Continental AG prepares to list powertrain unit mid-2019

[BERLIN] Continental AG is moving ahead with an initial public offering of its powertrain unit and new corporate structure in the car-parts maker's biggest overhaul in decades.

The German company plans to carve out the powertrain division, whose products include parts for combustion engines, early next year into a separate entity and then sell a part of the unit to investors as soon as mid-2019, Hanover-based Continental said Wednesday in a statement. The supervisory board must still sign off on the plan at a meeting later this month.

Listing part of the division would generate cash to invest in growth areas such as electric vehicles and self-driving features. Continental's powertrain unit generated 7.7 billion euros (S$12.27 billion) in sales last year and employed more than 40,000 people. The overhaul will also reorganise some of the company's other units. Bloomberg first broke news of the carve out in January.

Continental plans to retain control of the new listed unit, it said, and may consider moving into making battery cells. A decision on that plan would come after 2020. The company, also a tyre-maker, said selling a stake in its rubber division was an option in future, though that's not planned at present.

Brokering the deal is another achievement for Chairman Wolfgang Reitzle, who's separately arranging a merger for industrial-gas maker Linde AG, where he also leads the supervisory board. He was brought in to Continental in 2009 after an aggressive stake purchase by the billionaire Schaeffler family triggered departures of top management.

Continental, the world's second-largest maker of car parts, has been looking at whether to change its corporate structure since late last year. Chief executive officer Elmar Degenhart outlined a potential project in April to separate a portion of the business that makes engines and transmissions to give it "more free space".

The powertrain division needs to be especially flexible as more than half of its revenue is affected by the auto industry's looming shift toward electric cars, he said at the time.

The shares climbed as much as 4.5 per cent and traded 0.9 per cent higher at 203.70 euros as of 2:32 p.m. in Frankfurt.

The family holding in Continental is controlled by Maria Elisabeth Schaeffler and her son Georg Schaeffler, who own industrial-bearings manufacturer Schaeffler AG. While Reitzle and Degenhart advocated for an IPO for the powertrain operation, the Schaefflers initially favored a spin-off. That option would have given the clan the ability to generate funds from selling stock in the unit once it's listed, while keeping their Continental stake at 46 per cent.

The Schaeffler family's strategy at Continental is being closely watched. Maria Elisabeth, the widow of Schaeffler AG's co-founder failed to attend at least 75 per cent of Continental's supervisory board meetings last year, which Advisory firm Institutional Shareholder Services Inc in April criticised.

She also didn't show up at the April annual meeting, where other investors demanded more clarity on the reorganisation plans. The main representative of the Schaeffler family in talks about Continental's future structure is Georg, a US-based lawyer.

BLOOMBERG