- Continental to spin off car supply business
German tire and automotive parts manufacturer Continental plans to split its corporation and separate from its long-struggling automotive supply division. The management, led by CEO Nikolai Setzer, had long publicly resisted reports and speculation in this direction. However, the key divisions of the traditional Hannover-based company may now go their separate ways to stand alone more successfully. From a former stock market value of over 45 billion euros in the years up to 2018, only around 10 billion remains today.
"In recent months, the markets and our customers, especially in the automotive industry, have developed very dynamically," said Conti CEO Setzer in a statement. "Regionally strong fluctuating market developments and the software-driven technological transformation will require more flexibility and far-reaching entrepreneurial room for maneuver in the future," he said. "Against this background, we are seeking a division of Continental."
A spin-off and separate stock market listing of the automotive supply business is now being considered, as the DAX company announced on Monday. The Hanoverians are examining the necessary steps for such a measure. Shareholders would thus become owners of two separate companies. One part would continue to include the profitable tire business and plastics technology. The other would consist of the businesses with brakes, electronics, displays, and other parts for the automotive industry.
The goal of a spin-off would be to fully exploit the value and growth potential of the two then-separate companies, the company said. Speculation about a separation has been ongoing for years due to the struggling automotive supply division. The capital market has doubted whether the current corporate parts offer many overlaps and thus synergies. Investors typically dislike it when a successful corporate part has to carry a struggling one.
The board is expected to decide on a spin-off after a detailed review in the fourth quarter. Afterwards, the Annual General Meeting in the following year must approve it. If approved, the transaction is planned to be completed by the end of 2025.
Continental's tire business has been the main profit driver for the Lower Saxony-based company for many years, with a double-digit percentage of revenue regularly remaining as operating profit. The automotive supply business is larger but has been less successful in recent years. Last year, the division returned to black numbers for the first time since 2019. The division has struggled with high investment costs, trade disputes, and high energy and logistics costs. Recently, Conti has wielded the axe in the division: around 7,150 jobs are at risk, with around 5,400 in administration and the rest in research and development. The division's annual costs are set to decrease by 400 million euros by 2025.
Speculation about a separation from automotive supply has been going on for a long time. Years ago, Conti spun off its powertrain businesses into the company Vitesco and also took it public via a spin-off. Meanwhile, the Franconian automotive supplier Schaeffler - with 46 percent of the shares, also a major shareholder of Conti - has taken over the majority of Vitesco and plans to merge the powertrain specialist into its own corporation this year.
In the case of the speculated separation of the tire and auto businesses, the management - including Setzer and his predecessor Elmar Degenhart - had long shown restraint and emphasized the value of a combined corporation. However, Setzer had already put many parts of the auto business under the microscope last year.
Wolfgang Reitzle, the top supervisor of the Hannoverians, was seen as an advocate for a split. A seasoned manager with many stops in the German industry, including as CEO of the gas giant Linde, had extended his term on the supervisory board by two years until the 2026 annual meeting. Reports in "Manager-Magazin" suggested he aimed to set things straight in Hannover during his remaining time.
The management's decision to consider a spin-off and separate stock market listing of the automotive supply business stems from the need for more flexibility due to dynamic market developments and technological transformation. Following the division, shareholders would become owners of two separate companies, one consisting of the less successful automotive supply division and the other including the profitable tire business and plastics technology.
