Porsche isn’t the only family-controlled German company that has got itself into a complete pickle bidding for a far larger rival.
Indeed, if you want a test case of how ambition can land a company in serious financial difficulties, look no further than Schaeffler, a privately-owned ball bearings maker which has
seriously overextended itself following a bid for listed car parts maker Continental last year.
Despite snapping up 90 percent of Conti’s stock, Schaeffler could easily lose control of its intended prey and may end up being swallowed by it.
Following the bid battle, Schaeffler holds a 49.9 percent direct stake in Conti. A further 39.36 percent is held by Schaeffler's banks -- Sal Oppenheim and Metzler -- in a sort of warehousing deal to reflect the fact that Schaeffler does not actually have the money to buy the whole of Conti. Schaeffler has signed an agreement that it will not increase its stake above the current level prior to August 2012.
This leaves Schaeffler in an awkward spot. It cannot consolidate Conti and the two companies continue to be run as separate units in an uncomfortable stand-off. Conti is not paying a dividend, meaning that Schaeffler can only finance the stake out of its own earnings. Meanwhile, Conti’s share price has fallen sharply from the 75 euros Schaeffler paid a year ago
to around 25 euros now.
Both companies are highly leveraged. Schaeffler has debts of about 11 billion following the Conti takeover, while Conti has net debts of a similar amount -- just over 11 billion -- mostly the result of its purchase of VDO from Siemens. Its debts are equivalent to 71 percent of its enterprise value.