Now raising intellectual capital
The power struggle at Continental hardly inspires trust in Schaeffler. The privately-owned ball bearings company wants to boot out Conti’s CEO — effectively tearing up a standstill agreement it signed last year — and install one of its own divisional managers.
Schaeffler should be stopped, for several reasons.
The first is that it flies in the face of an agreement it entered into with Conti’s shareholders to respect the car part maker’s independence. This is wrong. The deal, which prevents Schaeffler taking over Conti until 2012, also bound it “to support the ongoing strategy and business policy of the executive board while maintaining its current market and brand appearance, and not to demand a sale of operations or seek other significant restructuring measures”. Sacking the current CEO, Karl-Thomas Neumann, flouts the spirit if not the word of this.
Second, the move risks destabilising Conti’s business. The company has warned in an internal memo that contracts, customers and employees could be lost if Neumann is pushed out. Given that Conti is labouring under a 10 billion euro ($14.2 billion) debt load, this must be a possibility. And were it to happen it would hurt not only the Schaefflers but all Conti’s creditors.
Third, Schaeffler, which has been at loggerheads with Conti since taking a 49 percent stake last year, wants to install Elmar Degenhart — head of its own autos division — in Neumann’s seat. This represents a major conflict. Degenhart and Schaeffler will have a financial incentive to do deals that transfer value from Conti to Schaeffler. Take for instance an agreement that transferred 1 billion euros of value from Conti to the ball-bearing component maker. Although the value of Schaeffler’s stake in Conti would fall, it would still be 500 million euros better off.