Raising cash
July 21, 2009
The chairman of the Hanover-based auto parts supplier, Karl-Thomas Neumann, wants to present the strategic plan for a one billion euro capital increase to company's supervisory board by the end of this month, according to an article in Tuesday's Financial Times Deutschland (FTD).
Continental said the prognosis for the auto parts industry in the second half of this year and beyond is not good and that it would be "short sighted" to depend solely on operating profits given state of the company's books. Continental is burdened with a debt load of 11 euros billion.
The development comes as plans for a merger with main stockholders Schaeffler, another auto parts supplier, have stalled.
Back in black, but hurting
Continental, the world's fourth largest tire manufacturer, has been hit hard by the financial crisis and plummeting demand from automakers, experiencing a pre-tax loss of 34.3 million euros in the first quarter of 2009.
On Monday, the company released a statement saying it had managed to get back into the black with a 38.8 million euros pre-tax profit in the second quarter of this year, largely due to an extensive cost-cutting program. Continental has cut around 16,000 jobs since September 2008.
"In an extremely difficult business environment and despite the current paralysis due to its uncertain future, Continental still achieved its operating goals," the statement quoted Neumann as saying.
Schaeffler, a much smaller competitor of Continental's, took over more than 90 percent of Continental shares in a contentious deal in January. But Schaeffler's family owners found themselves close to losing their company to the banks as the deal made it increasingly hard for them to service their own debt, which also stands at 11 billion euros.
Plans were drawn up to merge the two companies in the hopes that synergies would help with their debt problems, but Schaeffler has since worked out a deal with banks through which it could service its debt on its own, according to the FTD.
Two options
Continental will propose to the supervisory board either a quick merger with Schaeffler under Continental management or the capital increase.
However, both proposals are likely to flounder, since Schaeffler dominates the supervisory board. From that company's perspective, neither a quick strategic decision or a capital increase is urgent. Schaeffler CEO Jürgen Geissinger told Bloomberg last week that his company needs more time to work out a the details of any possible merger with Continental.
The Continental stock price jumped 13 percent on Monday on news of the pre-tax second-quarter profit. But the newspaper report on the proposed capital increase drove down the stock value before the Frankfurt stock market opened on Tuesday. It was down 4.7 percent over Monday's closing price.
jam/Reuters/FTD/AFP/AP
Editor: Neil King