DUSSELDORF -- Schaeffler Group, the world's second-biggest maker of roller bearings, has agreed with German banks to sell Continental AG shares worth about 1.8 billion euros ($2.5 billion) to reduce debt.
M.M. Warburg and Bankhaus Metzler will each sell as many as 15 million shares in Continental through an accelerated bookbuilding, Schaeffler said in an e-mailed statement Sunday. The banks hold the stock on Schaeffler's behalf.
Schaeffler will also buy a total of 15.5 million shares from the two lenders to increase its direct Continental holding to 49.9 percent from 42.2 percent. The two banks won't sell additional shares in the next 12 months, according to the company. The banks confirmed the plans in separate statements.
The rebound in the auto industry last year has boosted Continental's sales and earnings. The company reported revenue and profit that beat analyst estimates for the fourth quarter and predicted rising sales from Asia this year will compensate for additional costs from surging rubber prices.
Privately held Schaeffler accumulated 12 billion euros in debt from purchasing its stake in Continental. Schaeffler currently indirectly controls 75.1 percent of Continental, including the banks' holdings. Continental's shares have surged 57 percent in the past 12 months, boosting its market value to 12.2 billion euros. The stock rose 0.3 percent to 60.97 euros in Frankfurt March 25. The 1.8 billion-euro value for the stake being sold is based on the last closing price.
Schaeffler, which intends to convert to an incorporated company in the course of 2011, said the increased circulation of Continental shares on the market will position the company to reapply for Germany's benchmark DAX Index. Goldman Sachs Group Inc. will manage the sale to institutional investors, Metzler said in its statement.
Hanover-based Continental, which makes electronic, powertrain and safety equipment for the automotive industry, is also close to agreeing to new financing after banks offered more loans than it asked for, three people familiar with those talks told Bloomberg News Saturday. Continental is seeking to secure cheaper terms and replace loans coming due next year. The company, which requested 6 billion euros, was offered about 8.5 billion euros in loans, two of the people said.
Continental was seeking 6 billion euros of term loans and revolving credits from lenders for as long as three years to replace maturing debt, people familiar with the matter told Bloomberg News on March 10.
Standard & Poor's rates Continental's debt B, or five steps below investment grade. Moody's Investors Service ranks it one step higher at B1. Both have a stable outlook on the ratings. Continental aims to return to investment grade by 2012.
One part of the credit coming due is a 4.06 billion-euro term loan. The other is a forward-start credit line of 2.5 billion euros signed in December 2009. Continental agreed to pay interest of between 475 basis points and 500 basis points more than benchmark lending rates for the loans, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.
The debt stems from Continental's 2007 acquisition of Siemens AG's VDO unit for 11.4 billion euros.
Citigroup Inc. and Deutsche Bank AG are coordinating the refinancing for the Hanover, Germany-based company, people familiar with the discussions told Bloomberg on March 9.
Continental ranks No. 4 on the Automotive News Europe list of the top 100 global suppliers with worldwide sales to automakers of $18.7 billion in 2009. Schaeffler ranked No. 38 with sales of $3.8 billion.