A ‘Once in a Lifetime’ Opportunity
Having just been given the nod to proceed with the largest acquisition in its 136 year history, Continental AG is set to become one of the top five worldwide automotive suppliers. Following the July 25 granting of consent from the supervisory boards of both Continental and Siemens, the 11.4 billion euro purchase of the latter’s VDO Automotive division was approved subject to permission from antitrust authorities.
Based on 2006 figures, the combined annual sales of Continental and Siemens VDO Automotive AG will reach around 25 billion euros, and the resulting company will boast a global workforce of close to 140,000 employees. “Together Continental and Siemens VDO Automotive AG, two companies rich in tradition and endowed with an enormous performance capability, have the once-in-a-lifetime opportunity to forge a global frontrunner in the automotive supplier sector,” said Continental Executive Board chairman Manfred Wennemer. “By joining forces, pooling our innovative prowess and allying our leading positions worldwide in key market segments like safety, chassis, powertrain systems and telematics/infotainment, we are extremely well placed to take on the global competition and to profit from all mega-trends in our branch of industry.
“We are well aware of the magnitude of the task,” he added. “A high measure of flexibility, creativity and willingness to institute change is a sine qua non all around in the demanding process of integrating the two companies in a spirit of genuine partnership. We are convinced that the creativeness of both companies’ committed employees will allow our joint project to be crowned with success!”
According to Dr. Karl-Thomas Neumann, Executive Board member responsible for the Automotive Systems division, “in buying Siemens VDO Automotive AG, Continental is taking the logical next step in its evolution to full-range, integrated systems supplier…. We initiated this process with the purchase of Teves in 1998. It progressed further with the take-over of Temic and the automotive electronics business of automotive electronics business of Motorola, Inc. and is now culminating, for the present, with the Siemens VDO Automotive AG acquisition. The new Continental thus stands for a future mobility that is intelligent and highly innovative, making it an even more potent partner to the automotive industry.”
And while 11.4 billion euros is more than just loose change, Conti’s Executive Board chairman believes the agreed price tag to be one that suitably represents the acquisition’s anticipated benefits. “The price agreed upon is commensurate and fair when one takes into consideration these far-reaching operational and strategic advantages, the anticipated net synergy potential in the order of minimum170 million euros a year as of 2010, and the tax advantages of around a million euros that we realise in connection with the transaction – and which do not work out to any loss of revenue for the state,” said Wennemer.
“We want to boost this potential as quickly as possible, in equally rigorous and efficient fashion,” he added. The integration is to be effected briskly; closure of the transaction is expected to take place during the fourth quarter of 2007 and integration will begin immediately, with much completed next year and a full integration of Siemens VDO concluded by the end of 2009. And while the old adage states that to make an omelette one must break eggs, Wennemer is quick to point out that Conti will work with Siemens management during the inevitable changes that follow the acquisition. “Proceeding in dialogue, we intend to implement the integration as smoothly as possible and shape the impact of restructuring in a socially acceptable manner…Obviously restructuring processes will be necessary in the course of enforcing the overall project. Here we shall first see to it that the plans worked out by Siemens VDO Automotive AG under Siemens management are quickly implemented.”
Continental’s Executive Board member for finance, Dr. Alan Hippe, emphasised that the financing of the purchase price does not present an issue. “The Siemens VDO Automotive AG acquisition will have the effect of shaping a more efficient capital structure at Continental. We have already been able to negotiate attractive terms with the banks…The package will be comprised largely of borrowings on equity, backed up by measures aimed at bolstering our equity capital,” Hippe explained.
“Neither the sale of ContiTech nor of the tyre divisions is planned,” added Wennemer. “Nothing is going to change as far as the business units’ and divisions’ entrepreneurial orientation – in the truest sense of the word – is concerned. This will very possibly become even more pronounced.”