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UPDATE 2-Schaeffler launches hostile bid for Continental

2008-07-30 15:42

FRANKFURT, July 30 - German ball-bearing maker Schaeffler has launched a hostile $18 billion bid to buy tyre-to-brakes firm Continental as the dispute over its takeover tactics continues.

If the takeover happens, it would be the biggest so far this year in Europe and would put the combined group head-to-head with Robert Bosch for the position of second-biggest global car-parts supplier behind Japan's Denso.

But its advances have provoked a fight between Schaeffler, owned by billionaire Maria-Elisabeth Schaeffler, and Continental Chief Executive Manfred Wennemer.

On Wednesday, Schaeffler bypassed Wennemer and went directly to investors, offering to give them 70.12 euros cash for each of their shares.

Even if the offer -- below Continental's share price of around 72 euros -- fails, Schaeffler is well positioned to win control of its bigger rival.

The predator has arranged to secure about 36 percent of Continental's stock through a series of swap deals that banks have organised on its behalf.

By lodging an official offer, Schaeffler will not be obliged to make another and could creep to majority control by buying up shareholders individually.

Schaeffler's move is similar to Porsche's takeover of Volkswagen. The smaller sports car maker also bought a stake of 30 percent, then made a token takeover bid and is now creeping towards majority control.

Continental has hit back at Schaeffler's tactics and called on stock-market watchdog Bafin to investigate. On Wednesday, Bafin said it continued to probe the web of deals that amount to options set up for Schaeffler.

Weighed down by an 11 billion euro debt pile accumulated to pay for its purchase of VDO -- which makes the technology inside fuel injection systems -- Continental now faces a slowdown in car buying as high oil prices bite.

Under the terms of the deal, the combined group would be lumbered with a debt mountain three times as large.

Although its single biggest profit maker is its tyres business, Continental is also strong in electronics like satellite navigation.

Schaeffler, which makes the ball bearings used to help steer a car, says a marriage between the two would set the stage for Germany to build the automobile of the future. Wennemer says there is little benefit from a union.

If Schaeffler succeeds in buying the group, which is three times its size, it would be the first time a German family business has taken over a company listed on the country's blue-chip DAX index.

Before the takeover bid came, Continental was trading at an EV/EBIT multiple of 7.5 times, roughly in line with European rivals like Michelin and Valeo.

(Additional reporting by Arno Schuetze in Hanover; Editing by Louise Ireland)

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