Conti to revamp as holding company; eyes IPO for powertrain business

HANOVER, Germany—Continental A.G. is planning to reorganize by 2020 into a holding company with three business sectors—rubber, automotive and powertrain—with the powertrain business being set up as an independent, publicly held company.

Conti's executive board has signed off on the proposal, which now must be approved by the company's supervisory board, which includes representatives of the firm's labor unions. Conti said this move will allow it to continue to grow faster than its relevant markets and take full advantage of new potential for expansion in the key future areas of mobility.

Continental CEO Elmar Degenhart called the decision a "historic day" for Continental and said the realignment "will make us exceptionally flexible and agile."

"We are heading into the future of mobility at full speed," Degenhart said. "Our proven readiness and capacity to change give us an outstanding competitive edge which we want to use to the fullest…

"In Continental's successful values alliance for top value creation, we are growing to meet upcoming challenges, remaining competitive now and in the future. This continues to require pioneering and innovative excellence. With this alliance, we are opening up new, promising perspectives for our customers, employees, investors and all other stakeholders.

Following the reorganization, Conti will use Continental Group as its corporate identity, with the three business sectors under it.

The Tires and ContiTech divisions will retain their independent organizational structure, Conti said, and continue to specialize in the development of technology products based upon rubber and plastics.

Their financial results will be reported in under the Continental Rubber group sector. The tire business will be known going forward as "Tire Technologies."

For 2017, Conti's Rubber Group posted about $19.7 billion in sales, employing just more than 100,000. Tires accounted for $12.7 billion and ContiTech about $7 billion.

"In the next decade and after, the global automotive industry will undergo the largest and most profound transformation in its over 130-year history," Degenhart said.

"We are looking ahead and taking on this transformation at an early stage. Strong and confident, we are doing our part to shape and guide this transformation," he added, pointing out that months of intensive preparation were required in order to come to this far-reaching decision.

Subject to the approval of the firm's supervisory board, the Powertrain division will be transformed into an independent legal entity with a new name at the beginning of 2019, Conti said.

Andreas Wolf, currently heading up the Body & Security business unit, has been named to assume responsibility for the new Powertrain company. The business generated $9 billion in sales last year, or nearly 18 percent of Continental's overall sales, with more than 40,000 employees.

Powertrain will oversee business development involving hybrid and electric drive systems and all current battery activities, in addition to the combustion engine business. This includes, for instance, the recently announced joint venture for 48-volt battery systems.

Conti cited the "foreseeable change" in the drive systems business as the reason why it's creating an independent legal entity covering this sector. Political demands regarding emission limits are largely determining the way the market evolves, Conti said.

At the same time, Continental is preparing a partial IPO for the new Powertrain company, which could take place starting mid-2019. The firm, however, said it does not plan to relinquish control of the Powertrain business in the medium or long term.

In addition, the current Chassis & Safety and Interior divisions will be reorganized by early 2020, morphing into "Autonomous Driving Technologies" and "Vehicle Networking Technologies" business units. Their results will be reported in the new Continental Automotive group sector.

The supervisory board comprises 20 members in accordance with the German Co-determination Act and the company's articles of incorporation. Half the members of the supervisory board are elected by the shareholders in the shareholders' meeting, while the other half are elected by the employees of Continental A.G. and its German subsidiaries.