LONDON (Bloomberg) -- Schaeffler Group, the German family-owned industrial company specializing in ball bearings and automotive parts, said it's planning an initial public offering to pay down debt.
The company may raise as much as about 3 billion euros ($3.4 billion) in the IPO, people familiar with the matter said, asking not to be named because the details aren't public. Schaeffler plans to list a stake of about 25 percent in Frankfurt by selling as many as 166 million new and existing shares, the manufacturer said in a statement Monday.
The holding company for the Schaeffler family also said it plans to rearrange 3.6 billion euros of debt, and four banks have agreed to loans and a revolving credit line.
A successful IPO of Schaeffler would advance a turnaround after the credit crisis, which weighed on the manufacturer as it made a takeover bid for German car-parts maker Continental AG at the height of the global crunch.
The company's net debt stood at 6.24 billion euros at the end of the first half, accumulated mainly from becoming the biggest shareholder in Hanover, Germany-based Continental, in which Schaeffler owns about 46 percent. The IPO "is the final step of the realignment of our capital and corporate structure," said Chairman Georg Schaeffler.
The sale would be among Germany's largest IPOs this year, alongside Bayer AG's planned 2.5 billion-euro listing of its plastics unit Covestro. As many as 100 million shares will be sold by the holding company and 66 million will be part of a capital increase, the company said.
Deutsche Bank AG and Citigroup Inc. are coordinating the IPO, with Bank of America Merrill Lynch and HSBC Holdings Plc as bookrunners, according to the term sheet for the sale.
The proceeds from the new shares will be used to reduce debt at both Schaeffler AG and the holding company, and management of the operating business plans to further repay an additional 1 billion euros of debt from operating cash flow by 2018.
Schaeffler plans to pay a dividend to shareholders of of 25 percent to 35 percent of annual net income, starting with this year, the company said.
Schaeffler's roller-bearings are used in the London Eye Ferris wheel and Airbus A380 double-decker. The manufacturer, based in Herzogenaurach, southern Germany, posted a 4.9 percent increase in revenue at constant currency rates in the first half, to 6.7 billion euros. Business this summer was weaker than expected, especially automotive in China, and sales for the full year probably will increase 4 percent to 5 percent at constant exchange rates, the company said.
Schaeffler, which competes with SKF AB of Sweden and Timken Co. in the U.S., said this year's profit margin will be similar to the 12.2 percent it recorded in the first half.
Last year Schaeffler's earnings before interest and taxes rose 51 percent to 1.5 billion euros.
The company is controlled by Maria-Elisabeth Schaeffler-Thumann and her son Georg, the chairman. He ranks among the richest Germans, with a fortune of about $19.8 billion, according to the Bloomberg Billionaires Index. The shares to be sold in the offering won't have voting rights, allowing the family to retain control. "The Schaeffler Group will remain a family business in the future," Schaeffler-Thumann said in the statement. "As shareholders we will take responsibility to further successfully develop our company in the interest of our customers, our suppliers, and our many employees."
The banks that are arranging the IPO also agreed to provide a term loan, a revolving credit facility and a bridge loan that will be repaid by the issuance of new bonds by Schaeffler Holding later, the company said in a separate statement.
All outstanding bonds of its Schaeffler Holding Finance unit will be redeemed, it said. "The envisaged measures are intended to reduce financial liabilities at the level of Schaeffler Holding and improve its capital structure in a sustainable manner," Schaeffler CEO Klaus Rosenfeld said in the statement.
Schaeffler ranks No. 23 on the Automotive News Europe list of the top 100 global suppliers with worldwide original-equipment automotive parts sales of $8.9 billion in 2014.