9.02 billion euros. WSJ pointed out that Continental contributed roughly half of Schaeffler’s earnings.