Continental returns to German DAX after Schaeffler recovery
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FRANKFURT (Bloomberg) -- Continental returned to Germany's benchmark DAX index after a 45-month absence in a sign of its recovery from debt woes that sparked a takeover bid from Schaeffler Group.
Continental is joined by Lanxess AG, a maker of synthetic rubber, in the index that tracks Germany's 30 biggest listed companies, Deutsche Boerse AG, the Frankfurt-based exchange operator that controls the index, said in a statement yesterday.
MAN SE was taken out of the index after Volkswagen AG increased its stake in the truckmaker to more than 75 percent. Metro AG was also removed because it no longer fulfilled the criteria.
Continental, based in Hanover, Germany, was dropped from the DAX after family-owned Schaeffler gained control of more than 90 percent of the stock. The industrial-bearing maker, which has since reduced its holding, made the bid in 2008 when Continental was hampered by loans from the acquisition of the Siemens' VDO car-parts business.
Continental has since cut debt and boosted profit by expanding outside Europe.
"The perception of Continental will improve," Frank Schwope, an analyst with Norddeutsche Landesbank Girozentrale in Hanover, said before the announcement. "The DAX listing rewards the company's good operating results."
Value triples
Continental's stock has gained 67 percent this year, valuing the company at 16.1 billion euros ($20.3 billion), more than triple its market capitalization at the end of 2008.
Continental, which is Europe's second-largest auto-parts maker by sales, raised its 2012 revenue and profit outlook in August after second- quarter earnings jumped on lower raw material costs.
Stronger results and a 1.1 billion-euro share sale in 2010 helped Continental reduce debt to 6.88 billion euros in June from a peak of 10.9 billion euros in 2007.
"I am optimistic for the near future," CEO Elmar Degenhart said at a press conference in Frankfurt today. "The return to the DAX is both a recognition and a motivation."
He expects Continental to continue to grow faster than global car markets by 4 to 5 percentage points next year. Degenhart forecast an increase in worldwide light vehicle production of as much as 3 percent in 2013, as expansion in North America and Asia offsets stagnation in Europe.
Takeover backfired
Continental has targeted a return to Germany's leading index since March 2011 when Schaeffler sold shares as part of a reorganization. Schaeffler's sale increased Continental's free float to 39.7 percent from 24.9 percent.
Schaeffler still directly holds 49.9 percent of Continental's shares. Another 10.4 percent is parked on its behalf at B. Metzler Seel. Sohn & Co. and M.M. Warburg & Co.
Schaeffler's takeover effort ultimately backfired, as more investors than it expected accepted the offer with markets collapsing in the midst of the financial crisis. The deal saddled the Herzogenaurach, Germany-based manufacturer with more than 10 billion euros in debt.
"We have the unconditional backing and support of our major shareholder," Degenhart said today. "The cooperation worked smoothly in the past three years."
Independent operators
While Schaeffler and Continental team up in procurement and turbo chargers, the companies operate independently. Schaeffler does not plan to sell additional Continental stock in the near future, Klaus Rosenfeld, Schaeffler's chief financial officer, said on an Aug. 28 conference call.
A DAX listing would have no "immediate implication" on the relationship between the two companies, he said. The changes in the composition of the index will take effect on Sept. 24.
Continental ranks No. 3 on the Automotive News Europe list of the top 100 global suppliers with worldwide sales to automakers of $30.5 billion in 2011.
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