Analysts: Schaeffler moves point to “no merger”
Financial analysts from Deutsche Bank described Schaeffler’s decision to pay down debt and increase its direct ownership and free-float in Continetal as “good news”, pointing out that “the overhang is now over.” Crucially, these analysts wrote that these moves signify that “there will be no merger between Schaeffler and Continental.”
For its part Deutsche Bank said Schaeffler’s moves are good news because these bring the firm’s overhang – when market forces put downward pressure on stock prices due to the likelihood of a sale – is now said to be over. “After full-year 2010 results we and the consensus upgraded earnings per share by 20 per cent, [an] upgrade which had no impact on the share price (due to the overhang)…this disposal clarifies the structure of Schaeffler/Continental.”
While not surprised by the news that Continental-majority shareholders Schaeffler Group were selling off stock, other financial analysts suggested that the move could result in stronger shareholder interest and have highlighted the significance of the re-engineering of Schaeffler’s corporate structure. They were also less categorical about suggestions that there definitely won’t be a merger between the two firms in the future.
“The stock placing was little surprise given the report from FT Germany on 3 March, albeit it was unconfirmed by Schaeffler. However, the announced conversion of Schaeffer to AG is a change not to be underestimated,” Morgan Stanley analysts Edoardo Spina wrote, adding: “We believe Schaeffer’s words on the conversion are clear enough: ‘a further important step towards capital markets readiness and gaining additional financial and strategic flexibility. On this basis, the Schaeffler Group will continue to examine all strategic options to intensify further the close cooperation with Continental AG.’”
Morgan Stanley’s view is that market interest in Conti is now likely to step up. “We believe current renegotiation of the 2012 bank debt could leave Conti with virtually no debt obligations until 2014 – 2015. With an improving maturity profile, strong fundamentals and increasing free float, Conti could start to look more attractive were it not for the uncertain terms of any Schaeffler merger/acquisition.”