Analyzing the takeover of CONTINENTAL by the SCHAEFFLER GROUP from a strategic management point of view
Strategic analysis of a takeover in the automotive industry
Seminararbeit 2010 19 Seiten
Table of Content
3. LITERATUR REVIEW
4.1 INDUSTRY INSIGHTS
4.2 CONTINENTAL CORPORATION - COMAPANY AND PRODUCT OVERVIEW
4.3 SCHAEFFLER GROUP - COMPANY AND PRODUCT OVERVIEW
5. THE HOSTILE TAKEOVER OF CONTINENTAL BY SCHAEFFLER
5.1 HOSTILE TAKEOVER
5.2 CHRONOLOGY OF THE TAKEOVER
5.3 PARTICULARITIES OF THE MINORITY SHARE TAKEOVER
6. STRATEGIC IMPLICATIONS OF THE TAKEOVER
6.1 CHALLENGES FOR COMPANIES IN MATURING INDUSTRIES
6.2 SCHAEFFLER´S STRATEGIC GROWTH DECISION ON A CORPORATE LEVEL
6.3 HORIZONTAL AND VERTICAL INTEGRATION OF BUSINESS UNITS
6.4 IMPACTS OF DIVERSIFICATION ON THE ORGANIZATION
7. POTENTIAL BUSINESS DEVELOPMENTS
On August 21, 2008 Continental accepted Schaeffler´s offer to become a majority shareholder of their company. Both companies signed an investment agreement, including the criteria that Schaeffler is not allowed to hold more than 49.9% of the total shares until 2012. Because of the lucrative offer to the former shareholders of Continental, they have tendered a total of 82.41% to Schaeffler that led to a total holding of approximately 90%. Therefore Schaeffler had to hand over 40% of those shares to banks. Since then, both companies are fighting the credit crunch, rising raw material prices and the financial/ automotive crisis with sharply decreased sales volumes. Currently both suppliers are working together on the first major strategic project, in order to make use of synergies including costs, knowledge and distribution. If Schaeffler will keep all of Continentals “exotic” business units like “tires” it will become an interesting strategic issue as soon as the management can make those fundamental decisions.
At the moment, the global automotive supplier industry has to navigate through extreme turbulent waters. The reasons are a stagnating car production, manufacturer overcapacity, fundamental shifts in technology, changing consumer preferences, restricted access to financing and ongoing consolidation in the industry, to name just a few. These circumstances create a very challenging business surrounding for suppliers who still have to concentrate on achieving superior shareholder value, a creation of sustainable competitive advantage and on designing innovative business models in order to survive the current financial and automotive crisis. EU Vice President Günter Verheugen has stated that 20 percent of Europe’s automotive companies are in danger of collapsing. (KPMG 2010, S.3) This implicates clearly how drastic the situation is and will become in the near future. Having in mind the mentioned surrounding conditions and challenges, this paper will analyze the takeover of the majority share of CONTINENTAL by the SCHAEFFLER GROUP from a strategic management point of view.
3. Literatur Review
The research question, the analysis of the takeover of the majority share1 of CONTINENTAL by the SCHAEFFLER GROUP from a strategic point of view, is a very current issue. That is the reason why most of the sources are mainly constituted of newspaper and journal articles and official press releases from both suppliers. When analyzing these sources, a general trend amongst them becomes obvious: At the beginning of the takeover announcements, Continental was strictly against Schaeffler´s strategic intentions, but after a couple of adjustments and Top Management meetings, both parties could agree on a strategic cooperation under the Schaeffler management. While the information from these articles can mainly be used for industry insights and current events, the actual analysis of this paper is based on common frameworks that have been developed and discussed in academic literature and presented during the International Business Strategy lecture. Literature in the field of strategic management backs up most of the theses for instance Strategic Management Business Policy written by Wheelen, T. L. and J. D. Hunger (2000).
4.1 Industry Insights
The Continental Corporation and the Schaeffler Group are both leading suppliers, primarily for the automotive industry. Both companies are mainly considered as Tier 1 suppliers, meaning, that they are directly supplying automobile manufacturer, so called OEM´s2. Therefore they are immediately exposed towards the impact of the automotive crisis especially in 2008/2009 which has left behind deep scars on suppliers. In 2009 sales fell globally by an average of around 25%, with average returns (EBIT/sales) down from 5.7% (2007) to approximately -1.5% (2009). As a result, 340 suppliers worldwide filed for insolvency, including 75 companies in Germany. (Roland Berger 2010) While analyzing the stages of different industries within the life cycle in a profit-making context, the automotive industry is clearly positioned in a maturity phase (Haberberg/ Rieple 2008 p.552). Maturity is a stage at which the efficiencies of the dominant business model give these companies a competitive advantage over competition (Kotler, 2003). The competition in the industry is rather aggressive because there are many competitors and product substitutes. Price, competition, and cooperation take on a complex form (Gottschalk & Saether, 2006).
illustration not visible in this excerpt
Exhibit 1: Industries at the various stages in the life cycle (lecture notes)
The consequences and strategic options for businesses positioned in maturing industries, especially in the automotive sector, will be analyzed in the following chapters.
4.2 Continental Corporation - Comapany and Product Overview
The Continental Corporation was founded in Hanover in 1871 and is one of the top automotive suppliers’ worldwide (5th largest automotive supplier in the world) and one of the largest publicly quoted German Companies with its shares being tracked on the MDAX3. As a supplier of brake systems, powertrain and chassis systems and components, instrumentation, infotainment solutions, vehicle electronics, tires and engineering elastomers, the company contributes to enhanced driving safety and global climate protection. Continental is also a competent partner in networked automobile communication. With its six divisions – Chassis & Safety, Powertrain, Interior, Passenger and Light Truck Tires, Commercial Vehicle Tires, and ContiTech – Continental is a continuous driving force for future mobility concepts, and not just active in the automotive industry. It currently employs approximately 133,000 staff at 190 locations in 35 countries and generated 24,24bn EUR Sales in 2008. In 2007 Continental acquired Siemens VDO, a move which enhanced its electronics capabilities. In 2008, Conti was the target of a hostile takeover bid by privately held bearings manufacturer Schaeffler. The board eventually agreed to a deal in which Schaeffler would not immediately take a majority stake. (Continental 2010a)
4.3 Schaeffler Group - Company and Product Overview
The Schaeffler Group GmbH Co. KG is a German-based privately-owned manufacturer of rolling element bearings for automotive, aerospace and industrial uses. It develops and manufactures high-precision products for everything that moves: machines, equipment, vehicles as well as in aviation and aerospace applications. Schaefflers leading automotive applications represent 60% of total sales and include precision components for engines, transmissions and powertrains worldwide as well as solutions for chassis systems and the automotive aftermarket. The traditional FAG brand that is over 100 years old has been part of the Schaeffler Group since 2001 and is known worldwide for a wide range of standard and precision rolling bearings for the automotive industry, machine building and aviation and aerospace. Schaeffler KG is the largest company in the Schaeffler Group that is present with its brands INA, FAG and LuK at 180 locations in around 50 countries worldwide. Schaefflers Industrial division offers product solutions and concepts for the heavy industries, power transmission, wind power, railway, production machinery, consumer products and for the industrial aftermarket. The aerospace division manufactures high-precision bearing supports for aircraft and helicopter engines, the U.S. Space Shuttle and the European launcher Ariane. (Schaeffler 2010b) Nevertheless Schaeffler, as one of the largest German privately-owned industrial conglomerates, is much smaller than the Continental Corporation.
1 Schaeffler actually holds only 49.9% of Continentals shares, which is not considered a majority share
2 OEM (Original Equipment Manufacturer)
3 MDAX: Is a stock index which lists 50 German companies
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- Institution / Hochschule
- European School of Business Reutlingen – Business Administration
- M&A Mergers and Aquisitions Automotive Strategic Management Continental Schaeffler Group takeover Strategy