HANNOVER, Germany (June 9, 2009) — Continental A.G.'s supervisory board has instructed the firm's executive board to “assess all aspects” of combining Conti's operations with those of its largest shareholder, Schaeffler Group, by the end of July.
In particular, the executive board should consider the “financial feasibility” of combining the firms' activities, the supervisory board said after a meeting June 8 in Hannover.
Herzogenaurauch, Germany-based Schaeffler bought controlling interest in Conti last year in a stock buyout valued at more than $15 billion. Schaeffler now controls 49.9 percent of Conti's shares directly and more than 40 percent more indirectly.
Conti's Supervisory Board Chairman Rolf Koerfer said the firm must carefully and responsibly determine whether a full combination of Conti and Schaeffler is in the economic interest of Continental.
“The industrial logic of a combination is obvious,” he said. “We have the great chance of creating the world's second largest automotive supplier based in Germany.”
In an analysis of Conti's announcement, Morgan Stanley & Co. International P.L.C. stated it believes the “associated risks greatly exceed the industrial logic.”
In reaching its conclusion, Morgan Stanley cited Conti's need to “shield itself from Schaeffler's geared balance sheet,” to “achieve a more sustainable capital structure,” and to “segregate all risks from Schaeffler.”
In the brokerage's point of view, Conti is in a “greater position of strength than Schaeffler,” and therefore deserves the right to pursue or reject a combination with Schaeffler on its own terms.