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Schaeffler eventually will take over Continental AG. But don’t worry

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The new agreement will not affect our long-range corporate strategy, and we will not change the way Continental conducts day-to-day business.” There you have it, straight from Continental Tire North America Inc. (CTNA) executives Matthias Schöenberg and Andreas Gerstenberger.

I’m sure many of you wondered what would happen to CTNA when its parent, Continental AG, signed what it called “a far-reaching investment agreement” with fellow German company Schaeffler KG. Under terms of the arrangement, Schaeffler will remain a minority shareholder — although the largest shareholder — in Continental AG until at least 2012.

As a minority shareholder, Schaeffler can’t enact policy changes on its own. In Germany, a company’s executive board runs its operations on a daily basis, but board members are appointed by a supervisory board.

The supervisory board is made up of representatives from shareholders and the work force; in Continental’s case, labor represents 50%. And the executive board needs supervisory board approval for all major investments and corporate strategy changes.
Schaeffler still could make life a little difficult for Continental in the next four years, but will not. In a joint letter to their dealers, Schöenberg and Gerstenberger were quite clear on this point.

In the short term, under the terms of the “arrangement,” Schaeffler “will support the ongoing strategy and business policies of Continental AG, while maintaining our current market and brand appearance, and will not force a sale or seek to restructure any parts of the corporation.”

Don’t believe it? Two weeks after settling with Schaeffler, Continental announced it was purchasing 89.6% of Oltas SpA, a Turkish tire distributor. That seems like business as usual to me.

What about in the long term? Admittedly, there are no guarantees if Schaeffler becomes the majority stockholder in four years, according to Gerstenberger. It might sell off one or both of the tire business units. However, there are signs that indicate what could happen, and they are positive as they relate to Continental and CTNA.

Schaeffler is a private, 62-year-old family-owned company. As such, it controls its own destiny. That’s much different than a company owned by an investment firm, which is set up to sell it in three to five years. Gerstenberger describes Schaeffler as “very stable, very trustworthy and well respected.”

Its corporate philosophy is direct: “We strive for a balance of growth between the industrial, distribution and automotive sectors with leading positions for all products in the important market regions worldwide.”

The Automotive Division of the Schaeffler Group manufactures ball bearings and drive train products, which represent about 60% of the company’s business. The addition of Continental and its ContiTech division would help diversify Schaeffler’s portfolio.

“They have expertise in areas that Conti doesn’t and vice versa,” says Gerstenberger.

As for tires, we know how involved they are in both the mechanical and electrical workings of the vehicle. And at Continental, the tire divisions, which include the replacement business in North and South America, may be the most profitable horses in the stable.

In 2007, Schaeffler had net sales of $12.2 billion. As a private company, it does not ave to reveal its profits. However, it already made an offer for Continental’s outstanding shares (it was not accepted), so it seems to be financially able to buy the whole company.

Finally, Schaeffler’s acquisitions of LuK GmbH and FAG Kugelfischer AG in the last nine years have not diminished either brand.

“While this is, indeed, the start of a new chapter in our long history, we want to assure you, our valued customers, that Continental Tire remains a reliable long-term partner,” wrote Schöenberg and Gerstenberger. “Continental will continue its focus on innovation, performance, confidence and quality.

“You can continue to expect the same high level of service you’ve come to expect from Continental Tire, as well as a renewed commitment to providing you with the finest tires in the world.”

It looks like Continental and General tire dealers will be working with CTNA for many years to come.    ■

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