It looks like the recession-hit Schaeffler group may have to agree to a humiliating climbdown in its bold bid to takeover Continental tyres.
The tables look well and truly turned as the German ball bearing manufacturer appears to have bitten off more than in can chew after its hostile take-over of the tyres company.
And now it could end up merging with Continental as the junior partner!
The recession has ripped Shaeffler’s take-over blueprint apart and now it is having to consider a possible reverse-takeover option by selling a large piece of its business to Continental in order to pay off some of its mounting debts.
According to Reuters news agency, sources with “knowledge of the matter” report that Schaeffler is struggling with debts of close to 11 billion euros and has announced plans to reduce annual labour costs by 250 million euros – which equates to laying off 4,500 workers.
The trouble was Schaeffler launched their $18 billion hostile take-over bid last July – before the recession really kicked in – but ended up collecting more shares than it could afford, lumbering it with a crushing debt millstone as car sales collapsed.
A spokesman for Schaeffler has confirmed: “The Schaeffler group is working on options for future cooperation between both companies.
“The integration (of Schaeffler into Continental) is also an option. The result of this process is open.”
Continental, whose shares soared by 13.7% after the news leaked, has so far declined comment.
One source close to Schaeffler admitted: “The logic of the original plan no longer works.
“To solve Schaeffler’s problems, something radical has to happen. We have to think about switching the roles (of Continental and Schaeffler).”
Until now, both companies have been at loggerheads after Schaeffler won control in a hostile swoop. The dispute between management has made it hard to achieve synergies and cost savings from a merger.
Denna Bowman, Head Office