2008 | 2009 | ||||||
Price: | 67.65 | EPS | |||||
Shares Out. (in M): | 0 | P/E | |||||
Market Cap (in $M): | 6,992 | P/FCF | |||||
Net Debt (in $M): | 0 | EBIT | 0 | 0 | |||
TEV ($): | 0 | TEV/EBIT |
Announced merger arbitrage deals are not usually very popular on VIC, but in the current merger arbitrage environment, announced deal spreads are at the widest levels I’ve seen in over 15 years. The cause is, naturally, the dislocation in the financial markets and fears banks may not provide financing they’ve committed to provide in deals that contain a cash element in the consideration. This dislocation has provided some outstanding opportunities for investors with dry powder who are comfortable investing in merger arbitrage strategies.
Of all the cash deals in the merger arb universe, one deal stands out as particularly attractive. This is the tendered shares of the German auto parts company Continental AG, which are due to receive €75 per share cash when the deal is completed in December. The tendered line for the 2nd tender expiration trades in
In certain European countries (
Normally tendered lines are not very liquid and trade close to the deal price. In the case of Continental, the tendered lines trade 10% below the deal price due to concerns about whether or not the banks will actually fund the acquisition, and to a smaller extent, the receipt of antitrust clearance from the EC’s Competition Commission. This antitrust clearance is the only remaining condition to be fulfilled. The offer has no Material Adverse Change (MAC) condition. I will address these two concerns below, but suffice to say that if the deal closes and payment is received in mid-December, as I expect, the tendered lines are trading with a gross spread of €7.35, or 10.9%, and an annualized rate of return of 72%. Using the CON GR share price of €41.50 as the downside price, the risk per share is €26.15. With upside of €7.35 per share, the risk/reward is 3.6 to 1. This is a very low risk/reward by merger arb standards, and a 72% annualized return on a high quality strategic deal with fully committed financing, not financing condition and no Mac condition, with only EC competition clearance pending is a very high return. I believe this is the single most attractive merger arb deal in
Schaeffler’s offer period for the acquisition of Continental AG began on July 30th and expired on August 27th. In line with German rules, a two week additional offering period expired on September 16th. The offer was initially unsolicited but on August 21st, after increasing the offer price to €75 per share, Continental supported the offer and entered into an investor agreement with Schaeffler. With shares of Conti Schaeffler owned outright at the time of tender expiration, plus the 82.41% tendered, Schaeffler ended up with control of 90.19% of Conti shares.
Under the terms of the offer, Schaeffler agrees to limit its investment in CON GY to a minority stake of no more than 49.9%. This will be accomplished with various banks holding the shares excess shares tendered above the 49.9% level. If Schaeffler were to take control of more than 50% of Conti shares, it would trigger a refinancing of the debt issued to finance the Siemens VDO deal, which Schaeffler wanted to avoid. Additionally, Schaeffler said it could accomplish what it wanted with a large minority stake in Conti. The agreement Schaeffler has with the banks regarding how and when they can dispose of their Conti shares taken up to keep Schaeffler below 50% has not been disclosed though media reports say shares will be parked with a group of banks, with an agreement that are not allowed to sell at below €75 for four years without Schaeffler's consent.
The acquirer is Schaeffler Group, which is a private, German family controlled company with sales of €9 billion and 66,000 employees operating in 50 countries. It is one of the largest privately owned industrial companies n
Continental operates in two divisions, automotive and rubber. The automotive division makes electronic and hydraulic brake systems, telematics (which includes collision avoidance systems and wireless lifelines to emergency assistance after a crash occurs), powertrain/chassis systems, including electronic suspension systems, engine management systems, transmission controls and measurement systems, and electric drive (such as fan modules). Continental purchased Siemens VDO Automotive in December 2007, which added actuators, power steering systems, sensors, cruise control, cockpit modules (instrument clusters), coolant pumps, fuel supply systems (fuel pumps, fuel level sensors, etc.). The rubber division makes tires for cars, vans, trucks, motorcycles, bicycles, and industry. The rubber division has a subsidiary called ContiTech that makes specialized rubber and plastic products for automotive, aerospace, mining, printing, and the textile industries.
ANTITRUST
In looking at the big picture, Schaeffler primarily makes mechanical components and Continental makes electronic components and tires. Therefore the antitrust review at the EC should not present any problems. Customers, including Porsche/VW have publicly welcomed the deal.
Schaeffler has received antitrust approvals from the
On August 22nd, Schaeffler made an initial draft filing to the EC. This filing had been prepared based on estimated Continental data in the filing because Schaeffler didn’t have access to Conti due diligence info prior to that point when the deal was unsolicited. Based on the fact that an investor agreement between the companies was signed and the deal became friendly, the EC requested that the EC filing be revised and all information concerning CON GY “be based on current Continental AG figures instead of Schaeffler estimates.” Furthermore, the EU Commission asked Schaeffler to specify the worldwide potential relations between products in neighboring markets and corroborate this statement with financial figures. Since corresponding information is not centrally available at Continental AG, the compilation of such information is a time-consuming procedure,” Schaeffler said in a press release dated October 7th. In other words, in going from a hostile deal to a friendly deal, Schaeffler has to give actual data instead of estimated data in CON GY, and it takes time to collect this information. This is Schaeffler’s explanation for such a long delay in the EC formal filing.
I spoke to Continental the day after the Schaeffler October 7th release came out and they confirmed that two weeks prior Schaeffler asked them for a bunch of specific information for the EC filing, and they didn’t have it handy so they had to go out to their units and gather it up. The Continental lawyers put it all in a form that will be useful for the Schaeffler lawyers to submit with the EC application/filing and gave it to Schaeffler early last week. This check was wholly consistent with what Schaeffler said in its October 7th press release.
On Friday, a spokesman for Schaeffler said the company would be submitting the final draft filing with the EC that day, though the actual filing confirmation does not yet show up on the EC’s website (it won’t show until it’s formally accepted). The Schaeffler spokesman said Friday the company is in constant contact with the EC and expects approval within the normal 25 business day time frame. This timing is consistent with phase 1 EC clearance.
Considering the fact that overlaps appear minimal (i.e., mechanical components vs. electronic components), I do not expect the EC clearance to present any problems, and neither do the companies when one speaks to them. Just to be conservative, I assume an extended phase 2, which will take 35 business days in total. This gets to approximately sometime during the 2nd week of December. Add a week or so for settlement of tender offer consideration and mid-December is the pay date I assume.
FINANCING
Schaeffler is a private company and therefore it does not publish its financial statements on its website or elsewhere (except for summary statements in the offer document). I confirmed this with a Financial PR contact for Schaeffler. The company does not even have a credit rating from any of the ratings agencies. The debt financing for the deal is fully underwritten. Any debt that cannot be syndicated by the underwriting consortium stays on the balance sheets of the underwriting banks. There was a Reuters story last week that stated syndication was on hold due to market conditions, etc, but Schaeffler put out a statement clarifying that this had no bearing on the deal and it was essentially and issue for the banks, not the deal.
The Financing section of the offer doc says:
Prior to publication of this Offer Document, the Bidder has taken the measures necessary to ensure that the financial resources required for it to fully perform the Offer will be available to it in good time.
On
Vereinsbank AG, Commerzbank Aktiengesellschaft, Dresdner Kleinwort, the Investment Banking Division of Dresdner Bank AG, Landesbank Baden-Württemberg (LBBW), UBS AG/London branch and The Royal Bank of Scotland plc as mandated lead arrangers, The Royal Bank of Scotland plc as agent and security agent and a syndicate of German and foreign banks as lenders (Loan Agreement). Under the Loan Agreement, the Bidder can draw on a loan in an amount exceeding the Total Transaction Amount for the purpose of meeting all of its payment obligations under or in relation to the Offer (Loan). Drawdowns under the Loan Agreement may made if the documentary conditions precedent specified in the Loan Agreement have been fulfilled, if there are no material grounds for termination and if material confirmations and representations are basically accurate. The Bidder has no reason to believe that these conditions will not be fulfilled.
The Bidder has thus taken the measures necessary to ensure that it will, on the relevant due date, have funds in the amount of the Total Transaction Amount.
As required under German law, an attestation of funding is provided in the offer doc:
The Royal Bank of Scotland plc with its registered office in
investment service provider independent of the Bidder has, in the letter dated 29 July 2008, which is attached as Annex 3, confirmed in writing pursuant to Section 13 (1) sentence 2 WpÜG that the Bidder has taken the 88903-00003 FR:3684141.9 39 measures necessary to ensure that the funds required to fully perform the Offer will be available at the time at which the claim for the monetary consideration falls due.
The offer doc gives this consolidated pro-forma balance sheet for the deal (at the old €70.12 per share offer price):
|
|
|
changes |
|
|
|
|
caused by |
|
|
|
|
acquisition |
proforma |
|
INA-Holding |
|
of shares |
figures after |
31Mar08 |
Schaeffler |
|
(directly or |
acquisition |
In EUR thousand |
KG |
Continental |
indirectly) |
of shares |
Assets |
|
|
|
|
Fixed assets |
3,672,537 |
17,599,600 |
4,785,262 |
26,057,399 |
Current assets |
4,219,009 |
9,310,600 |
|
13,529,609 |
Prepaid expenses |
80,998 |
|
205,972 |
286,970 |
Deferred taxes |
178,018 |
|
|
178,018 |
Total assets |
8,150,562 |
26,910,200 |
4,991,234 |
40,051,996 |
|
|
|
|
|
Equity and liabilities |
|
|
|
|
Equity |
4,401,015 |
6,912,300 |
-6,878,059 |
4,435,256 |
Provision |
2,052,382 |
2,446,500 |
6,738 |
4,505,620 |
Liabilities |
1,697,165 |
17,551,400 |
11,862,555 |
31,111,120 |
Total equity and liabilities |
8,150,562 |
26,910,200 |
4,991,234 |
40,051,996 |
Debt is included in liabilities above. At 30Jun08, COnti had total debt of €13.367bn and net debt of €12.186bn. The €11.862bn in the “changes” column is debt incurred in acquiring the shares. Schaeffler obviously has gross debt of no more than €1.697bn, but we don’t have any more detail, nor do we know how much cash they have. Continental’s LTM EBITDA through 30Jun08 is €2.951bn for an EBITDA margin of 13.5%. (and net debt/EBITDA of 4.1x). If Schaeffler has a similar margin, then Schaeffler would have 2007 EBITDA of €1.201bn, for combined EBITDA of €4.152bn. Adding the acquisition debt (at €75 per share, plus €72mm in fees) of €12.672 to Conti’s net debt of €12.186bn and Schaeffler’s gross maximum debt of €1.697bn gives a total pro-forma debt of €26.555bn, for debt/EBITDA of 6.4x. This is sounds very high and I believe the actual number is lower for the following reasons:
income statement for the |
|
|
changes |
proforma |
period 1Jan08 to 31Mar08 |
INA-Holding |
|
caused by |
figures after |
|
Schaeffler |
|
acquisition |
acquisition |
in Eur thousand |
KG |
Continental |
of shares |
of shares |
Revenue |
2,330,640 |
6,639,400 |
|
8,970,040 |
Earnings before financial result |
269,572 |
456,700 |
|
726,272 |
Financial result |
-322 |
-206,800 |
-243,421 |
-450,543 |
Earnings before taxes |
269,250 |
249,900 |
-243,421 |
275,729 |
Income tax expense |
-72,607 |
-70,000 |
-6,738 |
-149,345 |
Net profit for the period |
196,643 |
179,900 |
-250,159 |
126,384 |
Schaeffler has said a number of times over the past few weeks that it had fully committed financing for the deal, and has given no signal that there’s any issue with the bank’s ability or willingness to fund the deal. The banks in the underwriting group are in better shape now than they were a few weeks ago now that European governments have shown a willingness to back the banks up. RBS, for example, will get £20 billion of new equity from a new equity issuance backstopped by the UK Treasury, and will have (along with other
In talking to Conti on the financing, they also said that according to the German takeover code a bidder has to prove to the BaFin that they can finance the deal, and the letter from RBS in Annexe 3 of the offer document does just that. I also spoke to Schaeffler’s financial PR contact. He said Schaeffler is working to get the EC approval. They are committed to the deal. It’s a family run business and they take a long term approach to the business (this is even specified in the offer document).
Schaeffler buying tendered lines in the market in the past week
One of the most positive datapoints in getting comfort about this deal is the fact that since the market price of the tendered lines cracked with the sloppy market two weeks ago, Schaeffler has been buying the tender shares in the market, as summarized in this table:
Purchase Date |
No. shs bought |
avg price |
hi price |
% of shares |
€ millions |
|
671,069 |
59.1826 |
61.5 |
0.40% |
39.7 |
|
1,559,906 |
61.3507 |
62.96 |
0.92% |
95.7 |
|
834,000 |
63.096 |
64 |
0.49% |
52.6 |
|
1,050,000 |
65.6238 |
65.65 |
0.62% |
68.9 |
|
926,698 |
67.6107 |
67.9 |
0.55% |
62.7 |
|
5,041,673 |
|
|
2.98% |
319.6 |
You wouldn’t expect Schaeffler to spend €319 million dollars buying tendered shares in the market if they didn’t intend to close the deal and believe they’d be able to close it. The purchases of over 5 million shares at an average price of €63.39 will save Schaeffler over €58 million compared to the €75 per share they’d have paid by not buying the tendered lines and instead paying the offer consideration on these shares.
Conclusion
To me this is the most interesting arb trade around. Plenty of deals have big spreads, but none has as good a spread with as attractive a risk/reward in a fully finance deal with no MAC and only an EC competition approval needed, which should not present any substantive competition issues, with the acquirer buying the tendered shares fairly aggressively. This is a very strategic deal. It will propel the combined company to the number one spot as the world's biggest automotive parts producer, ahead of Robert Bosch. The acquiror is a large, private, family owned comapny that takes a very long-term view of business and will not be put off by recent market gyrations.
Subject | Schaeffler buys more Conti shs |
Entry | 10/21/2008 05:26 AM |
Member | wan161 |
I posted the idea last night. This morning it was announced that Schaeffler bought a further 1,001,722 tendered shares of Conti yesterday, paying an average price of €68.05. This is 0.59% of Conti's share capital. | |
Subject | Schaeffler bot 3mm more Conti |
Entry | 10/23/2008 06:18 AM |
Member | wan161 |
Schaeffler announced this morning it bought 3,034,148 more Continental tender shares (the COND GR shares) yesterday at an average price of 69.14. This is equivalent to 1.8% of share capital. This means Schaeffler has spent almost €600mm buying over 9mm Conti tendered shares (5.37%), at an average price of €65.83, saving over €83mm compared to buying those same shares at €75 in the offer. | |
Subject | Any possibility of a change? |
Entry | 10/28/2008 06:18 PM |
Member | hao777 |
Just asking based on this from Bloombeg: Oct. 24 (Bloomberg) -- Schaeffler Group's owners may sell as much as 25 percent of the auto supplier to investors to alleviate the financial burden of its takeover of Continental AG amid the credit crisis, Sueddeutsche Zeitung reported, citing unidentified bankers. The Schaeffler family faces increasing pressure from six banks to change the terms of the funding after Continental shares fell to less than 40 euros ($51.07) compared with the 75 euros-a-share purchase price, the newspaper said. | |
Subject | RE: Any possibility of a chang |
Entry | 11/04/2008 11:27 AM |
Member | wan161 |
I was on vacation until yesterday morning, so sorry for delay in answering you. Schaeffler denied that story about selling 25% of itself to outside investors. Schaeffler has commitments from the banks, so I don't believe the banks can just decide not to fund the deal. But Schaeffler obviuosly has to deal with the debt burden and implications of softening auto demand, so Schaeffler are looking at options, such as having Conti look at selling tire division and has hired Perella Weinberg to handle the sale, according to press reports. Conti's CEO confirmed interest in the division from KKR, Bain Capital, and Allianz Capital. Last Monday and Thursday, Schaeffler announced it had acquired in the market an additional 2.45 million Conti tendered shares for €161 million; an average cost of €65.69 per share. This brings the total spent on Conti tendered shares since October 9th to €758 million, for 11.5mm Conti shares (6.82%). Another positive comment from the main owner of Schaeffler today with regard to the deal: http://www.borsaitaliana.it/bitApp/news.bit?target=NewsViewer&id=518041&lang=en >> Dow Jones Schaeffler Can Meet New Challenges To Continental Deal BERLIN -(Dow Jones)- Schaeffler Group owner Maria-Elisabeth Schaeffler said Tuesday the financial crisis is causing additional challenges for the private German engineering firm's plan to take over auto supplier Continental AG (CON.XE), but she is convinced they can be overcome. "It's not to be ruled out that a long-term orientated investor could take a larger stake in Continental," Schaeffler said during an industry conference in Berlin. She reiterated that the Contintal deal is part of Schaeffler's long-term strategy. "The currently difficult period (for the industry) shows how right the decision was," Schaeffler said. In August, Continental accepted an unsolicited bid from Schaeffler, which valued the company at around EUR12.1 billion. Schaeffler made several concessions, including a raised offer of EUR75 a share and a guarantee not to take a majority stake before 2012, to win over Continental's management. -By Christoph Rauwald, Dow Jones Newswires; +49 69 29 725 512; christoph.rauwald@dowjones.com >> Additionally, Schaeffler confirmed today it expects to answer all open questions from the EC Competition Commission on the Form CO competition draft filing that was submitted on Friday, October 17th: http://www.borsaitaliana.it/bitApp/news.bit?target=NewsViewer&id=518050&lang=en >> Dow Jones Schaeffler To Pave Way For Continental Deal Registration Tuesday FRANKFURT -(Dow Jones)- German engineering firm Schaeffler Group said it will Tuesday submit its responses to queries from the European Commission over its draft takeover plan for Continental AG (CON.XE). Schaeffler will file its answers to the questions to the antitrust commission Tuesday afternoon, a spokesman for the Herzogenaurach, Germany-based company said. The commission had "several queries" about the draft, which privately owned Schaeffler must answer before the takeover can officially be registered for assessment. After the registration, the commission will then have 25 working days to make its antitrust assessment of the transaction. Schaeffler said it expects the commission to reach a positive conclusion within this period. -By Katharina Becker, Dow Jones Newswires; +49 69 - 29725 500; katharina.becker@dowjones.com >> Conti announced weak Q3 earnings last Thursday, but the offer has no MAC out. I still like this trade a lot, but in light of the weaker price of the untendered shares (CON GY - €35), I am lowering my busted deal price to $30, which means the deal now has a risk/reward of 2.1:1 from the current price of €60.30, and the gross arbitrage spread is over 24%, while the annualized return to the end of the year is ~160%. Still very attractive, especially with Schaeffler continuing to buy tendered shares in the market. | |
Subject | Schaeffler BOT more Conti shs |
Entry | 11/12/2008 07:20 AM |
Member | wan161 |
After an absence from the market for almost 2 weeks, Schaeefler announced this morning it bought 137,090 Continental tendered shares at an average price of €52.73 yesterday. Total spent on the purchase of tendered shares since OCtober 9th is now €765mm. If Schaeffler doesn't complete the deal, they will lose €344 million on the tendered shares bought, assuming they drop to tghe current €29.50 CON GY (untendered share) price. There have been some stories about Schaeffler not answering the EC's questions on the competition filing completely, and I can't explain this. If they want to get out of the deal, the only way they can is to sabotage the EC filing so they get a phase 2 EC competition review. This would push the clearance beyond the early March 2009 walk date. But I think Schaeffler would ber liable if it did this since is has to use "reasonable best efforts" to get the deal done, and an intentional sabotage would violate this. And if Schaeffler wanted to kill the deal it makes no sense that they would spend €765mm (including as recently as yesterday) on tender shares of Continental. I think the reason for the bungled EC filing is that they're a private German company and are not really on the ball in doing a large public deal. The other possible explanation is they're doing it to push down the price of the tendered shares so they can buy them more cheaply in the market. Since Schaeffler submitted the additional info requested by the EC on the intial competition filing (on Form CO) last week, a decision on whether the appication is deemed complete should be made by the end of this week. Meanwhile, we'll see if they continue buying CONC GY and COND GY shares (the tendered lines). | |
Subject | EU competition filing |
Entry | 11/14/2008 03:50 AM |
Member | wan161 |
Schaeffler annouced this morning that it has received the go-ahead from the EU's Competition Commission to formally file the merger notification on Form CO. This means that once the form is accepted by the EC (a day or two), the 25 business day phase 1 competition review can take place. Schaeffler said it "is confident to receive an approval within phase 1." | |
Subject | Schaeffler BOT more Conti shs |
Entry | 11/21/2008 04:56 AM |
Member | wan161 |
Schaeffler bought 20,858 CONC GR shares and 1,884 COND GR shares yesterday at an average price of €56.2314, spending €1.28mm. One of my European brokers got a check from Schaeffler yesterday: "Feedback from Schaeffler on their position toward possible requirements for undertakings from the EU during the phase 1 review: Schaeffler will be flexible in principle if issues arise from the EU and if the body has some requirements; it depends on the demand. However, Schaeffler sees no indication of Cartels problems in the first place that may cause Schaeffler to think about disposals." Broker's thoughts: We don't see any anti-trust issues either. Comments of their possible flexibility could soften slightly the market's assumption that Schaeffler would not comply with any EU requirements (therefore letting shares price go back to the lows). | |
Subject | Schaef BOT yet more shares |
Entry | 11/24/2008 05:33 AM |
Member | wan161 |
Schaeffler purchased a further 17,949 CONC and 43,898 COND share on Friday at an average price of €56.2271. This take the total number of tendered shares purchased to 11.753mm at an average price of €65.58. A total of almost €771mm has been spent on tendered shares, which will save Schaeffler almost €111mm vs. the €75 per share tender price. Separately, Shaeffler controlling shareholder, Marie-Elisabeth Schaeffler tells a German newspaper she’s committed to the Continental deal and it was the right decision, based on long term strategy, and she does not regret it. EC phase 1 review expires on December 19th. If there are undertakings - i.e., divestitures - offered up by Schaeffler in phase one, then the phase 1 review will be extended by 10 working days. This is onften done to avoid a phase 2 review. Schaeffler said it is confident to get approval in phase 1. If it does the deal should close in early January. 30% gross upside; 1.6:1 risk reward (using conservative €30 downside price - CON GY trades at >€37 - and €75 tender price). I still love it. | |
Subject | Schf to take 4 Conti bd seats |
Entry | 11/26/2008 06:05 AM |
Member | wan161 |
Today Reuters quoted Schaeffler CEO saying Schaeffler would place 4 people on Conti’s supervisory board. Schaeffler talking about putting representative on Conti’s board is another (small) signal that Schaeffler is proceeding as if the deal will be completed. This morning Schaeffler disclosed it purchased 959,852 CONC and COND shares yesterday at an average price of €55.32, spending €53.1mm. This brings the total spend purchasing the tendered line to €823mm,which will save Schaeffler €130mm compared to the €75 tender price. Hard to believe they don't intend to complete this deal. At €57.75 the tendered lines (COND GR and COND GR) offer almost 30% upside (to an early January completion) and a risk/reward of 1.6:1 using €30 as the busted deal price (compared the €38.46 current price at which the untendered shares, CON GR, are trading). | |
Subject | Schaef buys 2.5% of Conti |
Entry | 12/03/2008 04:12 AM |
Member | wan161 |
Yesterday, Schaeffler made its biggest one day purchase of tendered Conti shares yet, spending €236mm on 4.22mm shares (2.5% of O/S) at an average price of €55.95. This brings the total spent on tendered Conti shares to €1.24bn, which will save €271mm over what they’d have paid at €75. This purchase brings the total tendered shares purchased by Schaeffler to 15.8% of total outstanding shares. | |
Subject | MergerMarket note on Conti |
Entry | 12/10/2008 09:06 AM |
Member | wan161 |
MergerMarket is a specialty news service that researches arb deals abd usually get good checks. Here's what they have to say about the EC competition review of Schaeffler's acquisition of Conti today: Schaeffler’s acquisition of Continental is unlikely to see a "state of play meeting" with the EC, reducing the possibility of remedies that would delay a Phase I clearance, according to a source with knowledge of the situation. It is believed that no third party objections were raised following the expiry of yesterday’s deadline. Schaeffler declined to comment on the progress of its filing. The 19 December EC deadline could be extended by 10 working days if remedies are offered, something that would be more likely if a state of play meeting is deemed necessary. Earlier this month lawyers expressed doubt to this news service about market speculation that Schaeffler could attempt to sabotage its acquisition using the antitrust procedure, pointing out the difficulty in doing so in such a high-profile transaction. And it is now understood that the deadline for third parties to raise issues with Schaeffler's filing passed without event. The European Commission had invited third parties to comment on the proposed transaction on 26 November, giving potential complainants 10 days from the invitation date to submit their views. Had third parties raised any serious matters it is believed the EC would have called a meeting with Schaeffler and its lawyers to discuss the matter, raising the prospect of remedies and an extension to the deadline. A Brussels-based antitrust lawyer not involved in the transaction explained on a general level that in EC phase I procedures a state of play meeting between the parties and the Commission would be scheduled around working day 15 into the process if certain problems in the transactions had become clear by that date. However this meeting was not compulsory and might not take place if problems appear rather unlikely. If the EC does authorize the deal in 10 days time then Schaeffler could close its acquisition by the first week of January 2009. | |
Subject | Reuters story on Schaef/Conti |
Entry | 12/11/2008 11:52 AM |
Member | wan161 |
First, Schaeffler bought 3.7mm shares of Conti's tendered lines yesterday at an avg price of €55.55, spending €206mm on the day. Takes the total spent on tendered shares to €1.56bn, saving €380mm of the €75 deal price. They now own ~20% of tendered shares. --------------------- Secondly, bullish Reuters story today: Schaeffler says not trying to delay Continental buy Thu Dec 11, 2008 7:35am HANOVER, Germany (Reuters) - Schaeffler Group said it was still confident it would receive swift regulatory approval to buy German car parts giant Continental (CONG.DE: Quote, Profile, Research, Stock Buzz), brushing off speculation it may be trying to delay the process. "Rumours that we are working to delay the takeover of Continental are nonsense," a company spokesman said on Thursday. Sources within the financial industry had said that German politicians had called for the European Commission to delay approval of the takeover beyond the December 19 deadline. Shares of Continental were down 1 percent at 37.97 euros by 1157 GMT (5:57 a.m. EST), while the German blue-chip DAX index .GDAXI was unchanged from Wednesday's close. People familiar with the matter said on Thursday that Continental could incorporate the automotive business of Schaeffler into its own. "That is an option, although I do not know if that's something Schaeffler really wants," one person told Reuters. Another person said: "It would be important that someone from the outside injects cash." Continental and Schaeffler declined to comment. Continental on Wednesday cut its 2008 profitability outlook and said it could scrap a dividend for this year as it steeled itself for a tough market next year. -------------------------------- Thirdly, The German Economy minister says he did NOT press for deeper EU commission review of Schaeffler bid for Continental, according to Reuters, today. There were rumors he had done this to help Schaeffler get out of its obligation to purchase Conti. | |
Subject | EU clears Schaef acq. of Conti |
Entry | 12/19/2008 01:04 PM |
Member | wan161 |
From the EC's website today: >> Mergers: Commission approves proposed acquisition of Continental by Schaeffler The European Commission has cleared under the EU Merger Regulation the proposed acquisition of Continental AG, a German manufacturer of car components, by Schaeffler KG, also of Germany. After examining the operation, the Commission concluded that the transaction would not significantly impede effective competition in the European Economic Area (EEA) or any substantial part of it. Schaeffler is a manufacturer of a great number of mainly mechanical products used in automotive, industrial and aerospace applications. Continental supplies electrical products and systems to the car industry. Continental also manufactures industrial rubber products. The parties' activities do not overlap but to a minor extent their activities are vertically related, as Schaeffler supplies needle roller bearings which are used in vehicle components produced by Continental. However, the Commission's investigation found that the merged entity would not have the ability to discriminate against its competitors in this market, as there are credible alternative suppliers and needle roller bearings represent only a small cost factor. The Commission also carefully examined the potential conglomerate issues and found that there would be no negative impact on effective competition resulting from the combination of Schaeffler and Continental in the supply of components for belt drive systems and transmission systems. More information on the case will be available at: http://ec.europa.eu/competition/mergers/cases/index/m105.html#m_5294 >> Great news. now that EC competition clearance is in hand, the money should be in shareholder's hand by January 7th, the latest. Some folks are nervous that the banks might try to weasel out of funding the deal somehow, but Schaeffler has repeatedly said the financing is "rock solid." Hopefully we'll see a statement from Schaeffler before Monday morning confirming the intention to complete the offer immediately. The deal is worth €75, and COND GY shares closed at €60 tomight before the good news came out. | |
Subject | Schaef buy €750mm of Conti shs |
Entry | 12/23/2008 03:03 PM |
Member | wan161 |
Since the EU clearance on Friday, Conti tendered shares hace continued to trade at a wide spread (about €4), expecially for a deal where payment will come in just over 2 weeks. The market is clearly worried about whether the banks will fund the purchase. I think this concern is unjustified. It is virtually unheard of for banks in European deals to fall down on financing the way they've done a few times in the USA. I do not think regulators would permit it. I also do not think Schaeffler would have purchased so many tendered Conti shares if they thought the banks would not fund. Furthermore, I spoke to Schaeffler today, and I was told point blank, "you will get your €75 per share; there's a lot of fear in the market, but there's no issue. You'll get you money in the offer." I also spoke to Conti who said they're obviously not the people to ask, but they do not think Schaeffler would have purchased 10 million Conti shares at €75 per share on Friday if the deal wasn't going to be completed. He thought the purchase of the 10 million shares @€75 on Friday was Schaeffler purchasing shares from one of the banks that held the shares on swap, so it would seem unlikely both parties would do this if the deal wasn't going to close. CONC GR and COND GR will stop trading on January 2nd, and settlement (payment) will occur by January 8th. All conditions are satisfied (as confirmed by the buyer) and the deal is closing. There's a fat 5.6% gross spread to be made in roughly two weeks. |