April 8 (Bloomberg) -- Schaeffler Group, strapped by 11 billion euros ($14.6 billion) in debt from buying Continental AG, agreed with lenders on a 1 billion-euro loan, winning time to restructure and seek extra funds from the German government.
“We have gained further flexibility,” Chief Financial Officer Klaus Rosenfeld said in a statement late yesterday. Terms weren’t disclosed. “The conclusion of the loan agreement is an important sign of trust from our banks.”
The credit line may help Schaeffler, the second-largest ball-bearings maker, persuade Chancellor Angela Merkel’s government, which said Feb. 10 that it would reopen aid negotiations if the Herzogenaurach, Germany-based company agrees on a reorganization plan with its lenders. Schaeffler’s owners, Maria-Elisabeth Schaeffler and her son Georg, are fighting a breakup and the family has said it’s prepared to give up a large stake in the company.
“Schaeffler is trying to buy time in the hope that the German government will assist them,” said Mike Tyndall, an automotive specialist with Nomura in London. “The most likely result would be a debt-for-equity agreement.”
The bearing manufacturer, in need of 5 billion euros to 6 billion euros in fresh capital, is strained by debt after buying 90.2 percent of Continental, which has borrowings of 10.5 billion euros from purchasing the VDO auto-parts business from Siemens AG in 2007.
Government Aid
European countries are offering billions of euros in aid to carmakers amid the lowest car sales in two decades. Industrywide auto sales in Europe plunged 27 percent in January and contracted 37 percent in the U.S. to a 28-year low. Europe’s car market shrank 7.8 percent in 2008, while U.S. sales contracted 18 percent to a 16-year low.
Schaeffler’s troubles have been piling up since its July 15 hostile bid for Continental, Europe’s second-biggest tiremaker, which generates three times the revenue.
The company obtained derivatives contracts and made what was then a low-ball bid, aiming to secure a stake of 30 percent to 50 percent. Instead, 82.4 percent of Continental stock was tendered after the offer was raised by 7 percent to 75 euros a share as investors sold in response to collapsing markets.
Schaeffler, which makes transmission parts and bearings for cars, planes and rockets, directly holds 49.9 percent of Continental’s capital after transferring 40.3 percent to private German banks B. Metzler seel. Sohn & Co. and Sal. Oppenheim Jr. & Cie KgaA for possible sale later.
Commerzbank, UBS
The arrangement is the result of an August agreement between the companies that restricts Schaeffler from boosting its direct stake to a majority or adding to Continental’s debt, and calls on it to support the management’s strategy.
Commerzbank AG, Royal Bank of Scotland Group Plc, UBS AG, Landesbank Baden-Wuerttemberg and UniCredit SpA’s HVB Group unit financed Schaeffler’s purchase.
On April 3, Schaeffler announced a purchasing cooperation with Continental, marking the first joint undertaking since Schaeffler completed the acquisition in January. Integration efforts were hampered by tussles for control, with Schaeffler pushing out Continental Chairman Hubertus von Gruenberg on March 6 after accusing him of sabotaging plans to combine the companies. Under the purchasing agreement, the two companies aim to save more than 100 million euros a year.
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